Troubled offshore marine group Ezra Holdings is set to face its next big test at its meeting with bondholders on Monday.
Much of the company's fate now hinges on the willingness of its creditors, including bondholders, to write off - whether partially or in full - its massive debt.
Ezra has $150 million of 4.875 per cent notes due next year, and faces debt of possibly as much as US$2 billion (S$2.8 billion). It sought refuge under Chapter 11 of the United States Bankruptcy Code last month, and has said it will meet investors to provide updates on the filing.
The firm's ill-fated joint venture Emas Chiyoda Subsea Services had filed for the same process earlier.
Ezra is the latest here to succumb to the grim industry downturn since crude oil prices collapsed in June 2014. A number of national oil companies and oil majors may have reported higher capital expenditures in recent months, but the strain on the offshore marine sector remains as companies still struggle with low orders and weak cash flow.
Ezra's financial woes have steadily deepened - to the point that its founding Lee family put up a prime waterway-facing bungalow in Sentosa's Cove Grove for sale last year.
A report by The Business Times said that the property, held by Ezra founder and chairman Lee Kian Soo, was being sold last week in a private treaty deal.
Details on the sale price were not available, but the report said the talk in the market is that as recently as two weeks ago, the owner was prepared to consider offers of about $16 million, or $1,390 per sq ft (psf) based on the land area of 11,515 sq ft. This is a far cry from the reported price tag of $26 million or $2,258 psf early last year.
Ezra chief executive and managing director Lionel Lee and his mother Goh Gaik Choo were also said to have sold a bungalow off Upper Thomson Road for $21.8 million in October 2015.
SO WHAT'S NEXT?
Ezra's meeting with its bondholders next week will be the first time the management comes face to face with investors after the filing, likely in the hopes of working out a compromise.
Representatives from the Securities Investors Association (Singapore) will be present as well.
With the uncertainty surrounding oil prices, it is hard to predict when there will be an uptick in the industry and, correspondingly, in Ezra's business... Such uncertainty may well persuade creditors to take some form of a haircut on the debts owed to them.
MR JONATHAN OON, director of the shipping department at TSMP Law Corporation.
Various possible scenarios await Ezra from here. The most optimistic is that Ezra enters Chapter 11 and, while under bankruptcy protection, the market recovers.
This would allow Ezra to return to profitability and repay its debts and, accordingly, exit Chapter 11.
Mr Wong Koon Min, partner at auditing and advisory firm Moore Stephens, says that Chapter 11 is designed to allow the company to stay open while its assets and debts are restructured to optimise payment to creditors. Some companies have successfully emerged from Chapter 11, he notes, citing American retail chain Kmart in 2002.
"However, filing for Chapter 11 is a further sign of financial distress, and business confidence in the company may further deteriorate as a result," adds Mr Wong. "Recapitalisation is generally the solution but this is not in sight."
Alternatively, Ezra could find a "white knight" to resolve its financial difficulties, allowing it to then exit Chapter 11.
But the emergence of a "white knight" in the near term may be premature as the situation is still too fluid and fraught with uncertainties, says a market watcher, who declined to be named.
At the other end of the spectrum is the possibility that Ezra fails to successfully restructure under Chapter 11. This could spell a flat-out bankruptcy in which the company stops operating and its assets are liquidated to pay off its debt.
Clyde & Co Clasis Singapore's restructuring team tells The Straits Times that it does not rule out such a scenario. It adds: "From court papers filed by Ezra, it appears that the liquidation scenario presents an almost nil recovery to unsecured creditors."
For Ezra bondholders, this could mean little chance of recovering their investments, if at all.
Ezra's creditors would also stand to gain little in such a scenario.
According to court papers, Ezra's largest unsecured creditors include all three Singapore banks: DBS Bank, with claims totalling US$281.4 million; OCBC Bank, with around US$207 million; and United Overseas Bank (UOB) with US$22.8 million.
In terms of secured debt, OCBC and DBS have claims of more than US$47.2 million each, while UOB has US$10.2 million. OCBC also has a secured claim of over US$26 million against Ezra Marine Services.
The Clyde & Co Clasis team notes that a significant proportion of Ezra's debt is attributable to bank facilities that were used to finance the acquisition of its highly specialised and unique offshore reel-lay vessels.
"What Ezra needs in order to successfully restructure and trade back into profitability is time, in order to realise value from these specialised and very expensive assets," it says. "A distressed sale of these assets in the current market is not feasible, since even if a buyer could be found, the price obtained would be a fraction of book value."
A WAY OUT?
Another scenario - and perhaps the most feasible - would be that Ezra enters Chapter 11 while both banks and bondholders agree to various restructuring proposals. These could include deferring the repayment dates of liabilities, converting part or all of the liabilities to equity, or waiving off some of the liabilities.
Such a scenario can come about only if both the banks and bondholders believe that allowing Ezra to continue its operations will result in better debt recovery than an outright liquidation, Moore Stephens' Mr Wong says.
Clyde & Co Clasis similarly notes that while Ezra can obviously restructure its costs and obtain short- term loans for working capital, "a more realistic path toward restructuring is a large debt-for-equity swap, coupled with new equity".
Still, it adds: "However, given the current market and, in particular, the state of the oil and gas sector, the likelihood of a sufficiently large injection of equity happening is unfortunately not high. There is reason to be pessimistic about a successful restructuring under Chapter 11."
For Ezra, the real difficulty lies in coming up with a workable restructuring plan, as its business is tethered to the general health of the oil and gas industry, notes Mr Jonathan Oon, director of the shipping department at TSMP Law Corporation.
"With the uncertainty surrounding oil prices, it is hard to predict when there will be an uptick in the industry and, correspondingly, in Ezra's business," he notes. "Such uncertainty may well persuade creditors to take some form of a haircut on the debts owed to them."
The bigger question is whether Ezra will be able to abide by the terms of the restructuring, if agreed to by the creditors, adds Mr Oon.
Banks and creditors aside, Ezra's employees will also undeniably take a hit should the group go under.
Ezra operates in more than 16 locations in the continents of Africa, the Americas, Asia, Australia and Europe under the Emas brand.
Mr Wong estimates that Ezra had 2,000 to 3,000 employees as of Aug 31, 2015, according to numbers on staff costs in its annual reports for previous years. Ezra has yet to publish its annual report for the year ended Aug 31, 2016.
Ezra 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.
Once a market darling, the firm last saw its stock trade at an all-time low of 1.1 cents on March 15, before a trading suspension was called, while market capitalisation sank to $32.3 million - well down from the $1.12 billion seen in 2007.
Note: The graphic with this story has been updated and a reference to Adrian Lee as Chief executive of 800 Super Holdings removed.