Ezra Holdings Ltd - Why structure a simple transaction in such a complex way?

6/4/2014 – Ezra Holdings Ltd is selling an Anchor Handling Tug (AHT) named Lewek Robin to its Bursa Malaysia-listed 26%-owned-associate Perisai Petroleum Teknologi Bhd for US$ 7mln.

But while Perisai has disclosed this, Ezra has not yet announced the sale on SGXNET.

Curiously, this is one such transaction in which both the parties are making a loss.

While Ezra is selling the AHT for less than its book value, Perisai Petroleum will make a loss on the 7-years charter agreement with Ezra.

Moreover, we have not yet seen Ezra respond to the conflict-of-interest of its COO and executive director in the transaction.

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

Question

1. Why has it not announced a related party transaction?

On March 14, Bursa Malaysia-listed Perisai Petroleum Teknologi Bhd - a 26% associate of Ezra - announced it has agreed to purchase Lewek Robin, an Anchor Handling Tug (AHT), for US$7 mln.

But here’s the thing:

Perisai, via its 51%-owned indirect subsidiary Intan Offshore (Labuan) Ltd, is purchasing the AHT from Lewek Robin Shipping Pte Ltd, which is a wholly-owned subsidiary of Ezra.

The remaining 49% stake in Intan Offshore (Labuan) Ltd is indirectly owned by Ezra.

So, that makes Intan Offshore (Labuan) Ltd a 49%-owned associate of Ezra.

In other words, the deal involves a subsidiary and two associates of Ezra.

More than a fortnight after the announcement by Perisai on Bursa Malaysia, we are yet to find a commensurate announcement by Ezra to its shareholders via SGXNET.

Editor's note: The company has declined to respond to our questions, but points out the sale of the vessel was a small, immaterial transaction which it says it did not need to disclose.

Question

2. Is the deal priced in favour of Perisai Petroleum Teknologi Bhd?

Perisai has agreed to pay US$7 mln to Ezra for the Lewek Robin.

Perisai has borrowed US$4.55 mln in the form of a seven year loan to pay cash upfront.

The remaining US$2.45 mln is payable after it has repaid the loan, in other words, after seven years.

Ezra has agreed not to charge any interest on the outstanding US$2.45 mln instalment.

But there’s more.

Emas Offshore (M) Sdn Bhd, a wholly-owned subsidiary of Ezra, has agreed to lease back Lewek Robin on charter for seven years at US$2,600 per day.

So, on the one hand, Ezra has given an interest-free loan of US$2.45 mln to Perisai for seven years.

And on the other, it will pay Perisai cash for seven years at US$2,600 per day of charter.

Therefore that makes us wonder why Ezra agreed to sell Lewek Robin at terms favourable to Perisai.

(Total number of questions in the full story: 5)

We have sent these questions to the company (ir@ezraholdings.com) 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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