The stresses in the troubled offshore and marine sector continue, with Ezion Holdings taking a bigger hit in its second-quarter earnings following an additional impairment made by an associate company.
The oilfield services group has revised its earnings downwards by US$11.7 million (S$16 million) for the three months to June 30, after an associate provided for further impairment of property, plant and equipment and intangible assets.
Ezion said yesterday that its net profit for the period will fall from US$19.8 million to US$8.1 million, while earnings for the half-year will shrink from US$35.3 million to US$23.6 million.
Downward adjustment in Ezion's net profit for the three months to June 30.
The group's total assets and total equity will also decrease accordingly, and its carrying amount of the investment of the associate will amount to US$6.7 million.
While Ezion did not disclose the name of its associate, its 2015 annual report showed the group had a 17.83 per cent interest in Australian oil and gas engineering services provider AusGroup, which announced its full-year results on Monday.
AusGroup chalked up a whopping fourth-quarter net loss of A$99.5 million for the three months to June 30, reversing earnings of A$266,000 in the same period a year ago.
It cited higher cost of sales, several impairment charges and the continued delay in the commercialisation of its port and marine business.
The company had said the week before that it had decided to cease its Singapore fabrication and manufacturing businesses and sell the related assets in view of the prolonged adverse environment in the oil and gas industry.
Making matters worse was that its current liabilities, as at June 30, exceeded current assets by A$95.2 million. This put AusGroup in breach of its requirement to maintain a minimum net worth position and thresholds to cover interest payments under all its banking facilities with DBS Bank, as well as of a financial covenant under a trust deed for $110 million in notes issued under a multi-currency debt issuance programme.
Financial covenants serve to assure bond holders that the company will be prudent in terms of its financial position. If a financial convenant is breached, bond holders can choose to take legal action to accelerate the principal and interest payments.
AusGroup said it has obtained a waiver from DBS for the breach, while negotiations with bond holders are ongoing. "The group is in the process of considering all funding alternatives available, including the renegotiation of its facilities to extend the planned repayment terms, disposal of group assets, and capital raisings through placements or rights issues," it added.
Ausgroup told The Straits Times yesterday that it was unable to provide further details due to market sensitivities.
AusGroup's $110 million bond issuance comes with a yearly coupon rate of 7.45 per cent, payable semi-annually, and will mature on Oct 20. DBS Bank was the sole lead manager and bookrunner of the notes.
Mr Terence Lin, assistant director of bonds and portfolio management at fund researcher iFast, told The Straits Times he understands that AusGroup is seeking waivers from bond holders for the various financial covenant breaches, and that it has engaged KPMG to put together a business review and propose a scheme of repayment for the outstanding bonds.
Bond holders, however, should not expect the company to meet the bond maturity date in October, he added.
The bonds were trading at 68.9 cents on the dollar at market close yesterday, according to Bloomberg. The "distressed" levels reflect the uncertainty surrounding the company's restructuring plans and its ongoing dialogue with note holders, said Mr Lin. "A breakdown in negotiations could result in note holders taking more drastic action against the company," he noted.
Ausgroup's willingness to pro-actively engage note holders is a positive sign, while the company also appears to have garnered support from key lender DBS, which is expected to play a pivotal role in the proposed restructuring plans, he added.
Ezion shares closed half a cent or 2.1 per cent lower at 23.5 cents yesterday, while AusGroup shares fell half a cent or 11.6 per cent to 3.8 cents.
Ezion chief executive officer Chew Thiam Keng bought 500,000 shares at 23.5 cents apiece yesterday, according to on a Singapore Exchange filing.
Correction Note: In an earlier version of the story, we quoted Mr Terence Lin as saying Ezion's willingness to pro-actively engage note holders is a positive sign. He was referring to AusGroup. We are sorry for the error.