Singapore-based brokerage house UOBKayHian has speculated that shipbuilder Ezra Holdings may consider a sale-and-leaseback deal of its vessel Lewek Constellation to ease the company‘s financial burden.
“We understand from shipbrokers that Ezra is exploring a possible sale and leaseback of Lewek Constellation. Built at a cost of USD625 million, this vessel is a state-of-the-art ultra-deepwater pipelay construction vessel, of which only two currently exist globally,” said UOBKayHian.
According to the brokerage house, the transaction from Lewek Constellation can unlock around USD200 million of equity and aid in the repayment of some USD400 million debt relating to the vessel.
“While this [transaction] would strengthen Ezra’s balance sheet further, the large bareboat chartering cost of the vessel , partially offset by removal of depreciating interest cost, would add to Ezra’s cost burden and eat into its cash flow,” the brokerage house explained.
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Meanwhile, UOBKayHian also foresees a tougher competition for winning subsea contracts amid the bearish market sentiment in the sector. Few major awards are expected in 2015 and several potential subsea developments have been delayed because of high operating costs.
In addition, vessels similar to Lewek Constellation, such as Ceona Amazonas, DLV 2000, and Petrofac 6000, are scheduled to enter service in 2015, 2016, and 2017, respectively, adding woes to the low demand and oversupply market situation.
Moreover, data from IHS Petrodata indicates that pipelay vessel utilisation has declined below 50% in 2014, as compared with the mid-1950s period.
UOBKayHian recommends that investors adopt a “hold” position for Ezra and sets a target price of SGD0.31 (USD0.23) per share., while the company’s stocks value around SGD0.26 per share currently.