Troubled Singapore contractor EMAS Chiyoda Subsea filed Tuesday for Chapter 11 bankruptcy protection in the United States, in yet another sign of the damaging impact that the oil price slump has had on the sector.
EMAS Chiyoda Subsea (ECS) is a joint-venture run by the SGX-listed Ezra Holdings (Singapore Exchange: EZRA-SG) (40 percent) and the Japanese listed firms Chiyoda Corporation (35 percent) and NYK (25 percent).
The voluntary petition for reorganization under Chapter 11 of the US Bankruptcy Code was filed in the Texas Bankruptcy Court.
"The restructuring will provide ECS with an opportunity to focus on strengthening its financial and operational systems, enhancing the Company's efforts to weather the current challenges," the company said in the filing.
The decision to file comes after several months of uncertainty for the joint-venture, which had been respected by industry insiders for so far weathering the challenging conditions in its space.
CNBC sources inside the group said doing business had become challenging in recent weeks, given the amplified uncertainty around its future and the tough macro environment. Other sources said they were surprised the filing didn't come sooner.
"The bigger players like SembMarine seem to have weathered the problems better, but smaller players like Swiber and Ezra are in a weaker position and more vulnerable to headwinds," said Margaret Yang, market analyst at CMC.
Macro Dependent
As a major player in the subsea sector, ECS's operational and financial performance is highly dependent on the macro outlook and the expansion plans of the oil and gas majors.
ECS has an order book of over $1 billion, but the commencement dates of many of these projects remain in flux, affecting utilization levels and negatively impacting financial performance.
"The Company believes that this court process is in the best interest of all of its stakeholders, resulting in value creation and a sustainable capital structure," ECS said.
The firm has sought court approval to borrow a saving grace of up to $90 million from Chiyoda Corporation and another partner, Subsea 7, to continue its operations.
The financing will be used to "support the company's continuing business operations, minimize disruption to its worldwide projects and make necessary operational changes," it said.
Exposure Concerns
EMAS Chiyoda Subsea's business affiliates are also on watch, with Singapore's largest bank, DBS Group Holdings (Singapore Exchange: DBSM-SG), among its top creditors with a $84.6 million exposure, according to the filing.