teachable moment

Let This Be a Lesson, Singapore

Ezra's financial woes were foretold. Was it a good idea to ease payment terms?
At Closing, April 23rd
1098.00 JPY

In few areas is hindsight as instructive as finance. Investors who survive the bad times learn their lesson and when the same situation comes around again, they know how to react.

Singapore bondholders are getting a schooling now on their rights and the wisdom of not forgoing them on the cheap. On Tuesday night, Ezra Holdings Ltd. and its Japanese partners put their offshore oil-services joint venture into bankruptcy in the U.S. EMAS Chiyoda Subsea Ltd. filed for Chapter 11 protection from creditors pending a reorganization. Singapore-traded Ezra is the biggest shareholder in the venture with 40 percent, with Chiyoda Corp. holding 35 percent and Nippon Yusen KK 25 percent, Bloomberg News's Steven Church and David Yong reported.

It sounds like bad news for Ezra, which faces its own financial troubles as the offshore oil-services industry buckles under the impact of weaker crude prices. The Singapore company said last month that Forland Subsea AS may apply for it to be wound up over a payment due to the vessel owner. 

Ezra owes $988.8 million of loans and bills payable to banks, according to its accounts for the year ended Aug. 31, 2016. The lenders are no doubt circling and wanting to know how the company will pay. If a restructuring is deemed necessary, holders of Ezra's S$150 million ($107 million) of 4.875 percent bonds due in 2018 will have to sit on their hands and wait.

They have only themselves to blame. In November, investors agreed to waive most of the default covenants on the bonds. In other words, they gave up their right to request immediate repayment if the company missed its obligations. In return, they were paid S$250 for every quarter million of securities held.

Writing on the Wall

In October, when Ezra asked bondholders to give up on their right to call a default, its bonds were already trading at distressed levels

Source: Bloomberg

I've warned previously about the dangers of consenting to major changes in bond documents in return for small one-time payments. The practice has become common in Singapore, where investors don't always read the fine print.

Ezra looks to be the most painful case yet of bondholder naivete. The company had already loosened restrictions on its bonds earlier last year. Subsequently, an affiliated company, Perisai Petroleum Teknologi Bhd, defaulted on its securities later in the year. Given the costs of maintaining idle offshore oil services vessels and persistently low oil prices, it wasn't rocket science to figure out that things weren't going well for Ezra.

Crude Awakening

Shares of Malaysia-listed Perisai Petroleum, in which Ezra has a significant stake, have dropped almost 70 percent since the company said it couldn't pay its bonds

Source: Bloomberg

It's all a moot point now. Singapore investors will have to learn their lesson. The next time a company comes around asking for forgiveness, perhaps they'll be less kind.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Christopher Langner in Singapore at clangner@bloomberg.net

    To contact the editor responsible for this story:
    Matthew Brooker at mbrooker1@bloomberg.net

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