EZRA HOLDINGS LIMITED
5DN.SI
Ezra Holdings - EMAS AMC - Chiyoda JV finalised; balance sheet to look better
- Ezra announces the completion of EMAS AMC - Chiyoda Subsea Joint Venture
- Cash receipts by Ezra will be used to repay standby credit facilities and lead to lower gearing
- TP adjusted up to S$0.11; maintain HOLD as the industry outlook remains lacklustre
EMAS AMC - Chiyoda JV finally sees the light of day.
- The JV will start functioning from 1st April 2016. To recap, Ezra and Chiyoda Corporation had back in August 2015 signed a conditional agreement to form this JV. Now the investment by Chiyoda has been completed.
- While no new information was disclosed on the terms, the purchase price for 50% of EMAS AMC – Ezra’s subsea division – had been fixed at US$180m, of which US$150m would be paid to Ezra and US$30m injected directly into the new JV entity.
Near-term cash-flow overhangs now resolved.
- The completion of this deal puts an end to the all the financing-related overhangs that have been plaguing the company since mid- 2015. To recap, these were:
- repayment of the S$225m notes and redemption of the S$150m perps both due in Sep 2015;
- repayment of the S$95m note due 21 Mar 2016.
- The cash inflow from this deal to Ezra will be used to repay the standby credit facility that had been granted to pay down the perpetuals back in September 2015.
- The S$225m notes had been repaid using proceeds of a rights issue, and the S$95m note was refinanced using bank borrowings secured by share pledges on Ezra’s stakes in subsidiaries EMAS Offshore and Triyards.
- Given that Ezra’s next unsecured debt maturity is the S$150m fixed-rate note due in April 2018, this provides the Group with some breathing space under current unfavourable industry dynamics.
Gearing will also be lowered.
- Based on the US$150m cash injection into Ezra, net debt-to-equity should fall from the ~0.8x as of 1Q16 (November 2015) to ~0.7x post-deal completion, bringing management closer to their targeted 0.5-0.6x net debt-to-equity capital structure.
- Joint Venture entity to leverage Chiyoda’s front-end engineering and design (FEED) expertise. A key benefit for the new EMAS Chiyoda Subsea JV will be the ability to leverage Chiyoda’s expertise in FEED, with Chiyoda being involved early on in the concept development phase of offshore projects, where the ability to influence and lower costs is the greatest.
- The rationale is then for the JV to bid for subsea projects with more efficient cost estimates, increasing the likelihood of contract wins.
Maintaining our HOLD call in light of persisting industry weakness.
- While we believe there could be some near-term uptick in sentiment following the completion of this deal, we maintain our HOLD call on the stock as its share price has already rebounded off recent lows and earnings will remain weak in both the subsea and OSV markets in upcoming quarters.
- TP is revised up to S$0.11 as we move valuation pegs up by a notch to account for the improvement in balance sheet metrics.
Suvro SARKAR
DBS Vickers
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http://www.dbsvickers.com/
2016-04-01
DBS Vickers
SGX Stock
Analyst Report
0.11
Down
0.08
