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Extracted from Annual Report 2019


Grace and peace be yours in abundance.

Ezion's ("Company" or "Group") key plans in 2019 were to reactivate and redeploy the Group's liftboats, dispose of non-core assets and to invite a strategic investor into the Company. We have summarised below how these plans went during the year.

In respect of the reactivation and redeployment the Group's liftboats, these efforts were much hampered due to persistent low energy prices, depressed charter rates and generally cautious sentiment towards the oil and gas sector which causes delays in utilisation of working capital lines for reactivation. This had also affected some of the Group's disposal plans for the non-core assets. As a result, the Group's revenue decreased by 23.9% from USD118.7 million in FY2018 to USD90.3 million in FY2019 and the Group's gross profit fell from USD11.7 million in FY2018 to a gross loss of USD1.9 million in FY 2019. The damage suffered by the Group due to the prolonged delay in accessing funding resulted in close to approximately USD373.7 million of impairment losses in FY2019. The Group registered a net loss of USD614.9 million for FY2019 and has a negative equity position of USD867.4 million as at 31 December 2019.

As for the search for a potential strategic investor, after much effort and with the feedback and blessing of all its lenders, the Company entered into agreements with Yinson Eden Pte Ltd ("Yinson Eden"), a wholly-owned subsidiary of Yinson Holdings Berhad ("Yinson") on 31 March 2019 in relation to Yinson's investment into the Company.

Yinson is a public limited company incorporated in Malaysia with its shares listed and quoted on the Main Market of Bursa Malaysia and provides integrated offshore production and support services. Yinson was established in 1983 as a transport agency partnership business in Johor Bahru. In 2011, Yinson and its subsidiaries ("Yinson Group") ventured into the offshore services industry through the provision of chartering services as well as vessel management. In 2014, Yinson achieved another milestone in marine services when it acquired Fred. Olsen Production ASA. Currently, Yinson is the sixth largest independent FPSO leasing company globally having a wide geographical presence in Brazil, Ghana, Malaysia, Netherlands, Norway, Nigeria, Singapore, UK, USA and Vietnam.

As per our announcement on 31 March 2019, Yinson was in advanced discussions with our major secured lenders to acquire the benefits and rights in respect of up to USD916.0 million of the existing loans extended to the Group. Yinson Eden had in anticipation of the above, entered into a conditional debt conversion agreement with the Group to convert the loans into Ezion's equity at a conversion price of SGD0.055 as well as a conditional option agreement to subscribe for USD150.0 million of Ezion's shares at a price of SGD0.0605. Upon completion of the above-mentioned transactions, Yinson Eden would have become our new majority shareholder with a shareholding of approximately 70% in Ezion.

Unfortunately, not all the major secured lenders were able to obtain the relevant approvals to allow Yinson to collectively acquire the loans, and the agreements with Yinson had therefore lapsed on 1 October 2019. After the lapse of the agreements, the funds for reactivation were increasingly unavailable to the Group, and further affected the ability of the Group to reactivate the vessels and put them to work. Out of the Group's fleet of twelve liftboats, nine were working as at 30 November 2017. At present, only four remain deployed.

Nonetheless, Ezion kept faith and continued to discuss with Yinson and the major secured lenders on collectively preserving and continuing the business and viability of Ezion.

On 28 February 2020, Yinson Eden had announced that they will invest upfront a total of USD170.0 million in cash to acquire at least 63.46% of the Ezion Group (subject to the fulfilment of conditions), through the following agreements which were entered on 28 February 2020:

  1. Separate debt assignment agreements between Yinson Eden and each of Ezion's major secured lenders, pursuant to which Yinson Eden shall acquire the benefits and rights of such major secured lenders in respect of approximately USD482.3 million of the existing loans extended to the Group for a consideration of approximately USD103.0 million in cash and approximately 2.73 billion of Ezion's shares.
  2. A conditional subscription agreement between Yinson Eden and Ezion, pursuant to which Yinson Eden will subscribe for shares for a cash consideration up to approximately USD47.0 million at SGD0.0317 (subject to adjustment) (the "Subscription Price"), and will also convert approximately USD482.3 million of the Group's debt into Ezion's shares at the same price.
  3. A conditional options and convertible notes subscription agreement between Yinson Eden and Ezion, whereby (a) Yinson Eden has the option to subscribe for USD150.0 million worth of Ezion's shares at a 10% premium to the Subscription Price, and (b) Yinson Eden will subscribe to USD20.0 million in principal amount of convertible notes due 2025 issued by Ezion with an interest rate of 8.1% p.a., convertible into Ezion's shares at the Subscription Price.

In order to ease the Group's need for urgent working capital for the liftboats as well as to show the commitment to the agreements and support to the Group, Yinson Eden and the Group's major secured lenders signed a deposit agreement that will provide an interim funding arrangement of up to USD40.0 million to Ezion for the reactivation, modification and deployment of its liftboats prior to completion of the above mentioned proposed transactions and proposed Scheme of Arrangement.

Regretfully, the oil market has significantly declined further since then and oil prices has plunged to its lowest level since 1999. The COVID-19 pandemic has affected over 150 countries, resulting in partial or full lockdowns in many such affected countries. This has resulted in the disruption in various international and domestic supply chains and has created a significant strain on demand across various industries including the oil and gas industry. In response to the plunge in oil prices, oil companies have cut costs aggressively, and the liftboat market has been challenged by cheaper substitutes in the low oil price environment.

With the current outlook of the oil and gas industry, Yinson Eden, the major secured lenders and the Group are currently in negotiations to update certain terms of the above agreements. We will keep you informed of any further developments on the proposed transactions.

The challenges before us are unprecedented and we could not have gone this far without the grace extended by our valued lenders, the partnership of Yinson, the treasured advice and guidance from our consultants RSM Corporate Advisory and Morgan Lewis Stamford; and the unwavering support of our Board of Directors. Most of all, we give Him all praise and thanks.

In the interim, we also apologise that we will have to postpone our annual general meeting to the later part of June in view of the ongoing Covid-19 situation. Please stay healthy and we pray that the peace of Jesus will be with all of you.

We thank you for your patience and support.

Dr Wang Kai Yuen

Mr Chew Thiam Keng
Chief Executive Officer

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