April 10, 2008
COSCO Shipyard Group books two, scrubs one ... and moves to Yuan contracts
Singapore Exchange mainboard-listed COSCO Corporation (Singapore) Limited announced yesterday that its 51%-owned COSCO Shipyard Group ("CSG") had won high-value offshore and tanker building contracts totaling approximately S$402.4 million or US$292.3 million.
However, it also revealed that it will not be proceeding with a US$202 million project to build a GM5000 semi-submersible rig hull for Norwegian owner Red Flag A.S. announced on May 21, 2007. This is because one of the conditions of the contract requiring deposits from the customer before work would commence has not been fulfilled. The group has not begun any work and has not incurred any cost on the lapsed contract, and can now free up shipyards for other projects. Deposits and/or progress payments for all the group's other offshore projects have been received and works are progressing as planned.
The two new contracts include one for an offshore platform worth RMB923 million (approximately US$131.8 million or S$182.1 million) with an American owner for constructing a hull of semi-submersible production unit. Though priced in Chinese-Yuan, the contract provides that payment will be made in U.S. dollars at the prevailing exchange rate on payment date. The unit will be fabricated in COSCO Nantong Shipyard and its new offshore construction facilities in Qidong. A deposit of US$3 million has been received and the project is targeted for completion in 2010.
CSG had also been awarded a contract by a Danish owner to build two 59,000-dwt shuttle tankers with total valued of Euros101.2 million (approximately US$160.5 million or S$220.3 million). The two tankers will be constructed in COSCO Nantong Shipyard and are scheduled to be delivered around June and December 2011. This is the second shuttle tanker building contract of Cosco Nantong Shipyard after the yard secured contract to build two 10,500-dwt shuttle tankers two months ago. The customer had agreed to pay 65% of the contract value as first installment.
Mr. Ji Hai Sheng, Vice Chairman and President of the Company and Vice Chairman of COSCO Shipyard Group said, "Our Group will concentrate on getting more high-value jobs with a view of optimising the released capacity. In the light of higher labour and steel costs, our Group will factor such rising costs in our pricing for future projects. To minimise currency risks, we will going forward, try to have our contracts quoted in Chinese-Yuan and Euro-Dollars in addition to US Dollars. Our clients would have the option of settling Yuan-denominated contracts in US Dollars at the exchange rate prevailing at the time of payment. As we continue to build on our strong order book, our Group is closely monitoring our fast changing operating environment and will take prompt actions wherever and whenever necessary to sustain growth and profitability."