SINGAPORE (March 8): Lim & Tan Securities is upgrading its rating on Ezion Holdings to “hold” from “reduce” previously, mainly because it is now trading at an improved price-to-book value of 0.58x P/B.

Ezion is said to be in final talks with the interim judicial managers of Swissco Holdings to take over four rigs co-owned by joint ventures (JVs) between the two parties, at a total consideration of over US$16 million ($22.6 million).

In a Wednesday report, Lim & Tan’s research team expects the buyout to be completed before the end of March. But they now cost more as the price per rig has risen to US$4 million per rig from US$3 million each due to a bidding war, so says a local media source.

The group co-owns the four rigs under two 50:50 JVs with Swissco’s wholly-owned subsidiary, Scott & English Energy (S&E). Sources told Lim & Tan that the group is “inclined to buy out all four rigs” because the bank loans tied to them are backed by S&E.

The research team highlights that Ezion has provided corporate guarantees against 100% of US$18.2-$25.9 million worth of bank loans, which were extended by OCBC Bank and DBS Bank to rig-owning entities under two JVs.

“The group is thus obliged to buy out the four rigs, but the onus will lie on Ezion to find new employment for the three idle units in order to generate cash flows for debt repayment,” comments the team.  

Additionally, Lim & Tan sees Ezion’s recent successful renewal of its working capital facilities with all of its bankers, as a “positive endorsement” of the company’s healthy cash flow position despite its high net gearing of almost one time.

Ezion on Feb 23 announced via a filing to the SGX that its issue of $120 million 3.65% committed funding back notes, due 2020, has been assigned a rating of Aa1 by Moody’s credit rating agency.

The group has also completed discussions with all its bankers to reduce its net annual principal repayment to match its operating cash flows, upon the completion of the legal documentation of the loan extension.

As at 12.37pm, shares of Ezion are trading flat at 37 cents.