Ezion loses steam after early gains on return to trading

Failing to hold early gains after trading resumes for its counter, offshore and marine (O&M) group Ezion Holdings slipped to negative territory and closed marginally down at 19.4 Singapore cents, down 0.3 cent from its last traded price of 19.7 cents.

The stock ranked the highest traded by volume on Tuesday, with over 251 million shares changing hands. It surged to an intra-day high of 25.5 Singapore cents, but mostly hovered at around 20 Singapore cents in afternoon trading.

Market practitioners pointed to selling pressure coming from the substantial equity dilution that Ezion potentially faces after emerging from a months-long debt-refinancing exercise. Its debt revamp tabled equity swaps and issuance of warrants, including for holders of S$575 million of notes and perpetuals.

Such selling pressure could have outweighed "buy" calls from punters betting on upside from the closure of its refinancing exercise.

Some of Ezion's noteholders have reportedly acted on the debt-to-equity swap options that are pegged at an early-bird conversion price of 24.85 Singapore cents per share, or 27.63 Singapore cents if otherwise.

iFast's senior analyst, Ang Chung Yuh notes that "some clients have sent in the instructions to convert their noteholdings into shares". He added that some of these investors, in fact, "would be making profits if they manage to divest the converted shares at Tuesday's closing price" because "they had bought their notes in the secondary market at distressed pricings".

This came after iFast and other bond-market specialists put up recommendations for security holders to retain the conversion options. Mr Ang pointed out that holding onto bonds, which rank senior to equity, is prudent, as it is uncertain how Ezion's share prices may react to the massive dumping of shares if most of its security holders choose to exit by exercising the equity swaps.

One factor to have weighed in on Tuesday is that Ezion's outstanding notes attracted no bid value on Tuesday. A remisier who had also received standing instructions to execute the equity swaps for Ezion's notes, explained that his clients have no confidence of divesting their noteholdings in the resale market.

The issuance of new shares for those exercising their conversion options however, will take place only days after, so the remisier suggested that Ezion's share price movement on Tuesday is a response to the massive equity dilution that will ensue.

Yet, the book values of Ezion's shares will only gradually improve, with its noteholders stepping forward to exercise these conversion options.

UOB Kay Hian's analyst, Foo Zhi Wei pointed out that post debt revamp, Ezion's book value to equity excluding perps started at just 12.4 Singapore cents before the exercise of these options and warrants. "Without conversions, Ezion's fully diluted book value of 21 cents is unlikely to be realised."

Mr Foo has upgraded Ezion to a "hold" and raised its target price to 18 Singapore cents after its debt revamp, but he warned that "little or no cash flow will be attributable to shareholders ... until Ezion's debts are settled".

Even if Ezion turned profitable, what may weigh against the stock is its highly leveraged balance sheet. By Mr Foo's calculation, Ezion's net gearing stood at 785 per cent, including the obligations of some S$150 million perps, relative to "peer average of 124 per cent".

Ezion is this year's second O&M counter after Marco Polo Marine to emerge from months-long debt revamp.

Tan Hwee Hwee, Wong Kai Yi

18 April 2018