Ezion Holdings Ltd - Was Ocean Sky International not worth waiting for?

28/3/2014 – Ezion Holdings is investing more in service rigs to meet demand from oil companies operating in the Asia Pacific, Middle East and West Africa.

Also in its fourth quarter results outlook, it disclosed that it is restructuring its Port and Marine business to focus on current key business activities, and at the same time, it will deploy more assets to take on Service Rigs projects.

The plan to take control in Ocean Sky International as a strategic investment partner has not eventuated.

Its most recent contract win was announced on March 4, for the provision of a jack-up rig to support an South Asia based national oil company.

The value of this contract is US$86.7 mln and delivery is scheduled for early 2015 to the Arabian Sea in South Asia after refurbishment and upgrading works.

Just on March 13, it exercised a notes issue under its S$500 mln multicurrency debt issuance programme to raise S$55 mln.

These notes are due March 13, 2020, and have a fixed interest rate of 5.10%.

The last time it raised funds through a notes issue was on January 23, under the same multicurrency debt issuance programme which was started on May 9, 2012.

The following are the company's earnings for Q4FY13:

Revenue: +60% to US$83.7 mln
Profit: +97.3% to US$40.5 mln
Cash flow from operations: US$155.5 mln vs US$90.8 mln
Dividend: 0.001 cents per share vs 0.001 cents per share

Revenue increase was a result of additional deployment of jack-up rigs and liftboats, and contributions from offshore logistics support vessels supporting three projects.

Service Rigs revenue nearly doubled to US$170.5 mln from US$92 mln, while Offshore Logistics Support Services revenue increased by two-thirds to US$111.4 mln from US$66.7 mln.

Sales in all areas the company operates rose, but especially in Europe, where revenue rose five-fold to US$61.9 mln, and Australia, which saw revenue double to US$96.6 mln.

Share of results of associates and joint ventures was net of tax US$7.8 mln, up from US$6.5 mln previously, because the joint ventures deployed more service rigs.

Charter revenue from Ezion's Singapore flagged vessels are tax exempt under Section 13A of Singapore's Income Tax Act.

Sales and servicing cost climbed to US$42.9 mln from US$30.9 mln because of more hires as a result of increased business activity and volume.

Finance cost climbed to US$3.6 mln from US$3.1 mln because of increased accrued interest from a S$270 mln notes issue, and more bank loans taken to fund new service rigs and vessels.

Cash flow was US$155.5 mln, up from US$90.8 mln because of net cash generated by operations.

US$732.6 mln was spent on progress payments on the purchase and refurbishment of service rigs.

This was funded in part by US$615.3 mln in bank borrowings and the issuance of new ordinary shares, notes and redeemable exchange preference shares.

Debt as at December 31, 2013, was US$1.09 bln, of which US$223.1 mln is repayable within one year or less.

Of the latest acquisitions moves, Ezion Holdings' plans to transform with its know-how, Ocean Sky International, a fashion wear company, into a marine business, unravelled instead, as announced in a February 12 update.

In it, the pre-conditional mandatory cash offer announced September 30, 2013, amounting to a reverse takeover as SGX advised, will not proceed on the grounds that seller and buyer were put off by "protracted timings" as a result of SGX Listing Manual Rule 1015.

So what now for Ezion Holdings?

Will it try again?

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. Why did the Ocean Sky International bid sour?

The announcement of intent to purchase 45.15% control of Ocean Sky International was made on September 30, 2013.

Five months later, a February 12 release announced the lapse of the deal with the reason being that parties were not keen to face "protracted timings" based on Rule 1015 of the SGX Listing Manual which defines this transaction as a reverse takeover.

If the deal was worth it to begin with, why not wait it out?

What would waiting mean in terms of opportunities for both parties?

If the transaction had gone through, Ocean Sky would have owned the Ezion Offshore Logistics Hub (Tiwi) in the Northern Territory of Australia, and Ocean Sky would have become a marine business with Ezion's involvement.

Also, if the transaction went through, Captain Larry Glenn Johnson would have been installed as Ocean Sky's new CEO and Executive Director, while still serving as an executive director at Ezion.

He is presently Executive Director and COO of Ezion subsidiary Teras Offshore and Managing Director for OMSA for the Gorgon Project, where Gorgon is purportedly the world's single-largest known gas resource and is now facing a delay for first gas start-up date.

Further to the September 30, 2013 announcement about this investment in Ocean Sky, an October 3, 2013 update provided additional information.

Captain Larry Glenn Johnson would also have received 70,000,000 Ocean Sky options, each carrying the right to subscribe for one (1) new ordinary share at the exercise price of S$0.108 per option.

The introducer of this transaction, Mr Tan Kim Seng, would have received 25,000,000 new ordinary Ocean Sky shares at an issue price of S$0.108 per share, under an Introducer Agreement.

Also, Maybank Kim Eng Securities would have received 60,000,000 new ordinary Ocean Sky placement shares at an issue price of S$0.341 per share.

Ezion Offshore Logistics Hub (Tiwi) then, would have been acquired for just S$100,000 but with a negative net book value of A$3,803,000.

Since all this did not happen, we wonder what it could have been when we contemplate Ezion's appetite for risk when we recall its YHM Group (formerly China Enersave Limited) acquisition back in 2012.

YHM Group has since changed its name to Charisma Energy Services Limited.

But we cannot find a web site for either instance of the company.

Charisma Energy (5QT.SI), now an associate of Ezion, has businesses in offshore/on-shore oil & gas and marine related service provision and energy and power generation.

Question

2. Who is Mr Tan Kim Seng and how did he come to recommend the acquisition of Ocean Sky International?

Mr Tan is former chairman and controlling shareholder of KS Energy Ltd (formerly KS Energy Services Ltd), which has been sold off to Indonesian tycoon Kris Taenar Wiluan.

He is also the ex-boss of Ezion's CEO Mr Chew Thiam Keng, who had his last appointment in KS Energy Services as CEO in 2007.

But how did he come to believe that Ocean Sky will be a good turnaround opportunity?

Mr Tan holds 0.8% control in Ezion, as indicated on page 113 of the 2012 annual report.

(Total number of questions in the full story: 8)

We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.

So far, we have not had a reply (which is why you are seeing this message).

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