• To sell 50% of subsea to Chiyoda
• May be selling more assets
• Dim industry and company outlook

To divest 50% of subsea business

Ezra Holdings has signed an MOU with Chiyoda Corporation for the latter to invest in Ezra’s subsea services business, EMAS AMC, to form EMAS CHIYODA Subsea – a 50:50 joint venture. Chiyoda will pay Ezra US$150m in cash and subscribe for new shares in the JV for US$30m in cash, subject to any closing adjustments. Ezra will also convert part of its existing intercompany debt owed by EMAS AMC into equity.

To divest FPSO division to Perisai?

There has long been market talk that Ezra has been considering divesting part of its FPSO assets, and now according to Upstream’s sources, the FPSO division may be divested to Perisai Petroleum Teknologi. However, we note that Perisai may also find it hard to raise funds in this current environment. Recall that the FPSO division is under SGX-listed EMAS Offshore, Ezra’s 75%-owned subsidiary. Meanwhile the market is waiting to see if the group redeems its S$150m perpetual securities in Sep to avoid a step-up; following that, a S$95m note will mature in Mar 2016.

Potential trading buy short term, but HOLD over longer term

As mentioned in our earlier note on 28 Aug, we believed there would be a positive reaction to the share price upon lifting of the trading halt, as the proposed transaction implies an equity value of US$360m for EMAS AMC, and the sale proceeds is estimated to reduce Ezra’s net gearing from 1.0x (pro forma post-rights) to about 0.8x.

However, as what both parties have at this stage is a binding MOU pending Ezra’s shareholders’ approval (EGM likely 3 week Nov) and a firm agreement with Chiyoda following the satisfaction of certain conditions. We maintain our 0.35x FY15/16F NTA valuation on the stock, keeping our fair value estimate unchanged at S$0.16. Though there may be trading opportunities in the near term, we maintain our HOLD rating over a 12-month timeframe, given the dim industry and company outlook.

Source: OCBC Research - 1 Sep 2015