Ezra disclosures baffle more than enlighten
At first blush, the mystery of who sold a 7.04 per cent
stake in offshore and marine group Ezra Holdings to Norway’s DNB Bank on Sept
25 might appear to have been much ado about nothing. As analysts have
conjectured, the roughly S$25 million deal was likely to do with a substantial
shareholder having pledged some shares to DNB Bank as collateral for financing.
Comments
Melissa Tan
08 October 2015
At first blush, the mystery of who sold a 7.04 per cent stake in offshore and marine group Ezra Holdings to Norway’s DNB Bank on Sept 25 might appear to have been much ado about nothing. As analysts have conjectured, the roughly S$25 million deal was likely to do with a substantial shareholder having pledged some shares to DNB Bank as collateral for financing.
Case closed? Well, not so fast. Another look at the disclosures Ezra filed regarding the transaction shows that they raise more questions than they answer - particularly about their timing and content.
Ezra disclosed DNB’s purchase of 207 million shares for S$0.12 apiece in a Singapore Exchange filing on Monday evening last week. Since the party on the other side had not been named at that point, the news briefly triggered a bout of speculation over whether the seller might have been the Lee family that controls Ezra.
Ezra made two more SGX filings the evening after, of which the first revealed that the stake seller was another Norwegian firm called Frontica Global Employment. Frontica, after some digging, turned out to be a renamed existing substantial shareholder that had held 7.44 per cent of Ezra before selling off the 7.04 per cent chunk.
But somewhat unusually, Ezra’s second bourse filing indicated that Frontica had immediately gotten back the entire 7.04 per cent under “deemed interest”.
According to the explanation given, Frontica’s deemed interest came about because there had been an “execution of forward agreement” between Frontica and DNB. This apparently gave Frontica “a right to purchase” 207 million Ezra shares “at the forward price per share on the specified settlement date”, the filing said, without specifying the price or date. There were no further details.
Analysts trying to make sense of this have theorised that the share transaction arose because Frontica had pledged the 207 million shares to DNB Bank as collateral for a loan. That may well be the case. But if it were something as ordinary as a share pledge for a bank loan, could there have been a better way to disclose it for the stakeholders involved?
The first issue here relates to what time the disclosures were filed.
Ezra told investors after market close that Monday that DNB had bought 207 million shares at S$0.12 each. Ezra shares had closed at S$0.116 that day, but subsequently climbed 4.3 per cent to close at S$0.121 last Tuesday.
Investors only found out after market close the following Tuesday that the seller was Frontica, and that Frontica had indirectly gotten back the 7.04 per cent stake anyway. After that news, Ezra shares slid back down to end at S$0.117 the following Wednesday.
Though no direct link can be drawn, it is possible that some investors may have made different trading decisions on Tuesday if all the relevant disclosures had been released together, rather than separately.
The second issue is the content of the disclosure - specifically, the way the explanation was worded, which could have caused some confusion.
The explanation stated that the so-called “forward agreement” between DNB and Frontica came with a “right to purchase”. This may seem self-contradictory since a forward agreement generally entails an obligation, not a right.
The difference between “obligation” and “right” can be material - if Frontica just has a “right”, it can choose not to buy back the Ezra shares, a route that might seem increasingly attractive given the ongoing gloom in the offshore industry.
At any rate, it is impossible to be certain whether Frontica has an obligation or a right without knowing more about the deal, as analysts have pointed out. Neither DNB nor Frontica have been particularly forthcoming with details of their agreement.
To reduce possible confusion for minorities and send a signal that stakeholders should not expect to get away with making vague or opaque disclosures, listed companies and the exchange both play a crucial role.
One possibility would be for Ezra to seek clarification from Frontica on the apparent sell-and-promise-to-buy-back deal. Assuming Ezra achieves success on that front, it could then pass on that information to minorities to aid their decision-making.
The bourse is also well placed to help ensure that disclosures remain as transparent as they ought to be. A push for the use of more plain English in filings could be a good start, and would mark another vital step towards keeping the local market functioning efficiently and fairly for all.