Any further details of the issue will be announced later
By NISHA RAMCHANDANI
OFFSHORE support services provider Ezra Holdings is looking at issuing Singapore dollar-denominated perpetual capital securities, as more local companies explore selling these more complicated fixed income securities following Hyflux's success.
In a release to the Singapore Exchange yesterday, Ezra said: 'The board of directors of Ezra Holdings wishes to announce that the company is considering an issue of Singapore dollar denominated perpetual capital securities.'
It went on to add that further details of the offering - if any - will be announced at a later date.
A perpetual security typically does not have an expiry date but can be redeemed by the company.
Banks have generally been the main issuers of such securities here, though water treatment services provider Hyflux became the first local company to do so with a $400 million subordinated Class A preference share offering in April this year.
The offer of these Class A shares was twice its original subscription size of $200 million and the public offer attracted a subscription rate of five times.
Hyflux sold $200 million of the shares to retail investors, $190 million to institutional players, and set aside the remaining $10 million for its directors, management and employees, and its subsidiaries under the reserve offer.
The Hyflux preference shares issued were 6 per cent cumulative, non-convertible and non-voting. Hyflux has the option to redeem the shares on or after April 25, 2018; but if they are not redeemed then, the dividend rate will be stepped up to 8 per cent.
In early August, Ezion Holdings also announced that it is considering an issue of Singapore dollar-denominated perpetual capital securities, having appointed DBS Bank as the sole lead manager and bookrunner.
In the announcement, Ezion then said that further details (if any) would be released at a later date.
And Hong Kong's Cheung Kong Holdings reportedly has plans for a perpetual bond here - which would make it the first from an overseas issuer in Singapore - that could raise as much as $750 million.
Last September, its indirect subsidiary Cheung Kong Infrastructure issued a US$1 billion perpetual non-call five bond, the first from an Asian corporate issuer in 13 years, a media report said last week.
analYSTS from DBS Vickers and OCBC have placed their calls for Ezra Holdings under review as the subsea services company plans to issue a tranche of Singapore dollar-denominated perpetual capital securities.
Ezra has yet to reveal more details about the issuance, but the believed higher cost of the security has raised some initial alarm bells.
'Given the relatively high cost of this form of funding, we are concerned over the lack of clarity at this juncture on the use of these funds - which will be key to determine if Ezra is able to generate a return higher than the cost of capital,' said DBS Vickers analyst Jeremy Thia.
Said OCBC: 'The issue of such a hybrid security may be non-dilutive to existing ordinary shareholders, but pending further details, we put our 'buy' rating and fair value estimate of $1.87 under review.'
Other houses have kept their ratings unchanged, waiting for more details on the issuance.
CIMB has pegged the size of the issuance to be in the range of US$100 million to US$130 million. The coupon rate could be between 6 and 8 per cent.
A perpetual note is a security without a maturity date, but can be called at the company's discretion.
This more complex security doles out mandatory coupon payments.
Ezra is believed to be issuing preference shares akin to what Hyflux had done in April this year.
Mr Thia believes that Ezra's coupon rate should be higher than the 4.78 per cent paid on its three-year unsecured notes issued last year.
Though the coupon rate is higher, the upside is that Ezra's earnings could improve 'on lower interest expense as well as a lower net debt ratio of 0.7x (from 0.9x)', said CIMB.
CIMB further believes that the market reaction could well be neutral to the issuance.
'We believe the reaction to this news could be a neutral one as the positives of non-dilutive and pro-active capital management to reduce net debt could be offset by market perceptions that this is another of Ezra's 'innovative' financing avenues,' said the analyst.
'In addition, perpetual securities are still not widely known in the Singapore market with Cheung Kong, Hyflux and Ezion being the first few to tap such instruments.'
In the stock market yesterday, Ezra closed two cents up at 94 cents.
It's getting tougher for Ezra to issue equity as their share price has taken a tumble from its high of nearly $2.00 (post-rights). And now Lionel Lee is suggested a listing in London? I can't quite fathom it...
