EOC pre-markets Singapore IPO

Singapore's EZRA Holdings sets sail with plans to raise up to $250 million from a domestic offering of shares in associate company EOC Ltd.

Pre-marketing began yesterday for the $250 million flotation on the Singapore stock exchange of EOC Ltd, an affiliate of EZRA Holdings that will house and consolidate its offshore support services.

The planned DBS- and OCBC-led public share offering will be a secondary listing for EOC, which has been trading on Norway's Oslo Bors since 2007. EZRA Holdings, a global offshore contractor and provider of integrated offshore solutions to the oil and gas industry, is already listed in Singapore.

The planned flotation forms part of a wider reorganisation of the group, which will split EZRA Holdings into two distinct entities and give it majority control of EOC, up from its current 45.7% stake.

The plan, approved by shareholders on August 19, will see EOC purchase EZRA Holdings' offshore support services arm EMAS Marine for $520 million. According to a company circular, this comprises $150 million in cash and $370 million through the issue of 280.13 new shares to EZRA Holdings at NOK8.18 per share. 

EOC's Singapore share offering will fund the cash component. Having solicited interest from cornerstone and anchor investors, the lead managers plan to launch formal roadshows at the beginning of September, with listing scheduled for the end of the month.

The flotation is made up entirely of new shares equating to roughly 25% of the group’s enlarged share capital, meaning EOC will have a market capitalisation of approximately $1 billion.

In addition to wanting to raise new cash, EZRA Holdings said it wanted to list EOC in Singapore because the brand is better known in Asia and it wanted to give its subsidiary a new channel for future fundraising from regional investors.


Based on EOC’s 2013 pro forma net profits of $69.38 million (including the new assets), the offering is being marketed at roughly 14.5 times earnings on a trailing twelve-month basis (ttm). For the first nine months of 2014, the enlarged group’s net profits stood at $66.35 million.

Extending this out to 12 months on a straight-line basis, gives the group a forward valuation of about 11 to 12 times earnings.

Singapore has a cluster of listed marine services companies in the offshore oil and gas sector, including POSH, which is probably EOC’s nearest comparable. Since its listing in April POSH's shares have traded down 14% from their S$1.15 issue price, leaving the group valued at 13.2 times ttm earnings and 16.94 times on a 2014 basis.

ICON Offshore has also not performed well since it was listed in Malaysia on June 25. Having been priced at M$1.85 its shares have since slipped 2.5%, marginally underperforming the broader Kuala Lumpur market, which is down roughly 1% over the same period. At current levels, ICON Offshore is trading at 17.1 times expected 2014 earnings.

EOC’s parent, EZRA Holdings, has also dropped 18% year-to-date, falling 5% since it announced the proposed business combination agreement on July 10. This gives it a current valuation of 20 times ttm earnings and 21.6 times 2014 according to Bloomberg data.

Once the business re-organization is complete, EZRA will concentrate on seabed to surface engineering and installation services for the oil and gas industry.

One of the few exceptions to the downward trend is Singapore-listed Pacific Radiance, which is up 66% year-to-date and is currently bid at 15.15 times ttm and 10.73 times 2014 earnings. Over in Norway, EOC itself has climbed 17.4% year-to-date and 15.2% since the July 10 announcement.

Selling points

Investors eyeing the EOC offering will need to balance whether a recent sell-off in regional markets has been overdone against prospects for the region’s offshore oil and gas industry.

A recent research report by Credit Suisse flagged potential weaknesses in the deepwater rig market driven by lower capital expenditure from exploration and production companies, particularly the oil majors. However, it also suggested that downside risks were not that high because of the need to replace many of the world’s rigs.

About 60% of jack-up rigs are more than 24 years old and 14% more than 35 years old. This will give the marine support sector plenty of work tugging out new rigs and replacing the old ones.

According to Infield Systems, global capital expenditure across the industry is forecast to grow at a compound annual growth rate of 9.1% between 2013 and 2019, driven by growth in the deepwater sector, which is predicted to grow by 14.1% over the same time period.

As a result of the merger EOC will have a fleet of 50 vessels, comprising 31 AHTs (Anchor Handling Tugs), 10 PSVs (Platform Supply Vessels), two barges, four accommodation vessels, one S-Lay vessel and two FPSOs (Floating, Production, Storage and Offloading Vessel).

In terms of AHTs and PSVs, this gives the group the second-largest fleet in South East Asia after POSH, which has 46 AHTs and PSVs, with a further 15 on order.

EOC will also have one of the youngest fleets in the region with an average age of five years, second only to Singapore-listed Jaya Holdings. Just over half the fleet is company-owned, with a further 27% on sale and leaseback -- to help manage EOC’s overall debt.

Infield Systems says 44% of EOC’s fleet is based in Asia Pacific, which is also forecast to command the highest overall growth, led by Australia and Indonesia. The rest of the fleet is based in west Africa, with one vessel in Brazil. EOC has said that it hopes to leverage its west African experience by expanding into east and north Africa and the Middle East, while consolidating its position in Asia Pacific.

The planned injection of assets into EOC will reduce the combined group’s net debt to equity ratio to 49.4%. Total assets for the combined group will grow from $2.9 billion to $3.4 billion.

¬ Haymarket Media Limited. All rights reserved.
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