Ezion Holdings

[karlmarx]

Ezion is like an investor who has used his margin account to long shares during the last market high. Now that market is down, how can they bear to sell off their losing positions? They are not reducing CAPEX because they are hoping for an upturn.

Their statement suggests that they are looking forward to the market recovery as well. Hope springs eternal for the long investor.

Can we still invest in Ezion? I write down their assets to market rates (10% to 15%?), and if their net assets is still positive after accounting for all liabilities, discount the net assets by 50%. That is the price at which I will buy Ezion!

[CY09]

Hi karl, thats a a tough valuations metric. Even penguim holdings which has a conservative balance sheet will not match up to it.

Imo such industries require leverage to a certain extent like reits. The question is hw far are your bankers willing to back you

[karlmarx]

It is. You are right.

Penguin's net assets: $142m
Penguin's PPE: $95m
My impairment of Penguin's PPE: let's say $65m
My assessment of Penguin's net assets: $142m - $65m = $77m
Buying dollar bills for 50 cents: 50% x $77m = $38.5m
Penguin's current market cap: $60m
My conclusion: move on to other companies

Many opportunities will be lost if such a stringent criteria is applied. And you will find next to nothing to buy. Especially now that the market valuations are generally higher compared to 3 years ago. Very rarely do I get to buy the things I want at the price I want. Maybe another bear market will come along. Who know? But after losing money on pursuits without any margin of safety, I have disciplined myself to stay on the straight and narrow path.

I believe the key to an accurate assessment of business valuation is in knowing the industry well enough to have a better understanding of the PPE's (or whatever assets) market value. Then a realistic discount, or even premium, can be applied. I believe most of Penguin's $95m PPE is its shipyard. I'm not from this industry and I haven't a clue if it is indeed worth as much as it says. Is my $65m impairment of Penguin's PPE fair? I'm not sure. But it is a prudent/conservative move to make, considering the possibility of a long downturn. What if oil stays this low for the next few years? The recovery may be longer than most hope. Don't mind me, I just prefer to plan for more pessimistic scenarios.

If the OSV industry does turn out to be worse than expected, then you will have protected yourself somewhat if you have bought at a further 50% discount to your assessed valuation. Will I get to buy Penguin at my preferred price of $38.5m ($0.18~ per share)? Wait long long. If the market does offer such a price, will I really bite? Probably, but not much. Since I do not have intimate knowledge of the industry after all.

[karlmarx]

A bondholder of Ezion wishes to redeem its latest tranch of bonds based on a clause which provides for redemption if the shares of Ezion cease to be listed or traded on SGX.

Ezion, of course, defends its position by implying suspension is not 'cease to be traded.'

In any case, Ezion and underwriter DBS will not allow for redemption, since all the rest of the $120m bondholders will demand for their money too.

Some of the bondholders may band together to fund a legal campaign, forcing DBS to pay up.

http://www.businesstimes.com.sg/companie...redemption

http://infopub.sgx.com/FileOpen/Ezion_An...eID=471772

[specuvestor]

Cheaper funding with delayed principal payment... sounds familiar
______

Series 003 to Series 007 bond holders have two options. Option A is to defer their principal for seven years, and collect a small 0.25 per cent coupon per annum and 5 per cent redemption premium at the end of seven years. Option B shortens the wait to six years, and instead of a redemption premium, bond holders can swap their holdings for equity. If a bond holder opts to convert his entire principal into shares, he would take a 36 per cent haircut based on an initial conversion price of 30.8 cents. Ezion shares last traded at 19.7 cents.

For Series 008 perpetuities holders, Option C is similar to Option A except they have to wait 10 years instead of seven. Or they can choose Option D, where they continue to hold a perp but can also swap their holdings for equity.

Shareholders face dilution of up to 47.5 per cent from this proposal. Ezion's DBS-backed bonds are not part of the restructuring.

http://www.straitstimes.com/business/ezi...nd-holders

[karlmarx]

Stuck with savings account type of returns for 6-10 years. And then still no guarantee of principal return after that. Bond holders must be writhing in agony.

Bonds are not less risky compared to stocks.

It is always about what you are buying, and how much you are paying for it, regardless of the asset type.

[weijian]

Cheaper funding with delayed principal payment... sounds familiar
______

Series 003 to Series 007 bond holders have two options. Option A is to defer their principal for seven years, and collect a small 0.25 per cent coupon per annum and 5 per cent redemption premium at the end of seven years. Option B shortens the wait to six years, and instead of a redemption premium, bond holders can swap their holdings for equity. If a bond holder opts to convert his entire principal into shares, he would take a 36 per cent haircut based on an initial conversion price of 30.8 cents. Ezion shares last traded at 19.7 cents.

For Series 008 perpetuities holders, Option C is similar to Option A except they have to wait 10 years instead of seven. Or they can choose Option D, where they continue to hold a perp but can also swap their holdings for equity.

Shareholders face dilution of up to 47.5 per cent from this proposal. Ezion's DBS-backed bonds are not part of the restructuring.

http://www.straitstimes.com/business/ezi...nd-holders

Somehow i feel option B is the "bogeyman", its presence is just to make option A look better. Option C does not appeal to the loss aversion part of investors and especially with the white knight investor thrown in (which has a high risk of dilution to their shareholdings, while giving more hope to survival)

[CY09]

Ezion has completed its restructuring

A summary of its restructuring is found here: http://infopub.sgx.com/FileOpen/Appendix...eID=488184

For ordinary shareholders, they are given warrants to subscribe at a price of $0.2487/$0.2763. Given how MPM performed post re structuring, it will be interesting to see how Ezion too will perform. Post restructuring, the balance sheet of Ezion will look less stretched and with lesser interest repayment, Ezion is likely not to encounter any cash flow issue.

<vested>

[specuvestor]

Trading "mid-April"

http://infopub.sgx.com/FileOpen/Ezion_An...eID=494806

[CY09]

http://infopub.sgx.com/FileOpen/Ezion_An...eID=496429

Pavilion Capital, a subsidiary of Temasek, will be subscribing new shares in Ezion at a price of $0.208 per share. It is the same company which invested by being shares from UOB in the Marco polo Marine deal. I wonder how much presence Temasek is going to have in the O&G space.
<vested>