EMAS Offshore (EOL) started reporting quarterly losses in January 2016 – just 15 months after its secondary listing on SGX. By October 2016, there were more signs that Ezra was in serious trouble. On 30 October 2016, it made its first announcement that it had applied for an extension of time to announce its results for FY2016.[i] On 22 December, it announced that it had been granted an extension of time to hold its AGM for FY2016.[ii] Further applications for extension of time to announce Q1 2017 results and to hold the AGM were sought. There has been no further annual report and audited financial statements published by the company after FY2015, and no AGM for FY2016 or after. On 20 March 2017, trading in Ezra’s shares was suspended and it has remained suspended since.[iii]
Photo by Jason Blackeye on Unsplash
Triyards was still announcing contract wins to build new vessels until the first half of 2017, with a contract to build two ferries for Scottish and Asian customers worth US$20.64 million in March 2017[iv] and seven tugboats and one crew vessel worth US$32.90 million in April 2017.[v]
For EOL, the FY2015 Q4 results showed a 19% decrease in revenue compared to the previous corresponding quarter, and gross profit had fallen from US$10.2 million to negative US$1.4 million.[vi]
As mentioned earlier, EOL reported its first quarterly loss 15 months after its secondary listing on SGX. That was on 11 January 2016, when it announced a US$3.2 million loss for the quarter ending 30 November 2015, compared to a profit of US$148.4 million for the corresponding quarter.[vii] This was followed losses of US$140.5 million, US$23.2 million and US$98.5 million for the last three quarters of FY2016. The 2016 annual report was issued more than a year late on 26 January 2018.[viii] The Directors’ Statement in the 2016 annual report dated 8 December 2017 now painted a different picture although the directors remained positive about the restructuring. It states:[ix]
“..at the date of this statement, the Company has entered into a binding term sheet with potential investors for the injection of an aggregate amount of US$50 million into the Company….as part of the financial restructuring of the Group…and subject to the completion of the Investment and the successful Restructuring, there are reasonable grounds for the FY2016 Financial Statements to be prepared under the assumption of going concern…”
The auditor’s report now contained a disclaimer of opinion on the basis that the auditors were not able to obtain sufficient appropriate to provide a basis for an audit opinion. The basis for the disclaimer of opinion relates to the use of the going concern assumption, the carrying value of assets, and the completeness of liabilities and provisions.
Changing Crew
Around the time when the three companies started to face challenging industry conditions and were under increasing stress, there were numerous resignations and changes in personnel. At Ezra, IDs Soon Hong Teck and Ngo Get Ping resigned or retired in December 2015.[x] On 11 December 2015, it was announced that non-executive chairman Koh Poh Tiong, who had been on the board for just over four years, will retire on 1 February 2016, with Lee Kian Soo taking over as non-executive chairman.[xi]
Capt. Adarash Kumar, resigned as ED/COO of Ezra in September 2015, purportedly to concentrate on his role at EOL, where he had been appointed CEO that same month.[xii] CFO Eugene Cheng resigned in January 2016,[xiii] with Chan Eng Yew taking over as interim CFO while remaining concurrently as Triyards’ CEO.[xiv]
On 5 May 2015, it was announced that Lionel Lee has been appointed as chairman of Ezra’s Subsea Services Division – also called EMAS AMC – in addition to his role as Group CEO and MD.[xv] On 1 May 2015, he had stepped down from the boards of EOL and Triyards.
Over at Triyards, Lee Kian Soo had taken over the reins as non-executive chairman after Lionel Lee stepped down.[xvi] Chan Eng Yew and Andrew Mak both resigned from their ED roles at the same time but retained their executive roles of CEO[xvii] and COO[xviii] respectively.
On 16 December 2015, just five days after it was announced that Koh Poh Tiong will step down as Ezra chairman, it was announced that the AC chair, Loy Juat Boey, will retire as ID[xix] to be replaced by Lim Kuan Meng.[xx] Loy had served on the board for just over two years. A substantial part of her career was at Asian Pacific Breweries where Koh had been CEO.
