Latest claim on Ezra raises more concerns

Ezra's chief executive and managing director, Mr Lionel Lee, whose father Lee Juan Soo started the business in 1992. The group has just been served with another statutory demand, adding to its debt woes.
Ezra's chief executive and managing director, Mr Lionel Lee, whose father Lee Juan Soo started the business in 1992. The group has just been served with another statutory demand, adding to its debt woes.ST FILE PHOTO

Fate depends on whether creditors willing to keep it going after $4.5m VT Halter demand

The fate of home-grown offshore services firm Ezra Holdings continues to hang by a thread amid ballooning trade claims.

The group said on Thursday night that it has received a statutory demand for a claim from the solicitors of VT Halter Marine Inc for more than US$3.2 million (S$4.5 million).

The claim relates to the breach of a loan agreement between VT Halter Marine and Emas Chiyoda Subsea Inc - a wholly owned unit of Ezra's Emas Chiyoda Subsea joint- venture firm - for which Ezra acted as parent corporate guarantor.

Ezra has been given 21 days to pay up, or VT Halter Marine may apply for the group to be wound up.

This is the second such demand Ezra has been slapped with in recent months - another unwelcome addition to the company's mounting debt troubles as it faces the immediate issue of operating as a going concern.

It also comes just a week after the group's debt-ridden joint venture Emas Chiyoda filed for bankruptcy in the United States.

HOW EZRA GOT POUNDED

Ezra leveraged up too much during the oil boom years, and the low oil price environment over the past two years dealt the final blow... Ezra basically wanted to compete against its peers funded with debt rather than equity. I would say it was blinded by its ambition and the fact that credit was readily available during that time.

MR JOEL NG, KGI Securities Singapore analyst.

A slew of questions surrounding the firm's cloudy future remains: Is Ezra too big to fail? Or will it become the next Swiber Holdings?

SNOWED UNDER WITH DEBT

Ezra's problems mostly boil down to debt - too much of it.

This came to a head as the weakness in oil prices dragged on, tightening its noose on companies that are short on cash.

Benchmark Brent had recovered to about US$52 a barrel last Friday, though it is still a long way down from the levels of US$115 seen in June 2014, before prices collapsed.

CIMB Research analyst Cezanne See says Ezra has carried a significant amount of debt with it in this industry downturn - where smaller players down the supply chain have been hit by massive expenditure cutbacks by the oil majors.

Ezra's net gearing (a measure of a company's debt levels) stood at a hefty 4.99 times as at November last year.

It also has $150 million worth of bonds due in April 2018.

The significant weakness in the utilisation rates of the group's assets, particularly those related to Emas Chiyoda, has further strained its operational cash flow, adds Ms See.

KGI Securities Singapore analyst Joel Ng notes that Ezra has been reporting negative free cash flows in the past 10 years, even when oil prices were above US$100 a barrel.

"Ezra leveraged up too much during the oil boom years, and the low oil price environment over the past two years dealt the final blow," he says, adding that the group's persistently weak free cash flows have resulted in a "highly unsustainable" balance sheet.

"Ezra basically wanted to compete against its peers funded with debt rather than equity. I would say it was blinded by its ambition and the fact that credit was readily available during that time," says Mr Ng.

"Given the cyclical nature of the industry, a healthy balance sheet will make all the difference between surviving and winding down in a downturn."

AN INDUSTRY DARLING BACK THEN

Despite its woes today, Ezra was once regarded as a darling in both the offshore industry and the local stock market.

Like many of its peers in Singapore's offshore marine sector, Ezra rose from humble beginnings as a family-owned company.

Founder Lee Juan Soo - father of Ezra's chief executive and managing director, Mr Lionel Lee - started the business out of the basement of his home back in 1992, together with his then wife Goh Gaik Choo.

The company grew from just managing and operating offshore support vessels to building, by 1999, its first seven support vessels with systems and technology beyond requirements at that time - all in anticipation of the growth of deepwater exploitation and production.

In July 2003, Ezra went public on Singapore Exchange's Sesdaq board (now known as the Catalist board), with its shares priced at 34 cents, before transferring to the mainboard in late 2005.

Ezra made one of its biggest acquisitions to date when it bought American shipbuilder Aker Marine Contractors for US$250 million in 2010, as it sought to expand its operations worldwide.

"We were not going to become a global organisation by growing organically. So the route was through acquisitions," the younger Mr Lee told The Straits Times in an interview in 2013.

"How are you going to grow organically to compete with the 30-, 40-year-old companies? It's going to be extremely challenging. It took us 2½ years to become a global organisation. It would not have been possible growing organically."

Today, however, presents a very different scenario.

The beleaguered firm posted a full-year net loss of US$887.7 million for the 12 months to Aug 31 last year, and has acknowledged about US$170 million in impairment for its interests in Emas Chiyoda.

The company's stock sank to an all-time low of 1.3 cents last Friday, while market capitalisation stood at $38.2 million, according to Bloomberg - a far cry from the $1.12 billion seen in 2007.

WHAT NEXT: SINK OR SWIM?

Analysts say Ezra faces the high possibility that it could end up in bankruptcy. But this will all depend on whether its creditors - the banks - are willing to keep the company going. "Ezra will have to reduce its debt levels to more sustainable levels," says Mr Ng. "The probability of this happening really depends on whether its creditors are willing to take the pain now."

Stamford Maritime executive director Jeremy Punnett says: "I don't think it's too big to fail at all.

"I think the banks are getting their head around the size of the working-capital needs and are getting frightened. I think this is the cause of the inaction and the lack of strategy here. Ezra may actually be too big to save."

Ezra operates in more than 16 locations in the continents of Africa, the Americas, Asia, Australia and Europe under the Emas brand. Should the group go under, the banks will take a hit, as will the creditors and, of course, its employees.

Still, an analyst who declined to be named believes it will be a waste to see Ezra go down.

The group's deep-sea capabilities, for instance, are still considered very much an asset - for both the company and the local offshore industry, where few players have similar capabilities.

"The offshore industry is one that has very long lead times, and it takes years to build capabilities. Sometimes it takes more than a business cycle to build a strong company in the offshore market," he says.

A version of this article appeared in the print edition of The Straits Times on March 13, 2017, with the headline 'Latest claim on Ezra raises more concerns'. Print Edition | Subscribe