Business

Ezra files for US bankruptcy as marine debt crunch spreads

Ezra files for US bankruptcy as marine debt crunch spreads
EMAS is one of the affliates of Ezra Holdings that has also filed for Chapter 11 protection on March 18 in the US Bankruptcy Court. File photo: Ezra Holdings
Published: 10:55 AM, March 20, 2017
Updated: 1:06 PM, March 20, 2017

SINGAPORE — Ezra Holdings, a Singapore-listed oil-field services group, filed for bankruptcy in the United States after weeks of facing hostile actions from creditors at home and abroad as it struggles to recover from a slump in oil prices over the past three years.

Ezra and two affiliates, Ezra Marine Services and EMAS IT Solutions, filed for Chapter 11 protection March 18 in the US Bankruptcy Court in White Plains, New York. Ezra listed consolidated long-term assets with a value of US$1.3 billion (S$1.8 billion) and current assets of US$623 million for the fiscal year ended August 31, 2016, according to court papers.

Ezra’s 20 largest creditors without collateral securing their claims are owed about US$607.6 million, according to court papers. Ezra’s three largest secured creditors are owed about US$61.9 million.

Ezra will hold an informal meeting as soon as “reasonably practicable” to update and provide further information on the Chapter 11 filing to holders of its debt, it said in a company statement. The company has also reached out to and intends to work with the Securities Investors Association (Singapore).

“The Ezra Chapter 11 filing is intended to optimise the scope and extent of the restructuring options available and to protect the interests of all stakeholders of the company, including its creditors and shareholders, from hostile actions that could harm the company and its stakeholders by diminishing the group’s value,” according to the statement.

Ezra’s shares, down 78 per cent this year following declines of more than 50 per cent in each of the past three years, have been suspended from trading since March 15. A S$2 billion company at its peak a decade ago, Ezra’s market value has shrunk to about S$32 million.

The fallout may spread to other sectors related to the offshore and marine services company.

“The prolonged deterioration of the financial performance of Ezra’s business divisions and the inability to carry out fundraising in the oil and gas industry resulted in Ezra facing a cash crunch and an inability to pay their debts as they come due,” Mr Robin Chiu, Ezra’s chief restructuring officer, said in court papers.

The group which incurred expenses, including administrative expenses of more than US$835 million, had a net loss from continuing business operations of about US$850 million for fiscal year ended August 31, 2016, Chiu said.

KNEE-JERK REACTION

“Offshore and marine companies and banks would be negatively affected by this development. No one knows if they have fully provided for Ezra,” Mr Foo Zhiwei, an analyst at UOB Kay Hian in Singapore, said by telephone after the filing was released. “There would be a knee-jerk reaction in the shares of Ezra and related sectors.”

Ezra last published its earnings in November, when losses widened to US$339.6 million for the quarter ended Aug 31 from US$7.8 million a year earlier. It listed about US$623 million of total assets and US$1.51 billion of total liabilities.

The group hasn’t disclosed earnings for the quarter ended Nov 30. It has requested a time extension while it seeks to consolidate funding requirements.

The latest filing adds to the troubles faced by offshore oil and gas services companies in Singapore whose contracts have been pushed back or canceled as a slide in crude prices forced explorers to cut spending. Swiber Holdings and Swissco Holdings earlier won court approval to reorganise their debt, while others like Ezion Holdings and KrisEnergy sought and won forbearance from creditors and lenders.

“Shareholders will get wiped out,” Mr Joel Ng, an analyst at KGI Securities in Singapore, said by phone. “Bondholders will take a haircut or get converted into equity.”

Ezra’s S$150 million 4.875 per cent 2018 notes were indicated at 25.5 cents on the dollar on March 16, according to Bloomberg prices, versus 34.3 cents at the start of the year. Six companies have defaulted on S$1.2 billion worth of notes since November 2015, the worst distress in the local junk bond market since 2009.

Ezra, founded in 1992, offers seabed-to-surface engineering, shipbuilding, marine and production services to oil and gas companies.

PAYMENTS DEMAND

In late February, Ezra and its Japanese partners Chiyoda Corp and Nippon Yusen KK placed their EMAS Chiyoda Subsea venture under bankruptcy in Texas, owing creditors about US$966 million, according to court papers filed in Houston. Ezra owns 40 per cent of EMAS, Chiyoda 35 per cent, and Nippon Yusen Kabushiki 25 per cent, according to court records.

The move came after Ezra said on Feb 3 that it faced a US$170 million writedown for amounts owed by the venture, and also flagged the possibility of a “going concern issue” if its restructuring wasn’t favorably completed. Ezra said at the time it will continue to work with advisers to review all options to restructure its businesses, operations and balance sheet.

The group has since received demands for payments from trade creditors, including from Forland Subsea AS for chartering a vessel, and from VT Halter Marine for a loan agreement.

Some banks providing funding to Ezra are also feeling the strain. DBS Group Holdings’s loan exposure to Ezra and related companies is estimated at S$637 million, according to a CIMB report dated Feb 2. Oversea-Chinese Banking Corp has S$300 million and United Overseas Bank has S$166 million, assuming the debt of each company in the Ezra group is equally split among its principal bankers.

Ezra had US$655.3 million of short-term bank loans due within a year on its balance sheet on Aug 31, according to its latest accounts. It also had US$321.6 million in bills payable to banks due within a year. Cash and equivalents at Ezra fell to US$34 million from US$378 million a year earlier, the data show.

“It will be interesting to see who would be the new owners of Ezra and its assets because banks will take control of it for now,” said KGI’s Mr Ng. “It won’t be as impactful as Swiber, as market has had time to digest.” BLOOMBERG