SINGAPORE (Apr 4): Successful refinancing is only half the battle won, says DBS Group Research, with the other half being earnings recovery which requires having strategic shareholders.

The refinancing proposal, which has been approved by its lenders, security holders and shareholders, minimises insolvency risk for Ezion as principal repayments will be pushed back by six years.

The proposal provides additional credit line of US$118 million ($154.7 million) for working capital; reduces depreciation expense by US$60 million, and leads to interest savings of US$30 million from bank loans and US$28 million from securities issued.

More importantly, the plan allows Ezion to seek strategic partners and investors to strengthen its balance sheet and expand the liftboat fleet.

In a Wednesday flash note, analyst Ho Pei Hwa says Ezion remains in talks with potential strategic shareholders that are synergistic with its existing liftboat business and financial investors to strengthen its balance sheet and position it to ride the sector’s recovery.

To recap, Ezion posted a loss of US$1.0 billion for FY17 largely due to impairments amounting to US$897 million in 4Q17. Stripping out impairment and net forex loss, core FY17 loss was US$100 million. On a positive note, Ezion recorded positive operating cash flow of US$60 million in FY17.

The good news is that utilisation for liftboats is expected to rise to more than 90% by the end of this year from 70% in FY17 while utilisation for jackups should improve to 50% from 19% in FY17.

Although average day rates for liftboats are expected to improve to US$40,000 from last year’s US$30,000 level, average day rates for jackups are expected to normalise to US$30,000 level this year from FY17’s US$54,000, in the absence of legacy contracts and commencement of charters at lower rates.

For the moment, DBS is putting Ezion's fully-valued call and target price of 13 cents under review.

"Ezion should trade closer to book value post impairment and dilution, which we estimate to be around 25 cents, when it resumes trading in mid-Apr," concludes Ho.

Shares in Ezion last traded at 19.7 cents before being suspended from trading.

Successful refinancing is only half the battle won for Ezion, says DBS

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Successful refinancing is only half the battle won for Ezion, says DBS

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