22 January Shipbuilding News. Owners join forces to cancel orders. "Bargain rumor is absurd," Daewoo CEO says. Greek cuts five orders to two

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1 Korean Shipping messenger A collection of articles and daily news for the shipping industry with focus on the Korean shipping and shipbuilding markets. 22 January 2010 Shipbuilding News Owners join forces to cancel orders Greek shipowners trio are said to be uniting to cancel a total of seven bulkers on order at Korea s beleaguered shipbuilder 21st Century Shipbuilding. The three owners are Hellenic Star Shipping, Primerose Shipping and Laskaridis Shipping and they are seeking to cancel 34,000-dwt bulkers contracted at 21st Century, after the yard s financial difficulties emerged. Hellenic Star boss Evangelos Maltezos revealed the owners trio have been acting in unison for some time. He said the slipway on which the seven bulkers are to be constructed has yet to be built and even if it is completed in time, it is highly unlikely the ships will be delivered as contractually scheduled. 21st Century is said to have provided letters assuring that it has bank cover to proceed with the projects. But the owners are not convinced and talks between them have come to a standstill. 21st Century applied for debt management by creditor banks (workout) last month, which is yet to be officially approved. Hellenic Star has three newbuildings on order at the yard - hull numbers 1006, 1008 and The contracts were inked at around $36m each. Primerose has two - hull numbers 1007 and ordered in the summer of 2008 for between $38m to $40m. All five are for delivery in Laskaridis Shipping controls the other three contracts - hull numbers 1002, 1003 and The first two are for delivery at the end of this year and the third in early They were booked at $36m each. Greek cuts five orders to two Greek shipowner Bright Navigation has successfully renegotiated orders with two Korean shipbuilders and minimized losses caused by the fall in newbuilding prices. Under the agreements, five-ship orders will be cut down to two. George Stephanou, co-founder of the shipping firm, said that its ability to pay cash upfront for ships that will be delivered two years later was a decisive factor for its renegotiating success. In July 2008, Bright had ordered two 81,000-dwt kamsarmax bulkers and one option at SPP Shipbuilding. The price of the two firm newbuildings, for delivery in November and December 2011, were $59.1m each. It also had orders for three 34,000-dwt bulkers at Dae Sun Shipbuilding & Engineering costing $37m each. Mr Stephanou says Bright concluded a renegotiation with SPP that it will see the yard build only one of the two firm ships with delivery now slated for January The company has already paid most of the cost of the ship, leaving just $2m on delivery. As for Dae Sun case, Stephanou reveals that renegotiations completed just last week will see it take delivery of one geared bulker of 62,000 dwt instead of the three handymaxes. Bright will pay the agreed price for the ship and will leave $2m to be paid on delivery with this yard also. "So in about a month from now we will have paid almost all the cost of the ship with delivery in January 2012," he said. "Bargain rumor is absurd," Daewoo CEO says Nam Sang-tae, CEO of Korean shipbuilding giant Daewoo Shipbuilding & Marine Engineering, strongly denied the rumor that DSME bagged orders at bargain prices. Mr. Nam announced that "The rumor Daewoo received orders at bargain price is totally from those who could not get any orders. Those orders were secured based on profitability," at Hanjin Shipping's 60-year history publication ceremony at Lotte Hotel at Sogong dong, Seoul on Jan. 20th. DSME is peerless in getting orders recently; DSME ranked no.1 by taking the most orders in the field of shipbuilding and offshore palnts last year. Again, starting with offshore plants, it secured a number of merchant vessels orders including tankers and bulkers this year. However, after Sungdong Shipbuilding & Marine Engineering, STX Offshore & Shipbuilding, and Hanjin Heavy Industries & Construction took orders successively, a rumor arose that shipbuilders signed bargain orders to secure short-term liquidity. Mr. Nam said, "A newbuilding contract is secured after a considerable time of negotiation." "We have more contracts under negotiation for a couple of ships at the moment," he added. Also, he was very confident about feasibility of the '$10bnorder' goal for this year even under a downturn, mentioning that 'we reached close last year'.

