What Is Happening To Ezra Holdings Limited?

Offshore services company Ezra Holdings Limited (SGX: 5DN) has been a hot topic in the news recently. The company has also seen a massive exodus of confidence from investors over the past two years judging from how its share price has fallen by over 94% to just S$0.031 at the time of writing (1:30 pm).

Just what is happening to the company?

Ezra has been struggling for a while now due to its highly-leveraged balance sheet and the low oil price environment. According to Ezra’s latest financials (as of 31 August 2016), it has over US$1.0 billion in debt and capital leases; less than US$40 million in cash; and net current liabilities of US$887.2 million.

There are also problems at Emas Chioyda Subsea (ECS), a joint venture that Ezra owns 40% of. The issues at the joint venture are the main reason why Ezra has been in the news lately.

ECS had defaulted on payments for its charter of the vessel Lewek Inspector since October 2016. In addition, ECS’ other two owners – both of which are Japanese companies – revealed last week writedowns totalling S$635 million that are tied to the joint venture. Ezra’s own total exposure to ECS is US$170 million and the company said that “the full amount may have to be written down” once an assessment of the situation’s made.

With Ezra’s huge debt obligations and the problems at ECS, the market is not optimistic that the company would be able to come out of the storm alive. To the point, Ezra’s share price is down by some 35% right now compared to last Friday’s closing. Some market commentators are already talking about how the liquidation of Ezra and its related parties would impact the banking sector in Singapore.

According to an analyst from Malaysian bank CIMB’s brokerage arm, DBS Group Holdings Ltd (SGX: D05) is the bank with the largest exposure to the Ezra group. The analyst stated:

“We estimate that DBS has the largest exposure to the Ezra group of companies at $637 million, followed by [Oversea-Chinese Banking Corp Limited (SGX: O39)] at $300 million and [United Overseas Bank Ltd (SGX: U11)] at $166 million.”

If what the CIMB analyst says its true, DBS Group would again be the hardest hit. This is similar to the situation with Swiber Holdings Ltd (SGX: BGK), an offshore support services provider that collapsed in July 2016.

Foolish Summary

Ezra and Swiber are hardly the only ones facing liquidity issues in the market. The challenges for the oil and gas companies in Singapore have not subsided. Investors also need to understand that the collapse of these firms may not be isolated events – financial institutions here in Singapore could be impacted too. That in turn, may affect the overall economy of Singapore.

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