SINGAPORE - Ezion Holdings is asking holders of its bonds and perpetuals to stick with it for another six to 10 years before it can repay their principal - a sum total of $575 million - back in full.
The cash-poor liftboat operator said it is in talks with lenders to bring down its debt to a sustainable level, and has been promised a fresh line of up to US$100 million ($136 million) from six banks to help fund the modification and deployment of vessels over the next year.
But the lenders - DBS, UOB, OCBC, Maybank, CIMB, RHB and Caterpillar Finance - need to see bond holders bite the bullet too before talks can proceed.
Also waiting in the wings is a strategic investor - an industry-based conglomerate - that is keen to work with Ezion, but wants to see the refinancing completed first.
Mr Chew Thiam Keng, Ezion's chief executive, told The Straits Times on Tuesday (Oct 3): "When we look at what they want to do, what they can do, we have a perfect fit. They are very big. I would say they are very gentle and genuine."
Ezion has a fleet of 14 liftboats, 20 rigs, and 45 small vessels. At present, seven liftboats and three rigs are deployed. Another six rigs are deployed but the contractors are not paying.
According to an illustration of cashflows presented by financial adviser RSM, Ezion could make a net cashflow of US$933 million over the next six years, based on current charter rates, which have fallen more than 50 per cent since 2014.
Mr Chew said: "Our liftboats are all new. The oldest is about seven years old, and the average age is two years. If God is willing, we should have all deployed by the middle of next year."
RSM assumed an 80 to 85 per cent liftboat utilisation rate in its illustration. Liftboats are used to maintain and repair production platforms in shallow-water oil fields, and work is expected to pick up from 2018 onwards since oil majors have cut their capital expenditures, Mr Chew said.
As for the small vessels division, Ezion has warned of a substantial impairment. Some rigs, tugs and barges will have to be scrapped or stack.
"We were hoping the rates would recover this year but they did not... It's problematic," said Mr Chew.
Series 003 to Series 007 bond holders have two options. Option A is to defer their principal for seven years, and collect a small 0.25 per cent coupon per annum and 5 per cent redemption premium at the end of seven years. Option B shortens the wait to six years, and instead of a redemption premium, bond holders can swap their holdings for equity.
If a bond holder chooses to convert his entire principal into Ezion shares, he would absorb a 36 per cent haircut based on the initial conversion price of 30.8 cents, which is the six-month volume weighted average price (VWAP) per share, and the last traded price of 19.7 cents.
For Series 008 perpetuities holders, Option C is similar to Option A except they have to wait 10 years instead of seven. Or they can choose Option D, where they continue to hold a perpetual security but can also swap their holdings for equity.
Shareholders face dilution of up to 47.5 per cent from this proposal. Ezion's DBS-backed bonds are not part of the restructuring.
Mr Alexander Zeeh, chief executive of SEA Asset Management, which holds some of the Series 004 bonds in the S.E.A. Asian High Yield Bond Fund, said: "The terms for the perp holders seem to be too generous compared with the senior debt holders. Perp holders get the option to be repaid in 10 years, that's shorter than a perpetuity."
Mr Zeeh believes the option to swap debt for equity is more attractive: "Some people depend on interest income and have counted on that. To go to 0.25 per cent could be hardship and there may not be liquidity to sell their bonds. With Option B, they could partially liquefy their holdings and get their principal back in six years rather than seven."
"I think there's a good chance they (Ezion) survive. We do expect repayment."
Ezion will use the next week to fine-tune the terms of the refinancing. It plans to launch a consent solicitation exercise by mid-October, where it needs a 75 per cent majority from bond holders. Shareholder approval will be sought at a later date.
Mr Chew estimates that about 70 per cent of bonds were sold to private banking clients, and 30 per cent to institutional investors.