With Lionel’s resignation as vice chairman of EOL in May 2015, Adarash Kumar was re-designated from NED to ED,[xxi] and then appointed CEO in September 2015.[xxii] CFO of EOL, Jason Goh, resigned in January 2016, replaced by Hsu Chong Pin.[xxiii]
By February 2016, Lee Kian Soo was chair of all three companies – non-executive chairman at Ezra and Triyards and executive chairman at EOL. Lionel was Group CEO and MD, and chairman of EMAS AMC, at Ezra.
There was to be another round of board and management changes in the three companies as the companies unraveled.
Chan resigned as interim CFO of Ezra in March 2017.[xxiv] Philip Eng, the lead ID, finally resigned in August 2019 with the announcement stating that the Chapter 11 plan had been implemented and the company will soon be applying to place itself in judicial management in the near future.[xxv]
At Triyards, Mak left on 25 August 2017, although it was only announced on 7 September 2017.[xxvi] CFO Yang Naing Aung resigned in March 2018.[xxvii] ID Simon Lockett, who had joined the board in February 2015, resigned in May 2018,[xxviii] and Chan Eng Yew completed the resignations when he left as CEO in February 2020.[xxix]
At EOL, ID Dale Bruce Alberda was re-designated to ED in February 2017.[xxx] CEO and ED Kumar resigned with effect from April 2018,[xxxi] while CFO Hsu left in December 2018.[xxxii]
Hitting Rocks
The first Mayday message was sent out by the EMAS Chiyoda Subsea JV (ECS), which filed for Chapter 11 bankruptcy protection in the US on 27 February 2017.[xxxiii] This was just eleven months after the agreement between EMAS AMC and Chiyoda for the UV was completed.[xxxiv]
Ezra’s unaudited FY2016 results released on 29 November 2016 showed the carnage.[xxxv] It reported a net loss after tax exceeding US$1 billion. Current liabilities to total assets was 0.8 and current liabilities made up 97 percent of total liabilities.
In March 2017, Brent crude oil price had recovered to about US$52 a barrel. However, eventually, Ezra followed ECS in filing for Chapter 11 bankruptcy protection on 18 March 2017.[xxxvi]
As of April 2017, it was reported that Ezra Holdings had US$150 million of 4.875% notes due the following year, and debts of up to US$2 billion. With its worsening financial condition, the founding Lee family was said to have put up a bungalow for sale in 2016. A feasible restructuring plan was difficult due to the nature of industry which is heavily dependent on market conditions.[xxxvii]
Following the bankruptcy filing in March 2017, Ezra’s management held its first meeting with bondholders on 17 April 2017. However, uncertainty remained as to whether the bondholders could recover their investments. This was because corporate guarantees accounted for 85 percent of Ezra’s total liabilities. It was claimed that these were accumulated over the years when company loans were taken up by Lee. According to KGI Securities analyst Joel Ng, it was possible that shareholders would not recover any investment while creditors might get some equity in return. This was based on industrial practices for highly leveraged companies in the US. However, the outlook was not positive given the bad market conditions.[xxxviii]
Troubles Spread Like a Plague
EOL’s wholly-owned subsidiary, Lewek Champion Shipping Pte Ltd, was to be wound up following a hearing on 14 July 2017.[xxxix] EOL owed US$68.8 million to Lewek Champion for the financial period ended 30 November 2016. The winding up of Lewek Champion potentially would materially affect the financial position of EOL.[xl]
On 29 August 2017, EOL commenced restructuring proceedings in Singapore after entering into a binding term sheet with certain potential investors.[xli] Its 2016 audited financial statements, released only in January 2018, showed how deep the hole was. It reported a net loss after tax of US$535 million, the ratio of debt to total assets was nearly 1, and ratio of current liabilities to total liabilities was 0.85.
