Ezion Holdings

[CY09]

Hi Tonylim,

Ezion can ask Asdew to subscribe for shares from a price of $0.144 to $0.2487.

For Ezion to ask Asdew to subscribe, the weighted average price of the shares for the day has to be at least $0.18. This is because Asdew is allowed to subscribe to shares at 20% discount to the weighted average price.

[Porkbelly]

Thank you Tonylim, Karlmarx, Specuvestor, dreambear..for asking questions.
And of course CY09, thank you for your answers, and all the number crunching.
( I have never been good at that... )

Thank you all for sharing your opinions.. I get a better sense of this episode.
I have a small position of 15,000 shares ( @$1+).
Its an interesting show.. expensive, and reality.

Thanks

[CY09]

No probs Porkbelly.

I only recently started researching into Ezion thoroughly. What fascinates me is how Ezion has always been able to secure loans of low interest. For example during the last FY, its finance cost was only 36 million on the back of 1 billion secure lending and 400 mil in bonds. It seems bankers are giving Ezion favorable rates for secured loans. Furthermore with the recent restructuring exercise, I am curious how much lower rates are the club of bankers offering Ezion?

If Ezion is getting such good rates from its banker (say 1% per annum) for its 1.2 billion secured lending, this means should the industry turnaround and Ezion earns 200 mil in cash flow annually; in 6 years times, Ezion would have accumulated possibly 1 billion in cash to repay debts (assuming no more lifeboats are added to its current 14). It is worth noting many of Ezion's lifeboat are quite new and probably have another 15 years to be used.

So IMO there is a bit of cashflow left over for shareholders (assuming o&G recovers), but spread over 4 billion shares, it is difficult for Ezion to return to $1 level.

[tonylim]

Hi Tonylim,

Ezion can ask Asdew to subscribe for shares from a price of $0.144 to $0.2487.

For Ezion to ask Asdew to subscribe, the weighted average price of the shares for the day has to be at least $0.18. This is because Asdew is allowed to subscribe to shares at 20% discount to the weighted average price.

Hi CY09 ,


Many thanks for your clarification. So EZION may have issued some shares to ASDEW in the first few trading days after  the 8- month suspension was lifted ??

[specuvestor]

Assuming that it is true that the market for O&G assets and services is recovering, is there something about Ezion which makes it a better investment than the other O&G plays? After all, there are other O&G plays with much lower gearing than Ezion.

In addition, will its huge loan be repriced according to market interest rates, which is rising? This could keep a lid on profits, assuming the market for O&G assets and services remain stable.

And while the worst may be over, the recovery could be more than several years away. The shipping industry is a good example; it has been 10 years but still a very challenging market for the industry players.

There is also the issue of the assets depreciating. So if the recovery does not come soon enough, Ezion will not have very marketable assets when it eventually does. So there is the possibility that Ezion may not be a big winner when the recovery eventually comes. If the recovery takes too long, Ezion will have to spend to renew its fleet.

Given the higher than industry-average gearing (or simply very high gearing), probability of higher financing costs, possibility of a longer than expected recovery, and the possibility of holding less marketable assets if the recovery takes too long, what is the price you will pay for Ezion?

Personally, just for the sake of sharing, I will not be interested at any price. To me, the probability for Ezion to fail (i.e. kaput) or become a 'zombie' (i.e. exist only to service its financiers while shareholders get zilch) is high(er). If any investment has a high(er) probability to fail, then the question of price is moot because price paid cannot reduce your loss if the investment fails. For example, whether you paid $2 or $0.20 for Midas, it is now still zero. If Ezion turns out to be a zombie, then your loss is your opportunity cost. Which could be a long time.

Of course, if O&G market recovers to pre-2014 levels, within the next year or so, then Ezion shareholders will rejoice. But to me, personally, that's a dangerous game to play. Because an investment thesis built solely on market cycles is basically speculating. It is like buying black on the roulette wheel because it has been red for the past 8 spins. If your investment thesis is based on timing market cycles, there are instruments to do that. It could be oil futures, coal futures, or whatever it is you are timing. It is even better than buying shares of companies exposed to such markets, since, whether and how much to leverage is something you can choose. Or if shares are your thing, how about an unlevered (or less levered) O&G company?

Personally, I prefer investments where the value is already present. Not something I have to hope and wish for.

Again, I just want to reiterate that these are merely my personal opinion. And it also applies to a wider range of companies that also exhibit similar characteristics. I post my comments here only because there is some discussion going on here. My apologies to interested parties. No offense intended. I'll be happy for you if the upturn comes sooner rather than later.

I don’t disagree. This is cigar butt investing

Adjust according to own circumstances: https://acquirersmultiple.com/2017/02/wa...ing-habit/

For this strategy we have to wait for industry or company specific recovery, not before. Otherwise one can be holding for extended period. Even more hazardous are those averaging down on a down cycle. Timeline is more important than most realise: Midas was a good outsource company until the Chinese rail companies learn how to do it themselves.

[CY09]

Exactly Timing an industry turnaround is very difficult, it is virtually impossible to be right 10 out of 10 times. This is why while many of us are being called value investor; we do have a speculative element in our thesis - like when will the industry or company turn around. Unless you have a time machine; you will never know when the turn around happens. When valuing a company by its cash flow, we are assuming that business continues as per normal.

