Second Singapore-dollar bond default by oil & gas services firm looming

Ezra, with 22.5% stake via 2 units, may be in jeopardy too if firm fails to redeem its bonds

Singapore Exchange (SGX) logo and sign.
Singapore Exchange (SGX) logo and sign. ST PHOTO: JAMIE KOH

A second Singapore-dollar bond default from the hard-hit oil and gas industry could be on the cards.

Kuala Lumpur-listed offshore services firm Perisai Petroleum Teknologi and its bond holders are struggling to come to an agreement on the $125 million worth of notes due to mature next Monday.

And Singapore-listed Ezra Holdings, with a 22.5 per cent stake in Perisai via two units, could find itself in jeopardy too should the firm fail to redeem its bonds. The two firms are linked through a US$43 million (S$59 million) put option.

The series 001 notes, with a coupon rate of 6.875 per cent, were issued under Perisai's $700 million multi-currency medium-term note programme in 2013.

On Sept 10, Perisai started to seek consent from note holders to waive the payment of note principal and interest. They are due on Oct 3.

The firm also wants to postpone the maturity date by four months to Feb 3 next year.

Perisai also hopes to be able to waive any non-compliance or potential non-compliance of minimum interest coverage ratio covenants for the third quarter; delete the guarantor's covenant to maintain a minimum interest coverage ratio; and waive any non-compliance with the provision of the notes and occurrence of any default or potential default.

Perisai said it is operating under "extremely tight financial conditions" as business has been hurt by weak crude prices and slow economic growth.

Acceleration notice filed by note holders

The group, which has twice delayed delivery of a drilling rig it had contracted a Sembcorp Marine unit to build, had RM36 million (S$12 million) in cash and bank balances as at March 31, according to its results.

Perisai has set a meeting for Oct 3 - the maturity date - where it will need to obtain a 75 per cent approval from bond holders for its debt obligations to be successfully deferred. However, its bond holders representing about 32 per cent of the outstanding bond issue, on Sept 11 filed an acceleration notice with the trustee of the firm, sources said.

This means Perisai will have to offer new terms to its note holders, or be forced to redeem the bonds with immediate effect when the acceleration notice is eventually served.

"They're asking for a blank cheque," said a note holder, who declined to be named. "All we're looking for is a more reasonable resolution." Mr Terence Lin, assistant director of bonds and portfolio management at fund researcher iFast, noted that Perisai's terms do not come with any guarantee that investors will get back their money in February. "The company is buying time to negotiate with lenders and possibly work out some sort of restructuring plan. If bond holders decide to vote against the plan, the company will be in default and it is unlikely that bank lenders will be willing to continue negotiating."

Meanwhile, analysts believe that the financially-stressed Perisai is likely to exercise the put option to sell its 51 per cent stake in SJR Marine and a mobile offshore production unit to Ezra's EOC for US$43 million - exerciseable on Nov 26.

The move could spell pain for Ezra, already one of the heavily leveraged firms in the offshore sector here. "Perisai is going to exercise the put option, but whether EOC is able to deliver - that's another issue," an analyst said, noting that Ezra is also "quite tight in terms of their cash flow and financial position".

Ezra's third-quarter results showed its total group borrowings and debt securities stood at $1.2 billion as at May 31, while cash and cash equivalents amounted to just $43.6 million. When asked if the group has the money to honour the put option, a company spokesman only said: "We are mindful of the ongoing discussions and are monitoring the developments. As and when there are material developments to the situation, we will provide a timely update through the Singapore Exchange."

A version of this article appeared in the print edition of The Straits Times on September 30, 2016, with the headline 'Perisai bonds on shaky ground'. Subscribe