The difficult and challenging operating conditions in the offshore and shipbuilding segments are expected to persist or worsen, according to Cosco Corp (Singapore), which is also bracing itself to face more customers’ seeking project deliveries or payment deferments.
Wu Ziheng, vice chairman and president of the company, said, “The offshore marine industry remains weak due to persistently low crude oil prices. The shipbuilding industry continues to falter on overcapacity amidst a weak global economy.”
Amidst persistent weakness in the state of the global economy and depressed crude oil prices, some of Cosco Corp’s customers may be unable to meet their contractual payment obligations, or may otherwise default on these obligations.
Moreover, any tightening of the availability and cost of credit in a market that is already under considerable stress could also adversely affect the ability of customers to meet their financial obligations, the company added.
On its shipyard operations, downward pressure is felt on the back of rise in wages, prices of raw materials and higher financing costs.
Under such challenging conditions, the company has had to handle some customers delaying accepting delivery of projects upon completion and the possibility that more customers will seek to delay delivery of projects or seek deferment of payment schedules.
In 2015 and the first half of 2016, the group experienced delivery date extensions and order cancellations for several of its projects. These included extensions for the sevan Developer which is being built by Cosco Qidong shipyard for Sevan Drilling and the jack-up drilling rig which is being built by Cosco Nantong shipyard for KS Drilling.
Cosco Corp is monitoring the risks associated with these projects as well as contracts for modules of drillships and FPSO with certain Brazilian customers.
Overall, the group expects that these difficult and challenging business and operating conditions to persist and may even worsen, and as such 2016 will remain a very difficult year for the group.
The depressing operating conditions are reflected in the group’s poor first half earnings, impacted by a net loss of SGD51.2m ($38m) compared to the loss of SGD4m in the same period of 2015.
Revenue for the first six months was posted at SGD1.49bn, down 19% from SGD1.84bn in the year-ago period.
As at 30 June 2016, Cosco Corp’s orderbook stood at approximately $7.6bn with progressive deliveries up to 2018. The group’s dry bulk shipping fleet comprises panamax and handymax carriers.
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