Cash flow of a company may fall when the industry is in a down cycle. There are many notable examples in the O&G where companies' cashflow fluctuate due to the cycle - Penguin, MTQ, CSE etc. Similarly the uptick in the semi conductor industry saw companies like AEM and UMS having cash flow growth. Hence while many of us like to value a company on the cash flow metrics, in actual fact, there are some important factors to consider- business cycle is one.

[tonylim]

PUBLISHEDOCT 3, 2017, 6:34 PM SGT

https://www.straitstimes.com/business/ez...-bank-line


Also waiting in the wings is a strategic investor - an industry-based conglomerate - that is keen to work with Ezion, but wants to see the refinancing completed first.

Mr Chew Thiam Keng, Ezion's chief executive, told The Straits Times on Tuesday (Oct 3): "When we look at what they want to do, what they can do, we have a perfect fit. They are very big. I would say they are very gentle and genuine."

Ezion has a fleet of 14 liftboats, 20 rigs, and 45 small vessels. At present, seven liftboats and three rigs are deployed. Another six rigs are deployed but the contractors are not paying.


According to an illustration of cashflows presented by financial adviser RSM, Ezion could make a net cashflow of US$933 million over the next six years, based on current charter rates, which have fallen more than 50 per cent since 2014.

Mr Chew said: "Our liftboats are all new. The oldest is about seven years old, and the average age is two years. If God is willing, we should have all deployed by the middle of next year."

RSM assumed an 80 to 85 per cent liftboat utilisation rate in its illustration. Liftboats are used to maintain and repair production platforms in shallow-water oil fields, and work is expected to pick up from 2018 onwards since oil majors have cut their capital expenditures, Mr Chew said.

As for the small vessels division, Ezion has warned of a substantial impairment. Some rigs, tugs and barges will have to be scrapped or stack.

"We were hoping the rates would recover this year but they did not... It's problematic," said Mr Chew.

[Stocker]

Can net cash flow translate into net profit is another question ? How much net cash flow should Ezion generate in order to have net profit ? Depreciation is a big item in this industry .

[tonylim]

Ezion cautiously optimistic over its refinancing proposal
TUE, OCT 24, 2017 - 6:37 PM
SIOW LI SENlisen@sph.com.sg@SiowLiSenBT
EZION Holdings is cautiously optimistic about getting noteholders approval for its refinancing plans as it points to recovery in its core liftboat business, said its financial adviser.

Having held some initial meetings with different groups of noteholders which resulted in a revised version of the proposed refinancing, the company is "cautiously optimistic", said Chio Kian Huat, RSM Corporate Advisory senior partner. RSM is advising on the proposal.

The group is viable, said Mr Chio on Tuesday at a media briefing.

Revenue has declined due to reduced charter rates and utilisation rates but despite the current depressed market the group got US$136 million revenue in H1 2017.



There is still positive cashflow from operations but the debt level is not sustainable; the refinancing puts the group on a sustainable level, he noted.



In the last 18 months, the cashflow of US$170 million was insufficient to meet the financial obligations to lenders and capital expenditure, resulting in a net outflow of US$207 million.

"Some customers were late in payments ... while suppliers insisted on cash payment upfront, or faster payment," said Paul Goon, Ezion deputy chief financial officer.

The positive news is that its core liftboat business is seeing recovery, he said. "We are seeing an upward trend on liftboats."

The current liftboat daily charter rate is about US$29,000. At the peak in 2014 and 201, it was US$90,000.

But new daily charter rates are fetching a 50 per cent increase and the company just this week secured a new daily charter rate for one of its liftboats at about US$45,000, for six months to one year. The new contract starts in a few days, he added.

Ezion has 14 liftboats including two under construction, and is the largest liftboat operator in Asia and the second-biggest in the world, he said. The largest operator has 15 lifeboats.

"The liftboat is our core competent strength," he said.

"Our outlook is positive because all contracts are being negotiated and there's higher demand than supply," said Mr Chio.

Liftboats are used in the maintenance of production platforms; maintenance programmes which had been deferred for the last two years are restarting.

Liftboats are chartered mainly by oil majors which are concerned about safety and pollution risks and in fact only work with pre-qualified liftboats operator.

Ezion is the only qualified liftboat operator in Asia. Liftboats provide a stable work platform for offshore services, making them generally safer and more efficient than workboats or tugs. The design of the liftboat allows offshore operations in harsh weather conditions.

According to Mr Goon, in the US only liftboats are allowed near production platforms. But refinancing has to be completed first to reduce the cashflow drain, he pointed out.

Total interest payments including to noteholders and banks in 2016 was close to US$70 million a year. Under the proposed refinancing interest payments would drop to US$23 million a year. Lenders which are mainly banks have agreed in principle to reduce interest cost by US$30 million per year subject to noteholders supporting the refinancing plan.

There will be a town hall with noteholders on Nov 2 to explain the refinancing; in addition, from Nov 6-14, RSM representatives will hold clinics every night to address any questions of noteholders, he said.

Ezion has sweetened the proposals for holders of S$575 million of medium-term notes and perpetuals ahead of a consent solicitation exercise (CSE) for Nov 20.

The group has total debt of US$2 billion.

[tonylim]

As of 7 May 44 % of bonds have been converted .


http://www.ezionholdings.com/?p=section&...iclepk=166