Jul 30, 2022

Sri Lanka loses Norway shipbuilding deal over sovereign default Featured

Sri Lanka’s Colombo Dockyard, a unit of Japan’s Onomichi Dockyard said it had lost a shipbuilding contract after the Indian Ocaean Island’s government defaulted on its foreign debt.

Sri Lanka was downgraded to selective default by rating agencies after it stopped paying foreign debt of commercial and bi-lateral lenders.

Colombo Dockyard said a contract to build two Commissioning Support Operation Vessels (CSOVs) for Norway’s Edda Wind AS was “mutually cancelled” following the downgrade.

“This decision had to be arrived solely due to the prevailing unstable economic and financial situation of the country” Colombo Dockyard said in a stock exchange filing.

“Due to the poor credit rating of SD “Selective Default” and significant scarcity of foreign currency liquidity in the country, it was impossible to issue required guarantees continuously and to receive the milestone payments from the buyer.

Colombo Dockyard said in order to retain the contract efforts were taken by involving the top level government authorities, both local and international banks and financial institutions and relevant diplomatic missions.

However, it said, a solution in the near future to regain the contracts is not possible.

“Considering the facts that the projects are still at their infant stage while foreseeing the greater risks for CDPLC in pursuing the projects, CDPLC’s Board has decided that a mutual cancellation was the most prudent option at this point”

Despite the cancellation of the Norway contract, seven shipbuilding projects for existing European and Scandinavian clients are progressing without any interference.

“With a high demand of ship-repair, and afloat repairs utilizing main port facilities in Sri Lanka ensure its business stability,” Colombo Dockyard said.

Colombo Dockyard said, even though the cancellation has a modest negative impact on the 2022’s financial performance, CDPLS’s growth concern remains intact, and the Board of CDPLC is confident that CDPLC can successfully manage the current projects in hand together with ship repairs and focusing on new avenues.