SINGAPORE (March 28): Ezion this morning announced that it had acquired the remaining 50% interest in its existing joint venture with Swissco for a total cash consideration of $5 million.
(See also: Ezion acquires existing JVs & assets in efforts to improve earnings)
Of the total consideration, $3.5 million is for the remaining 50% stake in Strategic Offshore Limited (SOL), which owns three rigs assets: GSP Atlas, GSP Orizont and GSP Fortuna.
The other $1.5 million is for the remaining 50% interest in Strategic Excellence Limited (SEL) which owns the rig asset Strategic Excellence.
The estimated carrying values of the 50% equity in SOL and SEL are zero and US$5.2 million respectively.
Assuming the acquisition was effected on Jan 1 2016, the basic loss per share would narrow from 2.3 US cents to 1.4 US cents, while NTA per share will increase from 63.43 US cents to 63.60 US cents.
In a flash note, UOB Kay Hian says the acquisition implies a gain of US$16 million ($22.3 million) which it assumes will be the net negative goodwill amount management had earlier guided it would recognise.
Based UOB’s understanding, total debt outstanding on the acquired assets stands at US$86 million, of which US$9 million is currently overdue.
“The immediate repayment requirement should not unduly stress Ezion's cashflow in the near-mid term, in our opinion,” says UOB.
From what UOB understands, the total consideration for the SOL assets were largely based on the outstanding loan agreements on each rig, among other factors such as the value of net tangible assets and expected future income.
“We caution against reading into the values and using it to ascribe valuations for the SOL rig assets in the current market,” says UOB, “It does not reflect the rigs' market value.”
“Fundamentally, Ezion remains a preferred pick in the segment as we maintain our view that asset owners will be first beneficiaries of the oil cycle recovery,” says UOB.
Ezion is facing earnings weakness owing to operational headwinds in deployment of its vessels, which continue to have contracts backing them.
Earnings are expected to remain weak in 1Q17, and pick up from 2Q17 onwards assuming no force majeure and that Brent crude prices remains at current levels of US$40-50/bbl.
Cashflow might see near term weakness, but should pick up significantly as 2017 progresses and remains strong as compared to peers, it adds.
UOB has a “buy” on Ezion with unchanged target price of 45 cents.
Shares of Ezion are trading at 34 cents.
