Ezion pleads banks for repayment extension to avoid refinancing loans
Repayment period will be stretched to 8 years.
Ezion Holdings Limited may have to weather downturns in a tightened credit market over the next two years as it needs refinancing of around US$270 million, but with its current loan restructuring, it may not need to do so, analysts say.
According to a report by Maybank Kim Eng, most of Ezion's bank loans were taken to fund construction of liftboats. These loans, the report noted, were on 5-year repayment terms.
Maybank Kim Eng argued that it is logical for banks to support Ezion's maneuver of restructuring its bank loans to extend repayment tenure even for 3 years.
"In our view, it is logical for banks to support Ezion, whose assets are still generating cashflows and is profitable. Unlike drilling rigs and OSVs, there is no oversupply of liftboats. Withdrawal of credit at this time would be worse off for banks as they cannot extract as much value from those assets alone," the report stated.
Ezion has a total bank debt of US$1.2 billion and also has a US$390 million of outstanding bonds as of FY15.
Maybank's analysis shows that Ezion could bank on its own cashflows to pay off its liabilities in 2016 and 2017 but it may need refinancing from 2018 in order to meet its obligations.
"We believe that it is possible for Ezion to take on new debt by then, as its gearing would have improved from 1.1x currently to about 0.7x by then as it would have paid off its debt," the report explained.
However, it maintained that with the current talks on repayment period extension, it would be a win-win deal for the banks and Ezion.
"We think that it is in the interest of banks to help Ezion so they can preserve and recover full amount of the loans," the report stressed.
"Logically, banks should support players that could still generate profits and positive cashflows as this would preserve their ability to recover their loans fully when the oil market recovers," it added.