On Monday, Ezion (SGX: 5ME) requested for its shares to be suspended from trading. As of the time of writing, shares remain suspended.
As a brief background, Ezion is an oil and gas support services provider. The company is an owner of a fleet of offshore assets that include multi-purpose self-propelled jack-up rigs and heavy-haul vessels. It also provides services such as well-servicing and maintenance, among others.
To explain the rationale behind share suspension, chairman Dr Wai Kai Yuen issued a letter to shareholders. I picked up four key points from the letter.
1. The lingering effect of low oil prices – click here
2. Reality bites – click here
3. Cutting cost – click here
4. Opportunity in the midst of crisis – click here
5. There is a wrench in the system
In the previous article, we talked about the opportunity for Ezion to reposition itself for the future. However, the current situation has severely hampered Ezion’s ability to invest further:
“The Group is cognizant of the need to incur additional capital expenditure to upgrade, modify and mobilize the existing fleet of Service Rigs which have secured contracts.
The Group is endeavoring to put at least 6 Service Rigs back to work by end 2017 / early 2018. However, the successful deployment of these Service Rigs could be badly disrupted due to the shortage of cash-flows as a result of existing low charter rates and slow payments by clients.”
In our last article, we mentioned that Ezion generated negative free cash flow in its latest quarter, and remains in a net debt position. The oil and gas support services company will have to seek fresh financing from the financial institutions.
6. Circling back to the suspension
From the five points above, the situation should be clear now.
But the bottom line is that Ezion needs to raise fresh capital to finance its plans. Unfortunately, there is no certainty that it will get the financing that it needs, as it explains below:
“Hence, the Group has been in discussions with financial institutions to secure additional funding to deploy these Service Rigs, but some of the financial institutions appear to remain extremely cautious in providing additional funds for working capital and capital expenditure to this sector.”
Some of the financial institutions are grappling with the dilemma on whether it should pour more money into Ezion’s plans. For banks, the situation looks a lot like the “classic banker’s dilemma” that DBS Group Holdings Ltd’s chief Piyush Gupta had described for the case of Swiber Holdings Limited (SGX: BGK):
“The classic banker’s dilemma. Do you put in some more money to recover more, or do you don’t put in the extra money to recover more?”
Ultimately, Ezion believes that the outcome of the discussions will decide the fate of the company. As Ezion notes:
“The outcome of the above discussions will very much determine if Ezion will survive the current crisis and emerge stronger than before.”
With that, Ezion said that shares are temporarily suspended from trading until an outcome can be decided between its various stakeholders:
“We have temporarily suspended the trading of Ezion Holdings Limited’s shares pending resolution of the above discussions with various stakeholders. With your understanding and prayers, we hope to achieve a favourable outcome that will be beneficial for all parties concerned.”
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.