OIR BITES: Ezion secures LOI worth up to US$45.3m, details of financing out later

Stock Name: EzionHldg
Company Name: EZION HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 2.33

OIR BITES 28 Feb 2013

Ezion secures LOI worth up to US$45.3m, details of financing out later Dear TRs, We attended Ezion's briefing this morning following its trading halt. Here are the key takeaways: Ezion has received a letter of intent with a contract value of up to about US$45.3m over a two-year period to provide a liftboat for a SE Asian based national oil company. The unit will be deployed by 3Q13. Ezion will be acquiring jack-up construction vessel, Nora, at a substantial discount off its original built price of US$240m. We estimate that the discount is as huge as 60%, and according to management, the rig's market value today would be around US$200m. The unit was supposed to be completed by Drydocks World as early as Nov 2010, but due to financial difficulties of the customer and also the yard, the unit was left hanging. This is a huge asset with a deck area of 2500sqm, max working depth 90m, max lifting capacity 1500 tonnes, accommodation capacity of 260 men and equipped with DP2 capabilities. Besides supporting oil and gas activities, it can also undertake windfarm installation work. Management calls it a "Rolls Royce' among liftboats. Including the rig acquisition cost, the total project cost for Phase 1 of this liftboat will be US$110m, while an additional US$30m would be spent for Phase 2. After the rig is completed in Phase 1, it will be deployed in SE Asian waters for about a year. It will then be replaced by another liftboat of Ezion to satisfy the two-year contract period. During Phase 2, the huge liftboat will undergo further modification (four months) to ensure that it meets North Sea standards. It is then expected to be able to command higher rates of ~US$80-85k/day for a bareboat charter in the North Sea. For the US$110m required for Phase 1, DBS will provide a loan available for drawdown of up to US$85m. Assuming Ezion takes the maximum loan, its equity portion of US$25m will be satisfied by issuing DBS shares of Ezion. There will be no cash outlay for Ezion. Details on the final structure will be released by tonight, hence Ezion's trading halt will continue till then. We estimate an ROE of about 30% for this project, which would increase subsequently if Ezion is able to deploy the unit in the North Sea at good day rates. Management is still optimistic about the upcoming contract pipeline. We currently have a BUY rating with S$2.33 fair value estimate on Ezion.