On 14 February 2017, OCBC reported a net profit after tax of S$3.47 billion for the financial year ended 31 December 2016, a decline of 11% compared to last year. Not surprisingly, the decline in earnings was due to an increase in net allowances for loans, mainly in the ailing Oil and Gas (O&G) sector. The bank has $15.8 billion exposure to this sector and Non Performing Loan (NPL) has crept to $1.3 billion. Will Ezra sink OCBC share price?
Ezra is an offshore contractor and provider of integrated offshore solutions to the global O&G industry. The Group has three main business divisions, namely Subsea Services (“EMAS AMC”), Offshore Support and Production Services, and Marine Services offering a full range of seabed-to-surface engineering, construction, marine and production services globally.
The struggling Ezra recorded a net current liability position of US$887,220,000 for the financial year ended 31 August 2016. It seems that Ezra has miscalculated the business risks and this led to various obligations owed to financial lenders and trade creditors. The troubled company recently flagged that it could possibly write down $170 million worth of investment due to problems with one of its joint ventures, EMAS Chiyoda Subsea.
Amid all these troubles, Ezra announced that it is undergoing a restructuring exercise to “preserve value for the Group”. If the initiative is unsuccessful, Ezra will be faced with a going concern issue.
As a result of the problems, investors dumped the shares and led to Ezra share price reaching a new low of $0.021 as at 15 February 2017. Even during the dark days of the Great Financial Crisis, the share price has not sunk so low. Thus, investors can imagine the severity of the crisis Ezra is facing. Even if investors of Ezra were to cut loss now and sell off their existing shares on hand, they won’t be getting back much given the current trading price.
I know it is unfair to single out Ezra as the oil slump continues to unfold. After all, several players in the industry has already filed judicial management – Swiber and Swissco, just to name a few. Being a downstream player Ezra, the risk of collapsing is real. Unlike big boys like Keppel and Sembcorp, Ezra does not possess the sort of balance sheet to withstand the prolonged slump in the oil price.
The collapse of Ezra, coupled with the other oil and gas companies, will have an impact on [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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