Ezion Holdings

[Musicwhiz]

One key risk is the short term nature of the charter contracts for its liftboats - 3 years + 2 years (option). If the charter market plunges in 2013 onwards, it will be difficult to justify the current charter rates and Ezion might be forced to renew its charters at much lower rates. There is also the issue of VTL ratios for its loans which may be breached in the event of a recession. While I think the latter is low risk since Ezion (unlike a biz trust) retains virtually all of its profits, the former risk might take place if a recession occurs in 2013 onwards. On the other hand, if the rig market soars till 2015, Ezion will be in a sweet spot. Basically, an investment in Ezion is a bet on the liftboat/rig charter market going forward.

(Not Vested in any O&G coys)

There is already an over-supply of tug boat and OSV in the shallow water segment, and this is due to aggressive building during 2006-2009 to cater to the booming O&G market. Most of the heavy drilling for oil is now taking place at deeper water levels. You actually see the trend clearly in companies like Ezra and Swiber where they have to bid for jobs relating to deepwater rigs. Companies like Ezra and Ezion have to constantly invest in capex to ensure they stay ahead of the curve.

Looking at Ezion, the Balance Sheet looks somewhat healthier than last year, but cash flows and income statement are distorted by sale of fixed assets. Better to look at 5-year performance, but I understand this is short as the company used to be called Nylect.