Triyards was also deep in trouble. Due to the difficulties faced in obtaining new liquidity, it converted from a trading halt to a trading suspension. It was not a going concern unless there was a feasible restructuring plan. This problem was exacerbated after the release of its results for the third quarter ending 31 May 2017 in July 2017, which showed a loss of US$63.27 million compared to a profit of US$4.12 million for the comparative period in the previous year.[xlii] Triyards faced difficulties in loan repayments and delayed collections from debtors, and sought negotiations with its creditors.[xliii]
The financial position of Triyards worsened when two shipbuilding contracts were cancelled on 29 December 2017. This cancellation resulted from the company being unable to complete the projects in time due to cash flow problems. As a result, Triyards suffered a fall in revenue, resulting in a loss of US$162.5 million for the financial year ended 31 August 2017. The loss per share amounted to 50.06 US cents. This was a huge change from 2016 when Triyards enjoyed a net profit of US$17.8 million and earnings per share equate to 5.48 US cents. The ratio of debt to total assets had climbed to 0.83 and current liabilities to total liabilities was nearly 1.[xliv]
Triyards faced delayed salary payments in Vietnam and financing was held back by the banks due to defaults by Ezra. On 6 August 2018, Ocean Energy Ventures filed a claim of US$2.1 million against Triyards. The promised aid of US$5 million from Ferrell Vanguard Fund SPC was thus activated. Ferrell made a cash injection of the balance amount of US$3.8 million[xlv] and purchased some equipment and tools from the Triyards’ two Vietnamese subsidiaries.[xlvi]
However, this was not the end of its problems. Creditors made claims of approximately US$80.1 million from Triyards. The matter was made worse when a US$15.2 million construction contract was terminated with its subsidiary, Saigon Offshore Fabrication & Engineering Ltd (SOFEL).[xlvii] However, the restructuring plan offered by Ferrell Vanguard Fund SPC gave a ray of hope as it could see a further US$50 million funds injection in the form of debt or equity into Triyards.[xlviii]
Shy White Knights
There was no shortage of potential white knights but none could eventually be convinced to invest as part of the restructuring of the companies.
On 11 December 2017, a new term sheet was entered into between EOL and BT Investment (BTI), a subsidiary of Baker Technology. Some key points in the revised term sheet included de-leveraging and improving the working capital position of EOL. This could be done when investors subscribe to the new shares. BTI would be injecting a minimum amount of US$25 million together with another co-investor. If this co-investor could not be found, then BTI would invest a full amount of US$50 million. With the restructuring plan, EOL and its wholly owned subsidiaries applied for a scheme of arrangement under the Singapore’s High Court and was heard on 21 December 2017.[xlix]
An additional four-month extension for court moratorium was sought by EOL to support the restructuring of its group of companies. EOL said it needed more time for its restructuring plans with BTI and other unidentified potential investors.[l] Things seem to be going well until 2 July 2018, when BTI withdrew its plans to inject funds.[li]
On 26 October 2018, EOL announced a new non-binding term sheet with Udenna Corporation involving an investment amount of US$73.29 million.[lii] However, on 13 February 2019, EOL announced that Udenna would not be proceeding with the investment.[liii] An application to be placed under JM was eventually approved on 21 October 2019, and the validity of the JM order has been extended until 20 October 2020.[liv]
Meanwhile, on 18 April 2018, the Stock Exchange Appeals Committee in Oslo repealed the resolution to delist EOL[lv] allowing it to remain listed on the OSE. Following the earlier failed attempt to delist EOL, the Financial Supervisory Authority of Norway (FSA) had on 15 August 2018 resolved to impose on the Oslo Stock Exchange (OSE) to delist EOL. Accordingly, OSE announced that EOL was to be delisted with effect from 28 September 2018 although the appeal against this decision had been referred to the final appellate body, the Norwegian Ministry of Finance.[lvi]
Maybe…but no
On 13 March 2018, an application with regards to the cross-border protocol was made by Ezra and approved by the High Court. This was made to facilitate the administration of the bankruptcy procedures in the US and restructuring in Singapore more efficiently.[lvii]
Soon after BTI expressed interest to invest in EOL, Asia Fund Space (HK) Ltd (AFS), a financial consultancy specialist said it was interested in helping Ezra. Ezra entered into a binding proposal with AFS, which was announced on 1 March 2018.[lviii]
Under the proposal, all the existing assets would be spun off under a separate trust or a new entity to benefit existing creditors and new businesses would be established. This would allow Ezra to start as a clean shell company so that new equity injected by AFS would be used solely for creating businesses. Ezra would receive a cash injection of US$1 million in exchange for 92% of Ezra’s enlarged share capital after the reorganisation from AFS. The remaining eight percent stake would be shared equally between existing shareholders and creditors.
