COLUMN | Singapore sting: Ezion, Ezra, Emas, Swiber and Nam Cheong [Offshore Accounts]

Last week we looked at the drilling market (here), this week we go back to boats. Finally, some of the biggest names in offshore in Singapore are being consigned to the dustbin of history. The recovery has come too late, it’s game over for Ezra and Ezion. The Pang family’s deal to rescue Pacific Radiance, which we covered here, makes them one of the rare survivors.

Singapore’s liquidations: Ezion and Ezra

Thud! What goes up must come down, is one of the consequences of the Law of Gravity. If Sir Isaac Newton was sitting under an apple tree in Singapore recently, he would have been struck not by falling fruit, but by the news that two of the city state’s highest fliers have now filed for liquidation. The scientist might also be advised to wear a hard hat to protect his head from additional falling objects, as other companies there also look vulnerable, too.

What took their advisers so long?

Ezion and Ezra Holdings will liquidate in the coming weeks. The only surprise is why it has taken Singapore’s restructuring specialists and courts so long to work out what all of us could see two years ago. There is no value left in either.

Ezion’s press release here states: “the company is unable to pay its debts and is cash flow insolvent; a liquidation of the company is in the best interests of its creditors as it ensures an orderly wind down of the affairs of the company under the control of a court-appointed liquidator; and a liquidation of the company is in the best interests of its creditors as it is the most time-efficient and cost-effective manner to realise value from the remaining assets.”

It’s not clear what the remaining assets actually are, as there has been a drip-drip of vessel and rig sales from Ezion over the last two years, pressed by the Singapore banks.

The company had accumulated losses of US$2.3 billion by the end of 2020, and owed US$1.5 billion in debt and securities that were in default, as we noted here.

Ezion says it can’t even make any financial filings as all its finance team has resigned, along with its deputy CEO Eng Chiaw Koon, who quit in October. In 2014, Ezion had a market value of US$2.2 billion. Now its shares are worth nothing, and the stock has been suspended since 2019.

Ezra got big, quick

Ezra Holdings is in a similarly parlous state, and is being liquidated on the thirtieth anniversary of its foundation in 1992 by Lee Kian Soo, a long-time staff member of anchor handler operator Care Offshore in the 1990s and latterly Seabulk Marine of the US, which also went bust.

But like a phoenix, Mr Lee managed to list Ezra in 2003 in Singapore on the basis of a few anchor handlers and a crewboat, and then embarked on a high-octane fleet expansion programme, buying more than thirty AHTS and PSVs, accommodation workbarges, two FPSOs, and the subsea division of Aker in 2011. In 2014 the company was worth just under US$1 billion. Its Lewek Constellation was one of the most sophisticated construction vessels ever built. In 2018, it was sold to Saipem.

By 2016, Mr Lee was non-executive chairman at both Ezra and lift-boat builder Triyards, and executive chairman at Emas Offshore, a trio of interconnected publicly listed companies in which the Lee family held significant shareholdings and directorships. His son Lionel Lee Chye Tek became CEO of Ezra Holdings, and was also a director of both Triyards and Emas Offshore.

Our favourite Lionel Lee video is here. If you only watch one Youtube video this week, this tale of a “gutsy young leader working to modernise the vessel chartering business” on CNBC Asia with Christine Tan is worth seeing. It’s blurry and out of focus, but then so were Ezra’s financials.

The Tri-Tanic

The three companies did lots of related party transactions together, and, on occasion “inadvertently” failed to disclose their involvement in at least two transactions where the Lee family were the personal beneficiaries of deals with the public companies they managed. Mak Yuen Teen, a corporate governance activist in Singapore, has dubbed the Ezra, Triyards and Emas Offshore as the “Tri-Tanic”.

Triyards was placed under judicial management in February 2020. All three companies have all met a similar fate to the doomed ocean liner.

The only mercy of Titanic compared to the Tri-Tanic is that the former sank faster, and less predictably.

Lee family mismanagement

Associate Professor Mak observed with classic understatement that, “within the Ezra group, there were a number of puzzling investments and transactions” (here). My favourite lines from his clinical account of the startling revelations and corporate governance failings which saw the trio collapse into receivership are as follows:

“Did the Emas Offshore and Ezra boards forget that their shareholders are different, and that this is a related party transaction? Why should Ezra be paying a 500 per cent premium to buy the stake off Emas Offshore? What about the interest of Ezra’s shareholders? For the board of Emas Offshore to approve such an announcement beggars belief.”

