O&M players have their backs to wall on tightening cash flows

Ezra Holdings' subsea construction vessel Lewek Constellation.

Singapore - EZRA Holdings and other small- to mid-cap listed offshore and marine counters face increasing cashflow pressure threatening their ability to service debts and interest obligations as contracting activity has yet to rebound from multi-year lows, even as the recent oil price hikes buoy hopes of the O&M sector starting a journey to recovery.

The cracks have surfaced over the weekend for Ezra, with its two trade creditors, Forland Subsea AS and Ocean Yield ASA, divulging the subsea subsidiary of the holding company could not service the bareboat charters on two ships, Lewek Inspector and Lewek Connector.

The two ships were chartered out to Emas AMC, which was renamed Emas Chiyoda Subsea (ECS) after Japanese pair Chiyoda and NYK Line acquired 35 per cent and 25 per cent interests respectively, bringing Ezra's stake down to 40 per cent.

Forland Subsea said in a release that Emas AMC has defaulted on charter hire payment for Lewek Inspector for October 2016, due for payment on Nov 30, 2016.

The release said: "In a meeting… held on Dec 15, Emas AMC informed Forland that they are unable to settle the outstanding charter hire for the time being, due to financial distress."

In a separate statement, Ocean Yield said, citing the challenging offshore market, that Emas AMC has requested for a standstill arrangement on the bareboat charter of Lewek Connector for the months of December 2016 and January 2017.

In both cases, for Lewek Inspector and Lewek Connector, Emas AMC's obligations under the charterparties are guaranteed by Ezra Holdings.

M3 Marine's managing director Mike Meade noted that both Forland and Ocean Yield "work with very thin margins" and have mortgages on the vessels to service. "They will only be able to sustain with no revenue for a limited period of time before they revert to further actions," he said.

A multi-year downturn has taken its toll on the cash flows and balance sheets of listed O&M players. Ocean Yield's release alluded to discussions that Ezra has initiated with its creditors in order to restructure and recapitalise the company. Ezra's offshore support vessel operating unit, Emas Offshore Ltd, on Dec 13 said its financial lenders have pushed out debt repayment for five years from Dec 12 2016, which is in line with the runway local banks have extended to other O&M players.

But Ezra has to win over its trade creditors and its current troubles are a throwback to the situation facing Swiber Holdings before the latter threw in the towel. Swiber was then facing mounting letters of demand from trade creditors, some allegedly not paid for over a year.

Capt Meade said the credit problems listed O&M players face "are indicative of an under-performing market" where demand recovery is nowhere in sight until "the tail-end of 2018" despite the recent oil price hike bolstering hopes of contracting activity returning to the sector. He sees "2017 as worse than 2016" and companies needing cash to tide over at least the next 12 months.

Unlike Swiber, Ezra has already brought two cash-rich Japanese shareholders on board ECS - Chiyoda and NYK Line. Industry watchers will be monitoring the two Japanese shareholders for any indication of forthcoming equity injections into their subsea joint venture with Ezra.

Ezra's shares closed at S$0.051.

Shares in Triyards and EOL last traded at S$0.089 and S$0.295.





This article was first published on Dec 20, 2016. Get The Business Times for more stories.