Davie Yards seeks refinancing

The Canadian shipyard Davie Yards is working on a restructuring plan to try to protect the Quebec-based ship builder from an expected cash shortfall more than a year after its purchase by Norwegians. “We have to restructure our finances so we have a better platform for the future,” new CEO Steinar Kulen said in an interview.

Davie warned last week that the company doesn’t have enough cash to meet its requirements after six months. It took a loss provision of $36.1 million for vessels under construction.

The owners, who purchased the company with equity in October 2006, have invested $22 million to ramp up production. But a series of productivity and cost pressures have failed to allow it to raise enough cash from operations. “The company has not got a proper financing from the very beginning,” despite a C$47.3-million initial public offering in February said Kulen. Kulen, who took over in March, said he expects the refinancing to be completed in three to five months.

Work is continuing at the yard and the company continues to hire people. There are more than 1,000 people employed at Davie, up substantially from a year ago. Kulen hopes to employ 1,500 people once production is ramped up next fall.

While there are no discussions about closing the site, the ability to secure refinancing will determine its future. “If we are not able to, it will definitely lead to a situation like that in the long term into the future, but not today,” he said. The company recently announced that it lost $54.8 million on revenue of $22.6 million for the six months ended June 30.

Davie has incurred higher costs because of increased reliance on subcontracting and higher material prices. Its ship building projects were less profitable than expected because of their unforeseen complexity and drag caused by the ramp up process. Despite the challenges, Kulen said he’s confident a solution will be found to preserve an important global shipbuilding yard which maintains a “clear cost advantage” compared to European competitors.

The shipbuilder’s financial problems come a year after the Canadian industrial giant resurfaced from the brink of liquidation. The latest effort to rescue Davie came from Norway’s Teco Management in 2006, when it bought the bankrupt shipyard for the bargain basement price of $28.4 million, complete with tax breaks and loan guarantees from the local and provincial governments. However, the company was forced to pay back $400,000 to Investissement Quebec and faces the return of another $800,000 for 2007 after failing to meet employment targets.