He stated that there were “serious issues relating to undisclosed interests in transactions and possible insider trading” across the three companies.

“Based purely on public information,” he concluded, “there were arguably failure to disclose material information on a timely basis, false or misleading disclosures, failure to disclose interests in transactions, insider trading, and failure to discharge directors’ duties.”

So, Ezra’s liquidation should not come as a surprise, nor the news that the Singapore authorities, the Singapore Stock Exchange, nor the administrators have so far failed to take any meaningful action against the company’s directors for the actions and omissions which Associate Professor Mak identified.

Oh dear.

Emas Offshore for sale

Ezra’s last remaining asset of meaningful value, in our opinion, was its ownership of Emas Offshore, which was separately listed in Oslo and Singapore. However, we understand that Emas Offshore was taken over by its main creditor, DBS bank, and it delisted from the Singapore stock exchange last year. It is not part of the liquidation of Ezra.

Instead, we hear that Emas Offshore is seeking separate buyers, or funding for a management buy-out of its reduced fleet of AHTS, PSVs and accommodation workbarge units, many of which have been in long term lay-up. The most valuable asset is the DP3 construction vessel Lewek Crusader, which is fitted with a 400-tonne heavy duty crane and has accommodation for up to 500 people. AIS data suggest that it is on charter in Nigeria. Please correct us if we are wrong.

Lewek Crusader probably represents half the value of the company, and we understand that Nicky Tan of nTan, the restructuring advisory that has made a very lucrative business of assisting the distressed players in Singapore, is open to all offers. Do mention that Baird put you in touch and do see if you can find out the cumulative fees nTan has made from the clutch of offshore companies in Singapore it has assisted during their lengthy periods of judicial management.

Not all superheroes wear capes, but then again, few other superheroes have been involved in so many offshore bankruptcies in Singapore as Nicky Tan, who learnt his trade at Arthur Anderson, a company famous for its own implosion.

Who is left?

The liquidations of Ezra and Ezion leave question marks hanging over two more companies which were listed on the Singapore stock exchange, and are also seeking to restructure: Swiber Holdings and Nam Cheong.

Swiber: still going nowhere

Swiber’s long-suffering but well-paid judicial managers succeeded in their application to the court that the company remain under its protection up until June 30 this year.

Year six of judicial management

This is nonsense, as we observed here. Swiber first filed for judicial management in July 2016. We are now in 2022. The judicial management process is supposed to provide time for a company to restructure and resolve its debts, not time enough for Chairman Raymond Kim Goh and his management team to have made a full-size model of a pipelay barge out of LEGO, or to have etched the full text of War and Peace onto individual grains of rice.

Six years is long enough to either sell the company as a going concern and pay off the creditors, although (Spoiler alert!) nobody seems to want to buy Swiber, or it is long enough to liquidate the assets and shut up shop.

Instead, the company’s judicial managers have rolled over the management, sold a few ships at the behest of the mortgage holders, and issued the occasional update on a supposedly transformative LNG project that the company is pursuing in Vietnam. Some paperwork promising additional investment in Swiber from Saudi Arabia from Rawabi Holding Company has been signed, if it is successful in Vietnam with the deal.

That’s a big if.

Trust the People’s Committee?

The latest update to shareholders, whose shares have been suspended since 2016 (here) was issued ominously on December 30, just as a previous update came out on December 28, 2020. The company’s Chairman Raymond Kim Goh advised that the People’s Committee of Ben Tre Province is still considering Swiber as a potential investor in the Project, but has not made a final decision. Surprise!

Swiber has no experience operating an LNG power plant anywhere in the world, as far as we know. The company installs pipelines and jackets and topsides offshore, and does not own or operate LNG vessels, LNG regasification units, or even a single power plant. It is not clear why the People’s Committee of Ben Tre Province, or any other government body anywhere in the world, would seek investment in critical infrastructure from a company that is under judicial management, has no track record in power, and the shares in which have been suspended for more than five years.

Nobody seems to be able to explain to me why the judicial managers are so indulgent in a plan that seems to involve huge amounts of money that Swiber doesn’t possess, in a sector in which it has no experience, in a country where the company doesn’t even work onshore.