Business Times - 22 Sep 2011
London attractive for dual listing: Ezra
By LYNN KAN
SUBSEA services group Ezra Holdings is not shying away from keeping the market guessing about its next novel capital-raising move.
Just as market chatter died down on an early September announcement of a probable securities capital-raising exercise in Singapore, managing director Lionel Lee has popped the idea of a dual listing in London. Speaking to a British newspaper, Mr Lee said: 'I think London is getting very attractive to us because of the North Sea. We could see two main listings in Singapore and London. But due to the market situation we've decided to hold fire for a bit.'
The initial response has been a douse of cold water.
Jason Saw of DMG & Partners said a London listing is 'premature at this stage given that its subsea earnings have yet to show the desired results'.
Ezra last year acquired Aker Marine Contractors, a subsea installation specialist, for US$250 million to form a new Surf (Subsea Umbilicals, Risers & Flowlines) unit. 'A move to do a second primary listing on depressed earnings may not be viewed positively,' he added.
That the company is considering a London listing hot on the heels of a proposed perpetual securities issuance is increasingly signalling Ezra's need to offset its leverage levels and to fuel more capital expenditure.
DMG's Mr Saw said that Ezra's gearing may hit 1.3 times by the middle of its fiscal year ending Aug 31, 2012 if it does not make further disposals. 'We expect management to scale back on huge capex plans (aside from deepwater multi-lay vessel Lewek Constellation) until net gearing falls below 1.0x,' he said. Although there was initial speculation that Ezra may pull the plug on the perpetual securities issuance, analysts claim the plan is on track due to its necessity.
Ezra affirmed it is still considering the proposed issuance, and no decision has been made by its board to launch or cancel it at this stage. It said that the company 'will take into account market conditions'.
Most believe the tranche would be preference shares, with a coupon payment rate of between 6 and 8 per cent. Said Simon Jong, an analyst with DnB Nor: 'We believe the company definitely needs to raise money. Whether or not they will go ahead and do the issuance in this market context, I am not sure.
'The chances are they will look at whether the pricing of the securities is at a comfortable enough level for themselves and whether demand is there.
'If demand is weak, then that would turn into an issue for Ezra.'
Ezra's share price fell 1.5 cents to 91 cents yesterday.
Charter of Lewek Emas could reap up to US$1b over 12yrs for the joint owners
By LYNN KAN
WITH Vietnam's Chim Sao offshore oil project hitting first oil yesterday, Ezra Holdings and its 46.5 per cent owned associate EOC Limited will get a boost from a floating, production, storage and offloading (FPSO) vessel charter.
The charter of Lewek Emas to Premier Oil Vietnam Offshore could reap up to US$1 billion over 12 years for the four parties that jointly own the vessel.
The charter term is for an initial period of six years, with six renewable one-year extension options.
EOC holds the largest 41.7 per cent share of Lewek Emas through the company, PV Keez, followed by Ezra with 36.7 per cent interest.
Keppel Corporation's subsidiary KSI Production controls 20 per cent, while PetroVietnam Transportation Corporation the remaining 1.6 per cent.
EOC expects revenue from this charter to contribute positively to its recurrent earnings from Q1 FY2012 (ending Nov 30).
Chim Sao lies 310 km off Vietnam's southern coast and will have six wells producing oil. Besides Premier Oil, Santos and PetroVietnam are also operators in the project.
Santos disclosed that Chim Sao's gross production levels will plateau at 25,000 barrels a day.
Gas production is expected to be about 25 million cubic feet a day.
The oil will be exported with a shuttle tanker and the produced gas will connect to the existing infrastructure through a subsea pipeline.
Lewek Emas was converted at Keppel Shipyard from a 168,000 deadweight tonne Suezmax oil tanker.
The FPSO is able to produce 50,000 barrels of oil a day, and store 660,000 barrels of oil.
