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Oilfield services slump has Singapore's Ezra seeking shelter in US court

Singapore-listed Ezra Holdings has filed for Chapter 11 Bankruptcy Protection in the United States, with the oilfield services firm becoming the highest profile victim regionally of a crippling fall in oil prices since highs above $100 a barrel in 2014.

Ezra Holdings is one of the largest offshore marine services providers in Asia, but the business has struggled to overcome a series of headwinds that cast doubt over its ability to operate as a going concern.

The filing comes after months of demands from its patient but unsympathetic creditors, and wasn't a surprise to investors or analysts who watch the space.

Vessels pass an oil refinery in the waters off the southern coast of Singapore.
Edgar Su | Reuters
Vessels pass an oil refinery in the waters off the southern coast of Singapore.

"Oversupply of offshore supply vessels along with the influx of newly built vessels resulting in low competitive charter rates compounded the financial difficulties of Ezra's business divisions," said Robin Chiu, the company's chief restructuring officer, in a court filing.

The decision to file for bankruptcy comes just weeks after its associate, EMAS Chiyoda-Subsea, also filed for Chapter 11 in the United States, underpinning the concerns in the sector.

"The Ezra Chapter 11 filing is intended to optimize 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," it said in a statement to the SGX.

Ezra was once a $2 billion company, competing with great success for lucrative offshore contracts. But its market value has seen an aggressive decline in recent months, as investor worries over its debt and liabilities continued to mount. Its shares have fallen around 80 percent this year alone.

Experts who spoke to CNBC say nervous investors sensed that its contracts were getting cancelled or delayed and the turnaround wasn't progressing as fast as it should. By February, Ezra acknowledged its deteriorating outlook and warned the market that it faced a going concern issue, further testing the confidence of key stakeholders.

It attempted to stop the losses with a self-imposed trading halt in mid-March. But in a further worrying sign, it also disclosed guarantees on nearly $900 million in liabilities and loans for its troubled Emas Chiyoda Subsea stake.

"Ezra is one of the bigger sized companies here, so it was a bit of a concern that it's facing problems," said Daryl Liew, managing director and head of Portfolio Management at REYL.

"Whenever you lever up and you have such high debt levels leading into a time when (oil) prices are taking a big fall, it's always going to be an issue."

Two other entities under the group, Emas IT Solutions Pte Ltd (EMIT) and Ezra Marine Services Pte Ltd (EMS), were also included in the filing. The future of its other two other listed entities on the Singapore Exchange, Emas Offshore Limited (EOL) and Triyards, is still unknown.

Ezra said it would hold a meeting as soon as "reasonably practicable" to carry out a "transparent restructuring process" with the U.S. Bankruptcy Court.

Assessing the exposure

Ezra management has been working to stabilize the firm, even as a slew of actions from creditors piled on fast.

The 20 largest creditors are owed around $600 million, according to court filings.

It is understood the company owes more than $270 million to Singapore's largest lender DBS Group Holdings and $184 million to the second largest bank, Oversea-Chinese Banking Corp., its two largest creditors.

It also owes about $108 million to a Singapore affiliate of HSBC, according to a Reuters report.

"Our exposures to Ezra Holdings were moved to non-performing in the third quarter, and suitable provisions have been made," DBS said in a statement to CNBC.

OCBC repeated that it has been stress testing this sector since the third quarter of 2015.

"We have pro-actively reviewed several related accounts for close monitoring, and assisted customers to reschedule and restructure their loans," said Koh Ching Ching, head, Group Corporate Communications, OCBC Bank.

"Specific provisions were created, and additional general provisions were made for the potential further deterioration in the oil & gas portfolio. We are however unable to share details of specific customer loans."

It is believed the company has estimated assets of between $500,000 and $1 billion, against estimated liabilities of between $100 million and $500 million, according to reports. Analysts said Ezra was likely to require more equity to survive, and a potential restructuring could include a debt-for-equity swap and a potential debt extension.

"The Ezra Chapter 11 Filing is intended to optimize 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," the company said.

"The moratorium afforded under the Ezra Chapter 11 Filing stays claims against the Ezra Chapter 11 Entities and enforcement actions against their assets."

Bank of Singapore Chief Economist Richard Gerram said the bankruptcy of such a major firm reflects the on-going challenges in the sector.

"The banks raised provisioning against bad loans so presumable they've been putting a bit of money aside for this kind of eventuality," he told CNBC's The Rundown.

"We've been family cautious on oil."

SGX responds

The Singapore Exchange said it was taking steps to aid holders of Ezra's outstanding S$150 million Singapore dollars, 4.875 percent bond, which is due in April 2018. An S$3.66 million coupon is payable on April 24.

"The Company will be reaching out to HSBC Institutional Trust Services as trustee for the Noteholders to begin this process with the Noteholders as soon as practicable," the company said. "The Company has also reached out to, and intends to work with, the Securities Investors Association."

Bankers who spoke to Reuters said that SGX's immediate response suggested that the regulator had been kept informed by Ezra. Its uncharacteristic support for bondholders comes after several restructurings at smaller oil and gas-related companies which exposed a lack of protection and support for individual retail bondholders, mainly high-net-worth investors.

"The question now is what kind of recovery levels the board members can get out of this," added Liew. "The ideal situation is that they can come to some kind of consensus about how to unlock value and return as much money as possible to the bond holders, but obviously they're going to be a haircut that needs to be taken in this case. The question is how much that haircut is going to be."

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