Singapore Stock Market: Ezra announces placement to raise funds

Mar 12, 2012

Ezra announces placement to raise funds

The news: Last Friday, Ezra entered into an agreement to place out 110m new shares at S$1.10 per share to raise a net proceed of S$118.8m. The number of new shares was 12.7% of the existing shares and the placement price was a 9% discount from its last closing price. We have previously highlighted that Ezra may raise new funds to ease its balance sheet constraints and we are not surprised by the move. Following the recent sale of 60m Ezion shares and the placement, we estimate that:
(1) net gearing will ease from 1.04x to 0.88x; and
(2) FY12-13F EPS will be diluted by 10% and 9% respectively.

We maintain our Neutral rating on the stock and TP is unchanged at S$1.18. Our TP values the stock at 13.3x blended FY12/13F EPS, a 25% discount to global peers P/E. The lower discount (from 35%) reflects the improving balance sheet.

Fresh fund raising anticipated; 9-10% EPS dilution. Assuming all the 110m new shares are issued, the number of shares will increase from 863m to 963m (excluding 5.3m treasury shares). We estimate that FY12-13F EPS will be diluted by 10% and 9% respectively. The move to raise fresh funds is not surprising:
(1) Steep fall in gross cash of US$191m in 1QFY11 to US$117m in 1QFY12 as Ezra continue to spend massive resources to build its global subsea business;
(2) Sale of non-core businesses have taken longer than expected given the debt crisis in Europe. We believe other potential moves to streamline its balance sheet are the sale of EMAS Energy, partial divestment of TRIYARDS, and sale of stake in FPSO Lewek EMAS.
(3) Potential redemption by the holders of the US$100m 4% coupon convertible bonds (CBs) maturing in Nov 2014. We think bondholders are likely to exercise an option to put the bonds back to Ezra in Nov 2011 as its share price is now 48% discount to the strike price of the CBs at S$2.3487 per share.