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Cosco Corp suffers newbuild cancellations and delivery delay, warns of deeper loss

Cosco Corp suffers newbuild cancellations and delivery delay, warns of deeper loss
The subsidiary yards of Cosco Corporation (Singapore) Limited have been hit by fresh contract cancellations and delivery deferment, leading to a forecast of deeper loss for the third quarter.

Cosco (Nantong) Shipyard announced it has been informed by its client, an unnamed Singapore entity, that it will cancel a contract for a floating accommodation unit (FAU).

The contract, sealed in June 2013, was for the conversion of two semi-completed hulls to high-end FAUs valued at $170m apiece, with deliveries scheduled in 2015. While a first unit was completed and delivered in early 2015, the buyer had twice requested to extend the delivery date for the second unit until October 2016 and further until October 2017, provided it would not cancel the contract.

However, Cosco Corp revealed on Wednesday that the buyer issued a notice to its Nantong yard on 26 June this year that it will abort the contract unless the Chinese yard extend the delivery date of the FAU by a further three years from October 2017. Even then, the shipowner said it would not be required to take delivery of the FAU after the expiry of the three-year period, and it would not bear any expenses and interest payments, according to Cosco Corp.

Cosco Corp said the shipowner has “breached the agreement by unilaterally terminating the contract during the extension period and that the new terms proposed by the shipowner were not acceptable to Cosco Nantong”.

After much deliberations, Cosco Nantong decided to accept the shipowner’s contract breach and has taken steps to negotiate with the shipowner with a view of obtaining compensation for the loss suffered without having to resort to formal legal proceedings.

Cosco Corp’s Cosco (Qidong) Offshore was also hit by a contract cancellation over the construction of a FAU valued at $230m, ordered by the same Singapore entity.

The deal was inked in September 2014 with the newbuild originally scheduled for delivery in the first quarter of 2017, and extended by mutual agreement to the second quarter of 2017.

The Singapore entity informed Cosco Qidong on 26 June that it will terminate the contract by exercising its right of termination. “Cosco Qidong has over the past few months been studying its options and remedies that may be pursued, including the possibility of reaching an amicable resolution of the matter with the shipowner,” Cosco Corp said.

Separately, Cosco Qidong and Norway’s Prosafe have mutually agreed to extend the delivery date of one of two semi-submersible accommodation vessels, namely Safe Eurus, originally scheduled for delivery in 2016 until 31 December 2019.

The Chinese yard said the owner has the right to take delivery of the vessel earlier than 31 December 2019 if market conditions improve or if the owner manages to secure charter for the vessel.

The deal for the pair of accommodation vessels was inked in November 2013, with Prosafe paying $200m for each unit.

Meanwhile, Singapore-listed Cosco Corp has warned of a higher net loss for its third quarter compared to the deficit of SGD82.12m ($59.13m) in the previous corresponding period.

“The expected higher net loss is mainly attributable to cancellations of several orders as well as several offshore projects having experienced delivery extensions resulting in lower revenue recognition, higher construction costs and increases in provision,” it said.

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