Pipavav Shipyard loses $36mn shipbuilding order

Ship-builder Pipavav Shipyard announced the loss of a $36mn (Rs 165 crore) contract to build a Panamax vessel. The company said that Setaf sas, a French company, cancelled its order for building a 75,000 dwt panamax vessel. The vessel, to be delivered in 2009, was delayed because a Goliath crane required during construction was not built on time. Chinese workmen needed to install the crane were not available due to the change in government policy on issuing visas to Chinese workers.

Pipavav had announced in December that two goliath cranes, one ELL crane and part of the blast and paint cells had been delayed since the Chinese workmen needed to hoist and install these equipment were not available. It had also said that one customer who had ordered 6 Panamax vessels with a contract value of $213mn (about Rs 975 crore), had referred the contracts for arbitration. But the arbitration had been kept on hold, and both parties were negotiating on the deal.
Golden Ocean Group, a shipping company and a Pipavav customer, said this in an presentation made on its third quarter results: “August – Reached agreement with the buyer (Britannia Bulk Finance Limited) of 6 vessels under construction at Pipavav Shipyard in India. Through the agreement the parties have mutually accepted to terminate the purchase agreements for all six vessels against certain considerations from the buyer. Golden Ocean will realize a profit of approximately $53.8 million, effectively by reducing the Company’s liability with a similar amount. The profit has
been recorded in the third quarter.”

These developments come at a time when the ship-building market is facing a slowdown and cancellations of orders. A global slowdown in trade has meant that the industry which went into an overdrive of booking new ships now finds itself staring at over supply. Pipavav had indicated during its IPO process that some of its contracts were under review, so this development will not come as a complete surprise to investors. But this ship was due for delivery in 2009 which would have meant that revenues would have reflected in the current year. The share price was down by was down by 2.5% on Friday at Rs 56, but news of the cancellation had come after market hours. Investors will wait for its first quarterly results to be announced after listing, to get some idea about how its numbers are going to look.

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