SINGAPORE (June 1): AusGroup&rsquo s lenders, which include  Ezion Holdings, have agreed to forgive its debts, enabling it to focus on capturing returning demand for maintenance and support services from the mining and energy sectors.

The move comes after attempts to reach agreements with lenders by other ailing companies such as  Rickmers Maritime  and  Swissco Holdings  in the past have failed.

AusGroup on Wednesday announced that it had received the necessary approval from noteholders to convert an existing $110 million, 7.95% bond due 2018 to new shares in the company.

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That allowed Ezion, its largest shareholder, to forgive an existing A$39.3 million ($40.6 million) loan to AusGroup in return for the new shares.

Ezion will take up the new shares, which will be issued at 5.8 cents each, to the extent that its stake in AusGroup is no less than 20%, and not more than 29.9%. It currently owns a 17.8% stake.

The resolutions will be convened to shareholders of AusGroup at an extraordinary general meeting on June 28.

The restructuring plan will help AusGroup to continue operating efficiently at a time when many of its customers in the Australian liquefied natural gas sector are transitioning from exploration and development to processing.

(See also:  Analysts see light at the end of the tunnel amid Ezion&rsquo s AusGroup loan capitalisation)

That is where demand for the maintenance services the company provides is expected to rise over the long term, AusGroup CEO Simon High tells  The Edge Singapore  in an exclusive interview.

Australia&rsquo s LNG exports are expected to reach almost 60 million tonnes in 2017, up by 63% year-on-year, according to energy analyst EnergyQuest.

&ldquo The major LNG projects in Australia like Gorgon all have plants and platforms with lifespans of 40-60 years. As demand rises, these plants will need to be regularly maintained by local Australian contractors. We need to clear as much of our debt as possible so that we are better positioned to take advantage of these opportunities,&rdquo High adds. &ldquo This is our competitive advantage and where we are aiming to grow over the next few years to at least 50% of our business.&rdquo

Over-leveraged
AusGroup is one of the Singapore-listed energy companies that took on large amounts of debt to fund breakneck expansion back when oil prices were on the rise. Among this was the $55 million acquisition of Ezion&rsquo s port and marine and ship chartering businesses in Australia in 2014.

However, when prices collapsed in 2014, AusGroup was among the companies hit by the swift and sudden drop in work, which drove business to a standstill.

&ldquo The company basically over-borrowed to grow on the basis that there would be ready market demand, but when oil prices fell, it ended up growing too big than was sustainable,&rdquo says High. &ldquo The cost overheads became too large and cash flows generated from work that followed were by no means sufficient to service our debt.&rdquo

Things came to a head last year, when AusGroup said it had breached a financial covenant under a trust deed for its $110 million bond with DBS Bank after its consolidated total equity for the third quarter ended March 31, 2016 fell below A$160 million.

That forced it to seek waivers from its lenders and undertake a restructuring of the business, including shutting down its oil and gas fabrication facility in Singapore, firing employees, renegotiating contracts, and making painful impairments on non-performing assets.

This resulted in losses of A$193 million for FY2016 ended June 30.

Back to black
Now, things are beginning to look up.

After restructuring the company to focus on maintenance and access services as well as the successful commercialisation of the port and marine business at Port Melville, AusGroup has managed to turn in three consecutive quarters of profit.

For the nine months to March 30, 2017, AusGroup announced revenues amounting to A$313.8 million, down 14.8% year-on-year. However, it registered earnings of A$2.2 million compared to losses of A$93.5 million during the year before after achieving some $22 million in cost savings during the period.

&ldquo We have downsized our business and cut costs so the company is no longer loss-making. Moving forward, we will focus on the maintenance and access businesses, which will keep us busy for the next two years with projects in Gorgon and Woodside coming onstream,&rdquo says High.

Currently, AusGroup has an orderbook with customers like Chevron and Inpex amounting to A$24 million. &ldquo We need to keep on bidding of projects with good margins so that we can generate the profits we need to continue paying down debt,&rdquo High adds.

AusGroup will also work on expanding traffic to its port facility at Port Melville.

The port and marine business supports the offshore LNG industry through the provision of fuel and logistics services. Last year, the Federal Government of Darwin allowed the port to resume operations after it had previously run into issues relating to the environment.

&ldquo Over the next 18 months, our goal is to generate sustainable earnings so that we can service our debt with our own finances. Over the next 6-9 months, the goal is to reduce our debt to more palatable levels,&rdquo says Christian Johnstone, AusGroup&rsquo s CFO.

As at March 31, 2017, AusGroup had A$169.7 million in debt and cash of just A$27.9 million.

&ldquo We are also exploring options to refinance or extend our debt as well as looking for potential investors to take a stake in the company or dispose of existing plant and equipment to lighten our balance sheet,&rdquo Johnstone says.

Shares of AusGroup closed 0.2 cent higher at 5.4  cents on Thursday, up 13% since the start of the year.