With first oil underway, EOC has newly minted a joint venture 'PVTrans Emas Company Limited' that involves PetroVietnam Transportation Corporation to tackle the day-to-day operations and maintenance of Lewek Emas.
Ezra's managing director, Lionel Lee, said that Ezra was able to involve its 'key divisions' in the Chim Sao project.
'The group was able to provide an integrated solution from the provision of the FPSO through Emas Production and the fabrication of modules at Triyards (Ezra's fabrication arm) in Vietnam, to the installation and commissioning of the vessel,' he said. 'This demonstrates how Ezra aims to serve clients globally across the entire life-of-field.'
The stock of Ezra Holdings ended trading yesterday two cents higher at 83 cents.
Ezra has released their FY 2011 results. For 4Q 2011, revenue surged 101% but gross profit fell 7%. Net profit fell 42% due to higher admin expenses and lower gross margins. For FY 2011, revenue was up 58% but COGS was up an even higher 79%. Therefore FY 2011 net profit was down 47%.
Balance Sheet quality continues to deteriorate:-
1) Trade Receivables increased from US$205 million to US$301.6 million, a 49% jump.
2) Cash At Bank decreased from US$187 million to US$116 million
3) ST loans (to banks) increased to US$293 million from US$169 million, a 73% increase.
4) LT loans (including CB and Notes) increased to US$635 million from US$447 million, a 42% increase. Total debt now stands at about US$928 million against equity of US$845 million.
As a result of the increase in debt, financial expenses jumped 67% year on year.
Cash Flow Statement shows -ve OCF of US$42.3 million, -ve ICF of US$335.6 million and bank term loans taken up worth US$178.5 million. Proceeds from rights issue totalled US$114.5 million.
No dividend was declared for FY 2011, against a dividend of 1.5 cents/share for FY 2010.
A look at Ezra's latest B/S will give the impression that the group is now and continues to be aggressively geared in its pursuit for business - or more like marine assets!! - growth. Apart from the $930m in total borrowings, the group still owes its suppliers and other creditors another $268m. It is difficult to say that Ezra is anywhere close to being financially prudent.
Something is quite clear - if for whatever reasons Ezra's business fails, many banks and creditors will have to take big losses. Obviously, we cannnot expect the banks and creditors to understand or operate Ezra's offshore business.
(28-10-2011, 06:59 PM)Behappyalways Wrote: To be fair when one looks at trade receivables, one should not just look at the absolute value. One should compare it with its revenue. If you compare the trade receivables with its revenue, the company is not doing that badly as revenue increased by 101% while receivables increased by 49%. In fact the ratio shows that there is an improvement over last.
I did not go into details the company's result but one thing came out of my mind is that the company is piling on debts and I am sceptic because i am quite sure that next 2 years might be a 'hard' for the global economy......Now not the time to pile on debts but should be asset light and cash rich.......
d.o.g. has already made his point on Page 2 of this thread about Ezra's burgeoning receivables and their long-repayment period problem. You might like to check on that, and make a comparison as to whether this has improved for Ezra's latest FY 2011 results. My guess is probably not, as a lot of their revenue is booked but their collections continue to remain slow.
Piling on debt so aggressively will almost surely get you in trouble if the industry either experiences a sharp, unexpected downturn; or an over-supply situation occurs. Right now, the charter market for their AHTS for Marine Services division is already saturated and rates are not as high as they used to be. They alluded to this as far back as 2006-2007 when I attended their AGM. The reason for this is the aggressive entry of companies into the OSV sector after seeing the high profits made by one or two incumbent players (of which Ezra was one of them), thus eroding any competitive edge Ezra may have.
Ezra has thus "diversified" into subsea market and deep-sea O&G exploration with a fleet of highly specialized vessels called PSV (Platform Supply Vessels) as well as FPSO. Such vessels are highly specialized and require heavy capex, so a problem with over-supply would be crippling as these assets cannot be re-deployed for other uses. Selling them in such a situation would also realize a loss due to falling values of similar assets.
