Does this portend of worse things to come as Greece exit?
As the debt crisis escalates in Greece, it is perhaps no surprise that the first ship order cancellation that Yangzijiang Shipbuilding (YZJ) just experienced in its history is from a Greek customer.
According to Fairplay, YZJ might sell two 33,800 DWT bulkers that were ordered by FreeSeas after it defaulted on instalments totaling about US$7.4m. The first vessel has been completed and we understand that the second is near 70-80% completion.
The vessels were ordered at US$24.5m each at Sep 2010 from YZJ, and according to VesselValues, a newbuild Handysize bulker can sell at US$22.2m in today’s market. OCBC Investment Research noted that this is also consistent with a 10-15% drop in newbuild bulker prices according to Worldyards. Nevertheless, the research firm said that this will not have a significant material impact to the company but the order cancellation portend of worse things to come for the shipbuilding industry.
“Assuming that YZJ confiscated the 20% downpayment by Freeseas, this would still mean a profit of about US$2.6m for the yard, and we would not worry about the financial impact from this order cancellation. The bigger worry, however, is whether this default is a sign of more to
come. Recall that Chinese Premier Wen Jiabao had announced in Oct 2010 that state-run banks were encouraged to pledge US$5b of loans to Greek vessel owners, but according to XRTC Business Consultants (adviser to China Development Bank Corp), only US$1b of loans have been distributed since then. Fortunately for YZJ, the group’s order book exposure to Greece seems small,” OCBC analyst Low Pei Han said.
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