Fallout from Ezra bankruptcy likely to be contained: Analysts

Fallout from Ezra bankruptcy likely to be contained: Analysts
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
The development, reported over the weekend, had already been well flagged and anticipated
Published: 4:00 AM, March 21, 2017
Updated: 5:22 AM, March 21, 2017

SINGAPORE — The bankruptcy filing of Singapore-listed oilfield services firm Ezra Holdings is unlikely to have a significant impact on the markets, even though it owes huge sums to two of the Republic’s major banks, say analysts.

The development, which was reported over the weekend, was expected and priced in by the markets, they said yesterday.

Nevertheless, the Singapore oil and gas index fell more than 1 per cent in early trade, before recovering to close 0.22 per cent lower.

After weeks of facing hostile actions from creditors at home and abroad, the oil services group and its two affiliates, Ezra Marine Services and Emas IT Solutions, filed for Chapter 11 protection in the United States Bankruptcy Court in White Plains, New York. Ezra’s three largest creditors, DBS, OCBC and UOB, are owed S$637 million, S$300 million and S$166 million, respectively, according to a CIMB report dated Feb 2.

Shares in DBS closed at S$19.01, a 0.68 per cent fall from the previous trading day’s close of S$19.14. OCBC stock also closed lower at S$9.63, representing a 0.31 per cent decline from the previous close of S$9.66, while UOB posted a 0.41 per cent drop from S$21.95 to S$21.86.

The fall in the banks’ share prices outpaced the decline in the Straits Times’ Index, which fell 0.12 per cent.

CIMB economist Song Seng Wun said the market impact and the fallout from the announcement are likely to be limited, as the incident had already been well flagged and anticipated.

“It was already well known that the company was having difficulties, and bankruptcy would be declared. Investors and markets have been prepared for this development in the past few weeks.

“It will make no material difference to the banks which have already leveraged for bad loans in this particular sector, and they should be able to take the news in their stride,” said Mr Song.

Mr Samuel Siew Wei En, equity dealer at Phillip Securities, added: “It is important to note that even with the negative news in the oil and gas sector, Singapore banks have sufficient provisions and have good credit allowances for any event of increase in the non-performing loans.

For example, for DBS, which has the highest loan exposure to Ezra, the bank has set aside an increase of 49 per cent in net allowances.”

Calling for investors to be cautious in the current environment, Mr Siew said more eyes will be on the smaller oil and gas companies that might suffer from liquidity issues.

Ezra had a net loss from continuing business operations of about US$850 million for fiscal year ended August 31, 2016, said Mr Robin Chiu, Ezra’s chief restructuring officer, in court papers.

The company said in a statement that it 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.

Ezra’s bankruptcy filing adds to the troubles faced by offshore oil and gas services companies in Singapore whose contracts have been pushed back or cancelled as a slide in crude prices forced explorers to cut spending.

Swiber Holdings and Swissco Holdings earlier won court approval to reorganise their debts, while others such as Ezion Holdings and KrisEnergy sought and won forbearance from creditors and lenders.