Pipavav suffers cancellations

Golden Ocean has cancelled orders for two 75,000 DWT Panamaxes at the Pipavav Shipyard in India due to construction delays.

Chief executive Herman Billung confirmed the company has cancelled the two Panamaxes due to “huge delivery slippages”. He also indicated that Golden Ocean may cancel further orders for four similar-size vessels at the yard if it “fails to create added value to its shareholders and further slips in the delivery schedule”.

However, he says Golden Ocean will remain in discussions with the yard to find an “amicable solution on the issue.” The Norwegian owner had originally ordered six Panamaxes at a cost of $216m but has been renegotiating two orders since August this year with the aim of reducing newbuilding costs.

The first two of the Golden Ocean orders were scheduled to be delivered in October and December this year, while the rest are set to be delivered at the end of 2010 and the second quarter of 2011.

However, it appears Pipavav has become a casualty of its own ambitions. It has so far spent $700 million to build one dry dock, a hull-making shop and other facilities. It also plans to use $120 million raised through an initial public offering (IPO) in September to construct an additional dry dock for shiprepair and offshore-vessel construction.

Pipavav began accepting orders in 2007 even before it began the construction of its facilities. It had originally intended to complete the yard by December 2008 and to roll out the first Panamax early this year but the schedule has slipped back by 12 months.

A broker says the Golden Ocean cancellation was expected as the deliveries were hugely delayed, giving it a perfect excuse to cancel in the current slump market. He says Pipavav pursued a risky strategy. It tried to build up its yard facilities simultaneously with the construction of vessels but delays in installing key equipment and machinery led to slippages in the construction schedule and subsequently delays in vessel delivery.

There are now questions over the remaining orderbook. Greek owner Avgi Maritime is understood to be renegotiating orders for six Panamaxes out of 12 booked at a cost of $562.5 million. Meanwhile, French company Setaf SAS is renegotiating four Panamaxes it booked there for $144m in 2007.