AFS also planned to set up a second holding company for the acquisition of real estate business in Myanmar with a proposed equity amount of US$25 million from investors. As part of the plan, AFS would offer free shares to the stakeholders of Ezra in this new separate holding company.
In order to enforce the reorganisation plans in place, Ezra needed to seek approval from both Singapore and the US courts. Approval from shareholders and creditors was also required with the plans proposed under a scheme of arrangement.[lix]
However, on 29 March 2018, Marina Aquata Shipping, a Special Purpose Vehicle (SPV) owned by Standard Chartered Bank, terminated the bareboat charter of the platform supply vessel with EOL. Ezra had issued a guarantee and indemnity in favour of the owner. This termination followed allegations of repeated breaches of terms and other covenants by EOL and Ezra. Three other SPVs of the bank had reportedly earlier in December 2017 also cancelled agreements with EOL and demanded reimbursement (although no announcements by EOL or Ezra were made at that time).[lx]
Two weeks later, Ezra announced that the proposed investment by AFS fell through as AFS failed to meet the agreed requirements.[lxi] It had failed to list a trust or newly formed entity with the existing assets of Ezra on the Catalist Board of the SGX-ST and buy over the Myanmar Property Business as agreed. [lxii]
Between June 2017 and January 2019, Ezra issued a number of scheme of arrangement notices.[lxiii] However, eventually, it applied to the High Court of Singapore on 4 February 2020 to put the company into judicial management (JM). The hearing for the JM application has been rescheduled several times and is now scheduled to be heard on 22 June 2020.[lxiv]
Sinking together
In September 2018, DBS demanded payment of approximately US$43.9 million after Triyards defaulted several times.[lxv] The winding up application from Ocean Energy Ventures in August 2018 was deemed as a default although the application was withdrawn after negotiations.[lxvi]
Approximately 12 months after trading was suspended and attempts by Ezra to restructure its debt, creditors lost confidence not only in Ezra but also Triyards.[lxvii] Despite obtaining a cash injection from Ferrell Vanguard Fund SPC, creditors continued to demand for payment.[lxviii]
On 17 September 2018, DBS appointed a receiver to receive the settlement of the Singapore-incorporated subsidiary, Strategic Marine and other assets. As of 21 September 2018, Triyard’s subsidiaries had nearly US$90 million of claims against them.[lxix] Hong Leong Finance, another principal banker of Triyards, filed for a winding up on 18 September 2018. Besides claims and demands relating to Triyards, further litigation claims and statutory demands were made against its subsidiaries. On 3 October 2018, Tractors Singapore, a creditor of Triyards Marine Services, a subsidiary of Triyards, submitted another winding up petition.[lxx]
On 5 November 2018, Triyards announced that restructuring proceedings had commenced as statutory demands continued to pile up.[lxxi] On 8 November 2019, OCBC Bank applied to place Triyards into JM and for interim judicial managers to be appointed.[lxxii] Triyards was placed in JM on 13 February 2020,[lxxiii] and the JM order has been extended to 12 February 2021.[lxxiv]
It was not just external forces turning against the three companies. There were many internal issues as well. These are covered in the last two parts of the series.
Note: This series of articles draws on certain parts of the case study written by Cliff Seah Wen Jie, Goh Mei Qi, Hu Jingyi, Kelsey Feng Qiqi and Liu Yuchen, BBA (Accountancy) students at NUS Business School, under the supervision of Associate Professor Mak Yuen Teen. It has been written solely from public information, including media reports.
ENDNOTES (Note: Draft only)
