January 31, 2008
Jinhui cancels two VLOC contracts at Chinese shipyards
Hong Kong based and Oslo Stock Exchange listed Jinhui Shipping and Transportation Limited is paying $4 million in penalties and canceling two newbuilding contracts with Chinese yards for Very Large Ore Carriers.
Jinhui says the subprime mortgage crisis and global credit crunch have drastically changed the risk-return profile of completing the contracts.
The contracts were entered into on November 23, 2007 between two Jinhu subsidiaries and China Shipbuilding & Offshore International (H.K.) Co., Ltd. and Dalian Shipbuilding Industry Co., Ltd. for two 300,000 dwt ore carriers at US$122,620,000 each.
"Since the subprime mortgage financial crisis unfolds during the past few months, financial institutions have reduced their willingness to loan funds to other financial institutions and to corporations in general, resulting in a global credit crunch," says Jinhui. "Despite receiving a number of financing proposals from a number of banks ... proposed terms and conditions ... were found to be much less flexible than those previously enjoyed by the company and its subsidiaries (the "Group"), coupled with a significant increase in cost of borrowing even when a fifteen-year time charter contract with a first class Chinese steel mill was in place. The risk-return profile of completing the [contracts] has thus changed drastically due to persistent negative sentiment clouding the global financial markets."
Jinhui says it has decided to cancel the contracts "to reduce any unwanted future business risk, as well as keeping its financing strategy and overall cost of borrowing in check" consistent with its long term goal of maintaining healthy business growth with a young portfolio of vessels that are financed in a conservative manner.
The group currently owns sixteen modern grabs fitted Supramaxes, one modern Panamax and one modern Capesize. After the termination of the Acquisition and taking into account all existing commitments to acquire and dispose of other vessels as announced by the Company previously, the Group will have additional twenty one newly built grabs fitted Supramaxes, one newly built Panamax and one second hand Handymax for delivery going forward, where six of which will be delivered in 2008, seven in 2009, five in 2010, two in 2011, two in 2012 and one in 2013.