AusGroup comes short again just when a brighter future beckons

ANNOUNCEMENTS signalling trouble at AusGroup, a Singapore Exchange (SGX)-listed marine project and asset services provider, came fast and furious this month.

It began with key executive changes: the announcement of Shane Kimpton’s resignation as managing director, although he retains the chief executive post, and the departure of chief financial officer Christian Johnstone. Notices of these changes flanked a request for a trading halt of AusGroup’s shares, and were followed thereafter with a trading suspension.

The board said in its suspension announcement that it was in talks with management on the company’s state of financial affairs and that AusGroup was also in “confidential discussions” with several parties for the potential sale of certain assets or businesses, and hence a trading suspension would avoid irregular swings in the stock.

By that point, AusGroup’s shares had plumbed to S$0.009 – the lowest since the company’s listing 17 years ago. Around the same time, AusGroup also said it has appointed a financial adviser to advise on the restructuring of its financial obligations.

All that culminated last week in an announcement that the loss-making company, having fought sharp drops in oil prices in 2014-2015 and again during the course of the pandemic in 2020, has opted to go down the judicial management (JM) route, not unlike so many of its sector peers.

AusGroup is just over 13 per cent owned by Ezion Holdings – once an offshore and marine sweetheart and one of the world’s largest owners of liftboats. Ezion fell off the corporate sidewalk this year as hefty debts did a number on it and the pandemic dashed rescue hopes by a white knight.

That AusGroup, too, may now follow the same route is a shame. The company had managed to pull through oil’s 2015 downturn owing to several recapitalisation exercises and having rolled over its debt papers.

That’s not to say there was no pain preceding that – AusGroup was in fact placed on the SGX watchlist and defaulted on notes repayment in 2016.

Then, Kimpton took the helm in 2017 as AusGroup’s fifth CEO in six years. As recently as last year, the company’s prospects seemed perky. Oil prices were recovering from their historic lows, which was reinvigorating activity in the oil and gas space. AusGroup actually turned the corner in FY2021, with a net profit of A$1.2 million (S$1.2 million) – a reversal from losses in the preceding year amounting to A$59.5 million.

The company scored a big win in FY2021 by landing a 10-year maintenance contract from oil major Chevron, its key client. The new job vaulted AusGroup’s order book to A$1.035 billion for its fiscal year ended June 2021, from roughly one-fourth of that in the previous year. It also cemented AusGroup’s status as one of the leading maintenance service contractors in the liquefied natural gas (LNG) sector.

Repeat orders and contract extensions led by post-pandemic recovery in the offshore and marine space helped boost AusGroup’s market share, particularly in the maintenance and turnaround market sectors. And new contract wins in the resources and minerals sector in Western Australia lent further hope that the group would be able to generate positive operating cash flows.

In FY2022, however, AusGroup hit troubled waters again. While revenue rose 26 per cent to A$245 million, it slipped back into a loss for the year of A$32 million. The red ink was led by outstanding claim positions from one client on a challenging construction contract, the East Rockingham waste-to-energy project in Western Australia, as well as non-cash impairments recognised on the carrying value of the NT Port & Marine Port business in Northern Territory.

A repayment – for A$41 million in multicurrency notes due in December – also looms. AusGroup has held various meetings with noteholders to negotiate an extension.

These events may have forced AusGroup into a court-supervised restructuring via the JM process. The hearing for the interim JM application has been fixed for Nov 30.

Oil’s volatile swings have dragged many Singapore offshore companies through the mud in recent years. AusGroup is its latest casualty, but it is unlikely to be the last.