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The announcement of Ezra's share placement caught me by surprise, frankly, for I had thought from their 1H FY 2009 press release that they had already enough cash to fund their MFSV purchases as well as expand their Vietnam Yard. For those who are unaware of the details of the above transaction, Ezra placed out 78 million new shares at a price of S$1.185 per share to raise gross proceeds of S$92.4 million. Considering their issued share capital is now about 580 million shares, this exercise will be pretty dilutive (about 13%) as it enlarges the share capital base to 658 million shares. Suffice to say that as a shareholder, I am unhappy about both the exercise and the rationale. However, I am willing to objectively and rationally analyze the underlying reasons for this corporate action.
With previously announced capital commitments of US$350 million, Ezra had mentioned that they had secured sufficient bank lines and would use internal cash flows to finance their expansion. It was also stated in several analyst reports that growth for Ezra would not be vessel-driven from FY 2011 onwards; instead the Company would re-package its services by combining Energy Servicess Division to provide customers with an all-rounded solution, thus commanding higher customer retention and loyalty and also garnering higher-value (and hopefully higher-margin) contracts.
The rationale for this fund raising exercise was stated as lowering their gearing from 0.5x to about 0.26x as at end-February 2009. One then wonders if Ezra had prudent capital management policies in place to ensure it had sufficient working capital, as raising money during an era of low/depressed valuations (as in this bear market) is usually not a good idea. Perhaps, of course, this exercise had already been on the cards; but news was NOT allowed to leak on the proposed share placement ahead of time, otherwise it may jeopardise the share price and cause a lower placement price to be set. Since the volume-weighted average price is used for the determination of the final placement price, leaking such news beforehand would be tantamount to asking for lower prices; thereby leading the Company to issue even more shares just to raise the required amount. Read more...[caption id="attachment_1073" align="alignright" width="150" caption="Royalty Free Image"][/caption]
The announcement of Ezra's share placement caught me by surprise, frankly, for I had thought from their 1H FY 2009 press release that they had already enough cash to fund their MFSV purchases as well as expand their Vietnam Yard. For those who are unaware of the details of the above transaction, Ezra placed out 78 million new shares at a price of S$1.185 per share to raise gross proceeds of S$92.4 million. Considering their issued share capital is now about 580 million shares, this exercise will be pretty dilutive (about 13%) as it enlarges the share capital base to 658 million shares. Suffice to say that as a shareholder, I am unhappy about both the exercise and the rationale. However, I am willing to objectively and rationally analyze the underlying reasons for this corporate action.
With previously announced capital commitments of US$350 million, Ezra had mentioned that they had secured sufficient bank lines and would use internal cash flows to finance their expansion. It was also stated in several analyst reports that growth for Ezra would not be vessel-driven from FY 2011 onwards; instead the Company would re-package its services by combining Energy Servicess Division to provide customers with an all-rounded solution, thus commanding higher customer retention and loyalty and also garnering higher-value (and hopefully higher-margin) contracts.
The rationale for this fund raising exercise was stated as lowering their gearing from 0.5x to about 0.26x as at end-February 2009. One then wonders if Ezra had prudent capital management policies in place to ensure it had sufficient working capital, as raising money during an era of low/depressed valuations (as in this bear market) is usually not a good idea. Perhaps, of course, this exercise had already been on the cards; but news was NOT allowed to leak on the proposed share placement ahead of time, otherwise it may jeopardise the share price and cause a lower placement price to be set. Since the volume-weighted average price is used for the determination of the final placement price, leaking such news beforehand would be tantamount to asking for lower prices; thereby leading the Company to issue even more shares just to raise the required amount. Read more...
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The announcement of Ezra's share placement caught me by surprise, frankly, for I had thought from their 1H FY 2009 press release that they had already enough cash to fund their MFSV purchases as well as expand their Vietnam Yard. For those who are unaware of the details of the above transaction, Ezra placed out 78 million new shares at a price of S$1.185 per share to raise gross proceeds of S$92.4 million. Considering their issued share capital is now about 580 million shares, this exercise will be pretty dilutive (about 13%) as it enlarges the share capital base to 658 million shares. Suffice to say that as a shareholder, I am unhappy about both the exercise and the rationale. However, I am willing to objectively and rationally analyze the underlying reasons for this corporate action.
With previously announced capital commitments of US$350 million, Ezra had mentioned that they had secured sufficient bank lines and would use internal cash flows to finance their expansion. It was also stated in several analyst reports that growth for Ezra would not be vessel-driven from FY 2011 onwards; instead the Company would re-package its services by combining Energy Servicess Division to provide customers with an all-rounded solution, thus commanding higher customer retention and loyalty and also garnering higher-value (and hopefully higher-margin) contracts.
The rationale for this fund raising exercise was stated as lowering their gearing from 0.5x to about 0.26x as at end-February 2009. One then wonders if Ezra had prudent capital management policies in place to ensure it had sufficient working capital, as raising money during an era of low/depressed valuations (as in this bear market) is usually not a good idea. Perhaps, of course, this exercise had already been on the cards; but news was NOT allowed to leak on the proposed share placement ahead of time, otherwise it may jeopardise the share price and cause a lower placement price to be set. Since the volume-weighted average price is used for the determination of the final placement price, leaking such news beforehand would be tantamount to asking for lower prices; thereby leading the Company to issue even more shares just to raise the required amount. Read more...
