On Sunday, offshore support services provider Ezra Holdings Limited (SGX: 5DN) filed for bankruptcy along with a few other related entities. This move has caused panic amongst investors for some Singapore-listed companies that are linked to Ezra. One such company is Triyards Holdings Ltd (SGX: RC5), a vessel builder for the oil & gas industry and a subsidiary of Ezra’s. Following news of Ezra’s bankruptcy filing, Triyards halted the trading of its stock from Monday to Tuesday. But once the trading halt was lifted, the company’s shares promptly declined. At today’s close of S$0.220, Triyards’ share price is 25% lower…
On Sunday, offshore support services provider Ezra Holdings Limited (SGX: 5DN) filed for bankruptcy along with a few other related entities. This move has caused panic amongst investors for some Singapore-listed companies that are linked to Ezra.
One such company is Triyards Holdings Ltd (SGX: RC5), a vessel builder for the oil & gas industry and a subsidiary of Ezra’s. Following news of Ezra’s bankruptcy filing, Triyards halted the trading of its stock from Monday to Tuesday. But once the trading halt was lifted, the company’s shares promptly declined. At today’s close of S$0.220, Triyards’ share price is 25% lower compared to last Friday.
Thing is, there are good reasons for investors to be concerned. On Tuesday night, Triyards announced the following in relation to Ezra’s bankruptcy:
1) Triyards has US$1.4 million in receivables due from Ezra and the other aforementioned related entities that have also filed for bankruptcy.
2) Triyards and Ezra had both signed up for a banking facility. In the event that Ezra defaults on the facility, Triyards would be liable for a maximum of US$30 million. As of the announcement date, US$29.7 million of the facility has been utilised and none of the financial institutions involved with the banking facility have sought any action on the matter.
3) Ezra and Triyards are joint guarantors for US$8.5 million in borrowings from a financial institution. Following Ezra’s bankruptcy filing, “pursuant to certain terms of the facility agreement, the relevant financial institution may assert its right to demand repayment of the US$8.5M liability.”
4) Because of Ezra’s bankruptcy, certain financial institutions that have lent to Triyards may “seek to assert rights” to demand repayment of their loans or to terminate existing banking facilities. Triyards said that it “has/will engage and work closely with its financial institutions to ensure there is minimal or no disruption to its existing banking facilities.”
5) Triyards “does not have a going concern issue” and it is “not aware of any actions by [its] financial institutions” as a result of the Ezra bankruptcy.
There’s more to Triyards’ announcement (which can be found here), but I’ve summarised the most salient points. And at the time of writing of this article (6:21 pm), there’s no news that any of Triyards’ financial institutions have sought any actions on the company.
It’s a good thing that Triyards’ financial institutions are maintaining peace. According to the company’s latest financials as of 31 December 2016, it has just US$15.3 million in freely-available cash. There’s another US$13.2 million in pledged cash, but it’s not clear to me what the purpose of this money is for.
In any case, if all the financial institutions referenced above were to seek action, Triyards would have to easily fork out a sum of at least US$38.2 million in short notice (US$29.7 million plus US$8.5 million). This is over twice the amount of freely-available cash that Triyards has.
Triyards does have trade receivables of US$215.6 million (this does not include the US$1.4 million due from Ezra and the other related bankrupt entities) that it could theoretically convert into cash in a short amount of time.
But, given the tough situation the entire oil and gas industry is in at the moment, early or even just timely collection of receivables could be a tall order. And, it does not help that Triyards has struggled with generating positive cash flow in recent quarters, as the table below shows:
|Quarter ended||Operating cash flow (in US$, millions)|
|30 November 2014||10.5|
|28 February 2015||15.0|
|31 May 2015||33.1|
|31 August 2015||-0.3|
|30 November 2015||1.4|
|29 February 2016||-25.3|
|31 May 2016||-26.7|
|31 August 2016||20.5|
|30 November 2016||-23.3|
Source: S&P Global Market Intelligence
As Triyards mentioned in its announcement, there is no going concern issue with the company. But, if any of Triyards’ financial institutions decide to stop providing support, the situation could turn very ugly, very quickly.
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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 doesn't own shares in any companies mentioned.