Friday, October 05, 2007

Ezra - Successful listing of EOC Limited on Oslo Bors

This evening, on October 5, 2007, Ezra announced that EOC Limited has successfully listed on the Main Board of Oslo Bors in Norway, becoming the first Singapore company to do so. Recall that on April 23, 2007, Ezra had initially sold off their 12% stake in EOC for US$43.3 million, trimming their stake from 100% (wholly-owned) to 88%. EOC was then admitted onto the OTC board of Oslo Bors at the time and plans were already underway to move EOC to the Main Board by the end of CY 2007. The intention of the sale of the 12% stake was to raise funds to expand Ezra's vessel fleet, and plans were already underway then to move the FPSO and the heavy lift accomodation barge to EOC.

On August 31, 2007, Ezra announced that they had obtained in-principle approval from Oslo Bors to upgrade EOC to the Main Board. At the time, Ezra had already expressed their intention to remain asset-light; thus hinting that they would reduce their stake in EOC to less than 50%. The purpose of the listing was to get a better valuation as Norway was the hub for oil and gas company listings. Also, being listed in Europe also allows EOC easy access to the capital markets there in order to raise funds for future expansion, and puts them closer to their target markets in North Sea, South America and West Africa. There were several requirements for EOC to move to the Main Board, which included drafting an approved prospectus as well as getting a suitable number of round lot holders who were retail investors (not institutional investors). All these conditions were easily fulfilled and on September 10, 2007, Ezra announced that it was planning to sell up to 40.1% of EOC in order to raise funds.

Subsequently, on September 20, 2007, Ezra sold off 36,413,500 shares in EOC (about 32.8%) at NOK 22 to instituional investors through a book-building process assisted by Pareto Securities. Another 7 million shares in EOC (about 6.3%) was to be sold to retail investors in order to satisfy the round lot holding requirement. This entire exercise raised proceeds of USD 177 million payable in cash. After this listing and vendor sale of shares, Ezra's stake in EOC will drop to 48.9%; thus in FY 2008 EOC will be accounted for as an associated company and no longer as a subsidiary.

The entire listing exercise from April 2007 till now raised a total of US$220.3 million (about S$323.8 million using 1 USD: 1.47 SGD). This is equivalent to about S$1.105 per share in cash and Ezra will deploy the funds for Ezra's fleet expansion, acquisitions, working capital as well as a dividend payout to shareholders. JP Morgan's report on Ezra on September 10, 2007 mentioned the possiblity of a dividend payout of up to S$0.48 per share assuming 50% of the proceeds from the listing were paid out, but this is purely an assumption was we do not yet know the working capital and capex requirements of Ezra as they move into FY 2008. When the CEO Lionel Lee mentioned acquisitions, I assume Ezra are on the lookout to acquire a company which has vessels and a presence in the North Sea, which is the market they are targeting to enter in order to compete with the larger players. However, also note that Management (comprising the Lee Family) currently hold about 35% of Ezra; thus a good dividend will also benefit them as it will be cash in their pockets. I strongly suspect that Ezra will make the dividend announcement during their upcoming FY 2007 financial results announcement due in mid to late October 2007.

One of the concerns regarding Ezra's listing of EOC and subsequent paring of their stake is that their earnings will suffer a drop, as EOC essentially is holding the major revenue-generating vessels such as the heavy lift accommodation barge and the FPSO 1. It is also uncertain as to whether the new vessels ordered by Ezra (the two 30,000 bhp AHTS and the 27,000 bhp MFSV) will be shifted over to EOC or retained by Ezra. If they are shifted over, then Ezra can only recognize 48.9% of the earnings from these state-of-the-art vessels. Once these questions are clarified (probably at the AGM), a clearer picture can then be formed of the earnings potential for Ezra moving into FY 2008 and FY 2009. I feel that short-term wise, we may see a dip in earnings but in the long-term, the earnings from the new vessels will catch up and still manage to outpace current earnings. Thus, it is more of a case of short-term pain in order to enjoy long-term gain. Readers who do not share my view are welcome to post their comments, I am happy to discuss it.

One last point about this whole listing exercise: EOC is now on the Main Board of Oslo Bors and this greatly enhances its ability to raise funds separately from Ezra (the parent company). Recall that on February 16, 2007, Ezra announced the placement of 15 million new shares of Ezra at a price of S$5.18 per share, effectively increasing the total issued share capital to 292.9 million shares and diluting existing shareholders such as myself. In order to avoid direct dilution to shareholders of Ezra in case more funds need to be raised via an equity offering, EOC can now raise the funds directly through the Norwegian market and it will be Ezra's stake in EOC which will be diluted; thus avoiding a direct further dilution for existing Ezra shareholders. EOC's successful listing in Norway's capital markets also significantly improves Ezra's profile and visibility in the international community and this is an added intangible benefit for the Group when it comes to bidding for charter contracts for its new vessels.

I will be providing a further update on Ezra when they release their FY 2007 financial results, as well as do a review and analysis of Ezra's numbers, prospects and future strategy for growing earnings.

P.S. - As of today, there is still no update on the proposed bonus issue. Perhaps Management is also waiting for the release of the financials to confirm the books closure date. Should there be any news, I will post it on my blog in a small column.

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