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These Oil & Gas Companies Are At Risk Of Becoming The Next Ezra Holdings Limited

On Sunday morning, Ezra Holdings Limited (SGX: 5DN) announced that it has filed for bankruptcy. It’s a sad end to a company that once commanded a market capitalisation of over S$2 billion at its peak back in late 2007.

The main problem with Ezra was debt: The company, which provides services to the oil & gas industry, had been borrowing way too heavily. Over the past eight quarters, Ezra’s net-debt (total borrowings and capital leases minus cash and investments) to shareholders’ equity ratio had been at or above 100%, as the chart below shows:

Ezra's net-debt to shareholders' equity ratios over past 8 quarters
Source: S&P Global Market Intelligence

Ezra’s fall got me thinking: Which oil & gas company could be next to go bust? It’s hard to tell.

Companies can be saved from the brink of bankruptcy if white-knight investors appear to extend more credit and/or pump in cash. But, for a stock market investor, it’s very important to note that shareholders of a company that has been binging on debt can still be very badly hurt even if it does not go bankrupt.

To answer my question, I ran a screen using data from S&P Global Market Intelligence to find oil & gas companies in Singapore’s stock market that have the two following financial characteristics:

1) A net-debt to equity ratio of 100% or more
2) Negative operating cash flow over the last 12 months

Companies that display the two traits would be those with very weak balance sheets and an inability to generate cash.

What’s also interesting about the two traits is that I had first used them in an article I wrote back in 29 July 2016 titled Who’s Next In line To Fall After Swiber Holdings Limited. When I wrote the article, Swiber Holdings Limited (SGX: BGK), a company with a similar business to Ezra, had just decided to close down its business after also being weighed down by a heavy debt load.

In my July 2016 article, I looked through the list of oil & gas stocks in Singapore and found six that had the two financial characteristics I pointed out earlier. Ezra was one of the six along with Nam Cheong Ltd (SGX: N4E). I’ve already mentioned that Ezra has declared bankruptcy; as for Nam Cheong, it announced last Friday that its auditor has highlighted “material uncertainty” over the company’s ability to survive.

The other four companies are Cosco Corporation (Singapore) Limited (SGX: F83), KS Energy Services Limited (SGX: 578), AusGroup Ltd (SGX: 5GJ), and Pacific Radiance Ltd (SGX: T8V). Although Cosco and AusGroup have delivered small gains since 29 July 2016, Nam Cheong, KS Energy, and Pacific Radiance have seen their stock prices fall hard.

Nam Cheong, Cosco, KS Energy, AusGroup, Pacific Radiance share price table
Source: S&P Global Market Intelligence

This time around, five names popped up in my screen. Interestingly, Nam Cheong, Cosco, KS Energy, and Pacific Radiance are in the latest list. The new addition is AVIC International Maritime Holdings Ltd (SGX: O2I). You can have a look at the quintet’s finances in the table below:

Nam Cheong, Cosco, KS Energy, Pacific Radiance, AVIC International net-debt to equity and operating cash flow table
Source: S&P Global Market Intelligence

When compared to 29 July 2016, Nam Cheong, Cosco, KS Energy, and Pacific Radiance’s balance sheets have all deteriorated, some of them pretty significantly.

Nam Cheng, Cosco, KS Energy, Pacific Radiance, net-debt to equity ratios table
Source: S&P Global Market Intelligence

I’m not trying to say that Nam Cheong, Cosco, KS Energy, Pacific Radiance and AVIC International would definitely have a similar fate as Ezra or would definitely be a poor investment going forward. But, their weak finances are glaring risks that their current and prospective investors have to note.

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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 writer Chong Ser Jing owns shares in AusGroup.