Sinopacific forced to reassure customers

Sinopacific Shipbuilding, one of China?s biggest private shipbuilders, has convened an emergency meeting next week in Hamburg with its western customers to assure them that it can deliver ordered vessels.

The Shanghai-based company, which employs over 10,000 people in its yards, called the meeting in response to industry speculation, possibly fuelled by some of its suppliers, that it might not survive the ongoing liquidity squeeze and slowdown in the shipping sector. “There are many rumours about our company so we need to clarify these,” Sinopacific said. “Sinopacific does not have problems in delivery, and there are no problems in our financial area.” The group said that it had an order book of about 200 vessels, due to be delivered until 2012.

Sinopacific has been one of the fastest growing companies in a Chinese shipbuilding sector that has emerged as the main challenger to South Korea, the world?s largest shipbuilding nation. However, the economic downturn has led observers to forecast closures among the 150 Chinese yards that are building vessels for export, as customers cancel orders and yards struggle to finance their recent expansion.

Some of the smaller Korean yards have also recently run into difficulties. Ironically, due to the downturn, many shipowners are desperate to escape obligations to shipyards struck on the assumption that charter rates and container ship earnings would be higher.

“The first issue is what is the quality of the order book, but the second for these Chinese yards is now whether they have strong backing from local governments and banks,” said Matthew Flynn, managing director of World Yards, a research consultancy. “Everybody is now trying to adjust the terms of their contracts.”

Sinopacific was among a handful of Chinese shipbuilders that had hoped to sell shares in China to fund their rapid expansion but then had to put listing plans on hold as the financial crisis deepened.

Some industry experts are now forecasting that about 30% of the worldwide dry bulk order book could get cancelled. Lloyd?s Register said that the classification society had 40 cancellations or delays in China since early October. “Some of these newer yards were created under the assumption that they would build continuously ? and paying for a $500m or even $200m yard certainly requires building a lot of ships,” said Klaus Nyborg, deputy chief executive of Pacific Basin, a Hong Kong-based bulk shipping firm.