Bearish bets on Ezra jump as Swiber's woes signal oil industry risks

Ezra Holdings' subsea construction vessel Lewek Constellation.
Ezra Holdings' subsea construction vessel Lewek Constellation.PHOTO: EZRA HOLDINGS

SINGAPORE (BLOOMBERG) - Bearish bets on Singapore-listed offshore marine services provider Ezra Holdings jumped close to the highest in a year as the failure of smaller rival Swiber Holdings heightened concerns for the financial health of companies in the oil industry.

Ezra shares plunged to the lowest price since February on July 29 after Swiber announced last week it filed a winding up petition as the collapse in crude prices led to a slump in its offshore oil and gas businesses. Swiber dropped the liquidation plan late Friday, and said it plans to restructure and operate under judicial management.

Short interest as a percentage of Ezra's outstanding shares climbed to 8.3 per cent on July 28, compared to 5.8 per cent at the end of June and near the highest in a year, according to data from research firm IHS Markit. It's now the most-shorted stock in Singapore, behind embattled commodities trader Noble Group and followed by oil services company Ezion Holdings.

"Swiber's knock-on effect is increasing the probability of others like Ezra facing similar issues," Bernard Aw, market strategist at IG Asia Pte in Singapore, said by phone. "We might see more companies coming forward saying financials have not recovered. I would now prefer to sit on sidelines and see how it plays out."

Crude prices have plunged more than half in two years, spurring oil explorers such as Royal Dutch Shell and Statoil to cut spending. That has hurt the oil services industry as offshore support contracts are canceled and orders for new drilling equipment dried up. Vessel owners that support rig operations have also seen charter rates plummet.

Ezra is trying to strengthen its capital structure to weather the slump, working with an adviser to find investors for about US$100 million of new stock while seeking to extend terms on more than US$100 million of loans and bonds, people with knowledge of the matter said Friday. Ezra "continues to focus on deleveraging," a company representative said.

"Ezra is the most similar to Swiber. They are all highly leveraged so the market is keeping them under pressure," said KGI Fraser Securities Pte analyst Joel Ng by phone. "Pressure on the stocks may lead to less support from banks and shareholders for any fund raising. It can become a vicious cycle."

Ezra's cash and cash equivalents have dwindled to US$43.6 million at the end of May from US$179.7 million a year ago, according to its latest quarterly results. It reported a loss of US$548.1 million for the nine months ended May, compared with a profit of US$51.5 million in the period year earlier. The company said it had US$522.2 million of short-term borrowings on May 31, and long-term borrowings of US$631.8 million.

Ezion, which operates service rigs for the oil and gas industry, sought on July 28 to differentiate itself from Swiber. Still, short interest as a percentage of its outstanding shares surged to 7.8 per cent on July 28 from 2.2 per cent at the end June.

"There's going to be a domino effect in the industry because of Swiber," Margaret Yang, an analyst at CMC Markets in Singapore, said by phone. "It will be a difficult time for these companies."