Singapore-listed Ezra Holdings has raised S$121 million ($96 million) from a top-up placement that will give it the capital resources to seek and carry out more contracts in the offshore and subsea oil and gas sector, where rising oil prices has led to a pickup in demand.
The company’s subsea services arm currently has a global tender book of approximately $4 billion and according to a statement by Ezra’s managing director, Lionel Lee, on Friday, the company is confident of winning a significant portion of these projects.
The deal was launched at around 2pm on Friday after the stock was suspended from trading and was fully covered, including the upsize option, after an hour. The fact that the deal was going well helped attract other investors and when the books closed at about 5pm the offering was multiple times covered. The management also did a conference call with potential investors to update them on the latest developments at 3pm and, according to a source, the number of orders picked up after that.
Of course, it also helped that the shares were offered at an attractive discount. This was particularly important after a $261 million sell-down in Sembcorp Marine by Temasek earlier in the week failed to attract sufficient demand after being priced too tightly. Understandably, investors were concerned about getting involved in another deal that might lose them money.
Ezra initially offered 90 million shares with an option to sell a further 20 million if there was enough interest. They were marketed at a price ranging from S$1.10 to S$1.14, which translated into a discount of 5.9% to 9.1% versus the latest trading price before the stock was suspended at 1.30pm (S$1.21).
As noted, the deal was multiple times covered and joint bookrunners Credit Suisse and DBS were able to exercise the upsize option in full. However, a source said there was a lot of price sensitivity among the long-only investors that the company wanted on its roster and to ensure they stayed in, the price was fixed at the bottom of the range for the maximum 9.1% discount.
At the final size of 110 million shares the deal accounted for 12.7% of the existing share capital and about 15 days of trading volume.
About 60 accounts participated in the transaction, including a number of hedge funds that came in after it became clear the deal was doing well. However, a large portion of the deal was allocated to regional long-only funds and to existing shareholders who wanted to prevent dilution or even increase their exposure. The source noted that many of the buyers were people who know the company and understand the business.
Although it operates in a capital intensive industry, Ezra is an infrequent issuer in the capital markets as it tends to raise enough money to last it for a few years. So this was a rare opportunity for investors to buy shares in a meaningful size. The last time it was in the market was in May 2009 when it raised $63 million from a placement that at the time accounted for 13.3% of the company. Credit Suisse was the sole bookrunner for that trade.
The deal comes after the share price in early February broke out of a range between 80 Singapore cents and S$1 that it had been trading in since early October. It hit a six-month high of S$1.31 in mid-February and has since been drifting slightly lower again. However, it had risen 3.4% in the previous three days, which may explain why the management chose to do the deal on Friday.
While Fridays are typically not ideal, the fact that the stock was suspended from afternoon trading did give the bookrunners enough time to reach investors in both Asia and Europe and as noted, the deal was well received.
The share price gains have been partly fuelled by the fact that the company has recently won two subsea contracts from Statoil and Apache Energy worth a total of $155 million. The contracts are for SURF (subsea, umbilicals, risers and flowlines) installation and subsea construction work in the North Sea and north-west Australia respectively.
The two orders helped push the order book of the subsea services arm, EMAS AMC, to $1 billion ahead of the company’s 12-18 month target timeframe and Lee said the order momentum is likely to continue as the industry is facing a capacity issue due to many subsea contractors having full schedules for the next two to three years.
“Over the medium term, we expect our earnings to be driven largely by EMAS AMC and our offshore support division, EMAS Marine,” Lee said.
According to the term sheet, the placement proceeds may be used for general working capital and general corporate purposes as well as for business opportunities, strategic investments, joint ventures, capital expenditure, acquisition of vessels or for paying down existing debt.