It might be interesting to observe how Ezra's growth story pans out, especially as we enter 2012-2013 and their debt burden just seems to keep increasing....
WITH the acquisition of subsea services capabilities over the past financial year, Ezra Holdings has both suffered and gained.
On the one hand, the cost of integrating Aker Marine Contractors (AMC) has dented earnings. Net profit for the full year ended Aug 31 suffered a 47 per cent drop to US$40.4 million, from US$76.7 million.
Fourth-quarter earnings plummeted 42 per cent to US$12.4 million, from US$21.6 million. Earnings per share for the full financial year was 4.94 US cents, down from a restated 10.98 US cents (which was adjusted for the effect of a rights issue).
'The subsea services division is in its initial phase of execution and currently has a lower gross profit margin compared with the other divisions,' said Ezra.
Ezra's share price has lost over 44 per cent of its value year-to-date, while the benchmark Straits Times Index has fallen 10.6 per cent.
On the other hand, Ezra's newfound subsea capabilities have powered its revenue beyond US$500 million for the first time. Full-year revenue was US$559.1 million, up 58 per cent from a restated US$353.6 million. About 80 per cent of the increase was contributed by the subsea division, Emas AMC. Turnover in Q4 doubled to US$219.5 million from US$109.3 million.
Thanks to Emas AMC, Ezra has managed to rack up record orders, with its order book exceeding US$1.2 billion. The subsea backlog for Emas AMC stands at about US$745 million.
Ezra managing director Lionel Lee said the order book could grow very quickly to US$2 billion. His confidence comes from the fact it is a frontrunner in an ongoing bid for a Petrobras contract in Brazil, worth US$300 million.
At the moment, Ezra is actively bidding for more than US$2 billion worth of subsea jobs in Asia Pacific.
Mr Lee's 'promise to shareholders' is to grow margins. He added Ezra will not be making any more significant capital expenditure over the next two years. '2011 will be a difficult year because if you don't build up the base, you can't execute US$1 billion worth of orders,' he said, adding that the growth in the order book, competitiveness and revenue would not have been possible if Ezra had not changed its strategy in 2008.
Ezra has diversified its income stream away from a solely Asia-Pacific business to one gunning for market share in the 'Golden Triangle' of West Africa, South America and the Gulf of Mexico.
Yesterday, Ezra said it had won its second contract from BP to operate in the Gulf of Mexico's Atlantic Field. The job is for an undisclosed amount, but is included in its US$1.2 billion worth of orders.
Ezra will not distribute any dividends this year. Ezra's shares rose one cent to $1.01 yesterday.
Ezra's subsea unit bags two contracts from Statoil
By LYNN KAN
EZRA Holdings' subsea unit, EMAS AMC, has won two contracts from Statoil, worth about 450 million krone (S$97 million). The deals are worth up to 600 million krone if options to expand the work to more floating platforms are exercised.
This latest win pushes Ezra's new subsea division ever closer to its US$1 billion short-term order book ambition. In October last year, when Ezra reported its results for the fourth-quarter ended Aug 31, EMAS AMC's subsea backlog of US$745 million formed the bulk of the group's order book of over US$1.2 billion.
In the latest contracts, EMAS AMC will replace mooring chains for floating platforms and risers in the North Sea on the Norwegian continental shelf. Both projects will be managed out of EMAS' Oslo office. Engineering and planning will start right away while offshore operations will kick off thereafter.
'EMAS AMC has done similar work for Statoil in 2009, and with this award EMAS AMC consolidates its position within the floating segment,' said Svein Haug, regional head for EMAS AMC (Europe and Africa).
EMAS AMC was formed when Ezra acquired Aker Marine Contractors in late 2010. Ezra became a full-fledged service provider to the deepwater drilling industry.
'The contracts mark another important milestone for EMAS AMC, combining our reputable engineering capabilities with our modern fleet of construction assets,' said Mr Haug.
Ezra rose half a cent to close trading at 89 cents yesterday.
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