Honestly, if I was building an LNG power plant, Raymond Kim Goh would not be on the list of the top one hundred investors to whom I would turn. Would you?

Busted balance sheet exposed

A sixth year of judicial management means a sixth year of fees and charges and expenses for the managers, however. Swiber’s problems are the same as those of Ezra and Ezion – a balance sheet heavy with debt, and light on assets.

The full scale of Swiber’s balance sheet problem was exposed with the news late last year (here) that it was selling the 2005-built work barge and pipelay unit Resilient, formerly known as Swiber Conquest, to Mermaid Subsea Services of Thailand. The sale of the Panama-flagged barge closed a few days ago. The bank had a mortgage on the vessel and sold it, so Swiber received none of the proceeds.

On the latest consolidated accounts of the company, Swiber reported that the book value and the net tangible asset value of Resilient was approximately US$54 million, representing 11 per cent of the company’s assets.

The sale price to Mermaid? US$7 million.

Sell the lot to Rawabi and move on

Swiber had over US$500 million of debt and long-term liabilities when it last filed accounts to the stock market in 2016. The value of its assets has clearly collapsed, as evidenced by the Resilient sale, and there needs to be a reality check on the hope that the Vietnamese government or a Saudi Arabian partner is going to throw the company a lifeline.

Rawabi Holding Company is a big investor in offshore support vessels and has taken control of its former joint venture with Darren Yeo’s Vallianz Holdings in Singapore (See here for the convoluted US$80 million deal for a 20 per cent share the loss-making unit.).

If Rawabi wants to buy Swiber as a whole, great. Swiber needs to get out of judicial management, and either be sold or shuttered. It is a case study in how the process should NOT work.

Nam Cheong makes a profit

Nam Cheong is a Malaysian shipbuilder and shipyard that rapidly became the largest builder of OSVs in the country in the boom years, and which listed in Singapore in 2011. In 2014, it was worth US$675 million.

Last November the company reported its latest quarterly results (here). Joy of joys, the company appeared to have turned a loss in the previous year into a profit. Well done!

Then we read the small print. The profit was due to the waiver of US$3 million of debts by a trade creditor that the company booked to its income. This was the “result of successful negotiation and settlement.”

So many questions here as to why the US$3 million was waived, presumably because the debtor took a haircut and wrote off the US$3 million in return for being paid the rest of the debt.

Christmas Eve horror story

Then, on Christmas Eve at ten to six at night (always a big red, flashing, warning sign – see our coverage of Borr Drilling here) Nam Cheong announced that to the stock exchange that it was in default. Again.

“We regret that repayment of Term Loan Principal due on December 31, 2021 and Term Loan Cash Interest portion for the Interest Period from July 1, 2021 to December 31, 2021 will have to be suspended,” it declared.

So, having restructured its debts once, Nam Cheong will have to restructure them all over again. The company said it wished “to express its appreciation of the Term Loan Creditors’ indulgence and understanding to date.”

It said that it would “revert in the near future with an update of the ongoing negotiations with the creditors, and updates on the proposed business plan.”

Going concern query

We look forward to that. The Singapore Stock Exchange had already queried (here) whether the company is a going concern, highlighting that in owed US$239 million dollars which is due in the next 12 months but had only US$19 million of cash.

“In the event the Restructuring is not favourably completed in a timely manner,” the reply to the stock exchange from Nam Cheong in September concluded, “the company and the group will continue to be faced with a going concern issue. Hence, the board of directors is unable to, at this juncture, confirm the group’s ability to continue as a going concern.”

Enough said. Hard hat on, Sir Isaac. That powerful gravity remains in effect in Singapore.

Background reading

For Newton’s Three Laws of Motion see here.

And see our coverage of The Metals Company here for further proof that gravity also applies to special purpose acquisition companies, too. The stock closed at US$1.53 on Friday, having listed at US$10 in just September.

To review the fall of Singapore’ erstwhile marine titans, Credit Suisse’s analysts compiled this handy piece of research in 2014. When they said “underperform” for Ezion, they actually meant “dump now or lose your shirt.”

The rollercoaster history of Ezra by Mak Yuen Teen on his Governance for Stakeholders website can be found here. The other four articles in the series are here.

nTan’s website is here.

This curious account of a historic lawsuit in Texas involving Lionel Lee also caught our attention here.