Will Ezion's last-ditch rescue attempt with Yinson survive the oil onslaught?

AS FEBRUARY came to a close, embattled Ezion Holdings issued some good news to long-suffering shareholders: its do-or-die rescue deal by white knight Yinson Holdings was back on the table.

The agreement with Yinson had lapsed last October as one of Ezion's creditor banks did not receive regulatory approval ahead of the proposed debt buyout.

"Finally, my shares that have been kept in the fridge can see some daylight," remarked an investor in a stock forum. Trading in Ezion's shares has been suspended since March 1, 2019, pending talks with a potential strategic investor. They last traded at 4.3 Singapore cents each.

The investor, however, lamented the extent of the dilution that awaits shareholders. The deal that involves an issue of new shares and convertible notes could bump up Ezion's share capital by nine times. Of course, beggars can't be choosers as the deal happens to be Ezion's only hope of staying alive. But circumstances are not quite in investors' favour.

Close to deathbed

The offshore and marine firm was in dire straits last year when Malaysia-listed Yinson - one of the world's largest floating, production, storage and offloading operators - swooped in and threw a lifeline to extinguish its debt for new Ezion shares.

Ezion had then just logged its third straight year of losses. The company reported losses of US$344 million for FY2018, against losses of US$34 million in FY2016. The culprits were a potent combination of massive debts, a cash and credit crunch, under-utilisation of the group's fleet of vessels amid a prolonged oil slump, and falling charter rates.

Between then and now, Ezion's state of affairs has worsened in spite of a mild - albeit patchy - recovery in the offshore sector. Its year-on-year losses nearly doubled to US$615 million in FY2019.

Something's gotta give

The revived package, which will see Ezion's debts of some US$1.6 billion crunched down to a manageable US$403 million, reflects the company's deteriorating financials.

Under the new scheme, Ezion will issue new shares to Yinson at 3.17 Singapore cents apiece versus 5.5 Singapore cents earlier. Yinson had originally agreed to fork out US$200 million in exchange for a 72.3 per cent stake in Ezion.

Instead, it will now pay US$150 million for a 63.4 per cent stake in the company.

At the same time, bondholders of three tranches of notes totalling US$176 million, due 2023, 2024 and 2027, had been left out of the original proposal but are included in the latest proposed scheme of arrangement.

Ezion shareholders are therefore still looking at a substantial dilution. Under this new plan, they will end up with 11.6 per cent of the company versus 14.2 per cent before.

Furthermore, Ezion is not yet out of the woods.

Pandemonium hit oil markets this week after the Organization of the Petroleum Exporting Countries and its allies had a falling out that led to a price war between oil giants Saudi Arabia and Russia. As a result, crude oil prices have halved since the start of the year at a time, even as global demand has been curtailed by the Covid-19 outbreak.

Up to this point, Ezion, one of the world's largest owners of liftboats and a one-time stock market sweetheart, has stayed alive by the skin of its teeth.

As the stresses from the virus outbreak and oil shock work their way into the global economy and hurt activity across countless sectors, including oil and gas, it remains to be seen if Yinson will stick this one out with ailing Ezion.

If it does, Yinson's patience could well be rewarded down the road when the sector picks up. Analysts generally like the deal as they say the Malaysian firm can utilise Ezion's fleet to tap opportunities in the decommissioning market as well as the offshore windfarm renewable energy space.

On the other hand, if the deal flops, Yinson has inked a pact with Ezion's major secured lenders to buy the mortgaged assets at an agreed price - a plan B, so to speak - which would leave Ezion with nothing.

For Ezion, which has defied expectations and managed to rustle up a second shot to stay in business, now would be as good a time as any for the team led by founder and chief executive Chew Thiam Kheng to pray for a miracle.