IN few areas is hindsight as instructive as finance. Investors who survive bad times learn their lessons and when such a situation comes around again, they know how to react.
Singapore bondholders are getting a schooling now on their rights and the wisdom of not forgoing them on the cheap. On Tuesday night, Ezra Holdings Ltd and its Japanese partners put their offshore oil-services joint venture into bankruptcy in the US. EMAS Chiyoda Subsea Ltd filed for Chapter 11 protection from creditors pending a reorganisation. Singapore-traded Ezra is the biggest shareholder in the venture with 40%. Chiyoda Corp holds 35% and Nippon Yusen KK 25%, Bloomberg‘s Steven Church and David Yong reported.
It sounds like bad news for Ezra, which faces its own financial troubles as the offshore oil-services industry buckles. The Singapore company said last month that Forland Subsea AS may apply for it to be wound up over a payment due to the vessel owner.
Ezra owes US$988.8 million (RM4.39 billion) of loans and bills payable to banks, according to its accounts for the year ended Aug. 31, 2016. The lenders are no doubt circling and wanting to know how the company will pay. If a restructuring is deemed necessary, holders of Ezra’s S$150 million (RM473.67 million) of 4.875% bonds due in 2018 will have to sit on their hands and wait.
They have only themselves to blame. In November, investors agreed to waive most of the default covenants on the bonds. As such, they gave up their right to request immediate repayment if the company missed its obligations. In return, they were paid S$250 for every quarter million of securities held (see chart — Writing on the Wall).
I had warned about consenting to major changes in bond documents in return for small one-time payments. The practice has become common in Singapore, where investors do not always read the fine print.
Ezra looks to be the most painful case yet of bondholder naiveté. The company had already loosened restrictions on its bonds earlier last year. Subsequently, an affiliated company, Perisai Petroleum Teknologi Bhd, defaulted on its securities later in the year. Given the costs of maintaining idle offshore oil services vessels and persistently low oil prices, it was not rocket science to figure out that things were not going well for Ezra.
It is all moot now. Singapore investors will have to learn their lesson. The next time a company comes around asking for forgiveness, perhaps they will be less kind. — Bloomberg