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Is Ezra Holdings’ Latest Restructuring Plan A Smart Move For The Company?

Offshore support vessel

Ezra Holdings (SGX: 5DN) has been one of the fastest growing offshore service providers (the firm’s top-line has grown at an astounding speed of 34% per year on average since the financial year ended 31 August 2008) in the oil and gas industry.

Unfortunately, this industry is extremely capital intensive and Ezra has been constantly piling on debt to help achieve its amazing growth rate. Now, with a net debt to equity ratio of 1.14 times as per its latest quarterly results, the company’s finances might be uncomfortably stretched.

But, that might change with the company’s proposed consolidation of its offshore support services business into its 46%-owned associate, EOC Ltd.

An interesting plan

Ezra Holdings’ proposal is interesting on a number of fronts.

Firstly, to reiterate, it allows the company to consolidate its offshore services business into Norway-listed EOC. Under the terms of the deal, EOC is supposed to pay Ezra US$150 million in cash and US$370 million in new shares of itself. With the issuance of new EOC shares, Ezra would end up the largest shareholder of EOC. Incidentally, Ezra might make EOC undergo a secondary listing in Singapore as well upon completion of the deal.

Secondly, the consolidation would make EOC the largest offshore support services provider by asset size in Asia. The deal would also help make EOC’s portfolio one of the youngest and most technologically-advanced fleets in the market.

Lastly, the restructuring exercise would allow Ezra to focus its attention on its fast-growing Subsea Services division, leaving the offshore services business to EOC and the engineering & fabrication business to Triyards Holdings (SGX: RC5).

The most important part of the plan

All the above reasons do make a lot of sense for investors, but here comes the most important reason of them all: Based on Ezra’s number crunching, the restructuring would help reduce the company’s net debt to total equity ratio from 1.07 (as of 28 February 2014) to just 0.7.

This would help reduce financial risks for the company and give it more room to maneuverer its resources in preparation for any future expansion plans.

Foolish Summary

On the surface, the proposed restructuring carries a number of advantages for Ezra Holdings. However, the deal is still subject to shareholders’ approval and with the relatively diverse shareholder base the company has, nothing’s set in stone yet (as of 11 Nov 2013, Lee Chye Tek, Ezra’s chief executive and managing director, is the largest shareholder with a 22.7% stake in the company; the next largest shareholder only has a 7.44% stake).

Investors interested in the company should take note of that before making any investment decision.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.