2 DSME was in top place with $3.7bn orders last year, and in 2010 is targeting orders over $10bn and rejoining KRW10trn($8.7bn)-sales with KRW1trn-operating profit club. DSME already secured around $750m orders in 2010 including one offshore plant, two tankers, and two bulkers, and is expected to contract a 75,000-gt class cruiseship in the near future. Most newbuilds will be delivered Ship financier DVB Bank believes most newbuildings ordered at Asian shipyards will be delivered, despite the difficulties in raising funding. Dagfinn Lunde (pictured), member of the board of managing directors for DVB Bank said the newbuilding orderbook due for delivery in 2009 had been financed, despite fears that it would not be. He explained that as newbuildings were already financed by the yard constructing the vessel, if the owner could not afford then to pay the yard, the bank will be stuck with the newbuilding. Shipowners are also getting finance from export credit banks in shipbuilding countries. So far in 2010 Lunde states that newbuilding deliveries have been seen every day and that cancellations have come largely from the yards where there was a failure as per the contract over terms such as delivery date. He noted that it was not easy for owners negotiate with the South Korean yards even if they ordered newbuildings at horrible prices as the values of some types of vessels have dropped by as much as 50% over the last 18 months. However owners have been able to negotiate delivery delays as yards seek to ensure they have work in future years as new orders dry up. Hyundai shipbuilding hits historic low Hyundai Heavy Industries shipbuilding division sales proportion fell to 30% mark of the company s total revenue for the first time in its history. Instead, offshore/onshore plant & engineering businesses surged. New orders in this field are also expected to surpass those in shipbuilding division this year in terms of contract value. Hyundai s business portfolio is now undergoing an adjustment as shipbuilding division performance start to dwindle and more focus is placed on plant businesses. The world s largest shipbuilding company s shipbuilding division revenue began to decrease last year as the sector s revenue stood at KRW 6trn ($5.21bn), accounting for 38% of the firm s entire revenue of KRW 15.8trn for the three quarters of It is the first time that its shipbuilding revenue proportion fell below 40% since the company s establishment in The share of shipbuilding revenue in the total sales had reached 43% to 52% between 1997 and 2008, and even approached 60% before the period. This year Hyundai is aiming for KRW 7.3trn in shipbuilding revenue, equating to some 33% of the entire revenue target of KRW 21.55trn. Moreover, Hyundai s shipbuilding division is expecting to grab new orders worth around $5.7bn this year, just 32% of the total 2010 order target of $17.7bn, signaling that the division s revenue portion will linger at 30% level since 2010 onwards. Meanwhile, combined revenue of the company s Offshore & Engineering and Industrial Plant & Engineering divisions totaled KRW 4trn for the nine months of last year, up 53% year-on-year. The two divisions combined revenue proportion against the firm s total revenue also increased from 18% a year earlier to 25% in the three quarters. The two divisions combined 2010 revenue target is KRW 5.8trn, 26% of the total revenue target, which is just 7%p behind the shipbuilding division s revenue target proportion. Hyundai aims to receive $6.2bn orders in the offshore/onshore plant sectors this year, higher than shipbuilding division s order target of $5.7bn. An official from Hyundai, which has six business divisions consisting of shipbuilding, offshore & engineering, industrial plant & engineering, engine & machinery, electro electric systems, and construction equipment, said, Our business portfolio which had been focused on shipbuilding so far is now being rebalanced to overcome any kind of economic downturns. Korean entering cruiseship arena News that Korean shipbuilders are entering cruiseship sector for the first time in their shipbuilding history are sounding the alarm to European shipyards that the entire shipbuilding industry, including specialist niche markets, is moving to Asia. On Wednesday it was revealed that Cyprus-based Louis Cruises is in talks with Korea's third largest shipbuilder Daewoo Shipbuilding & Marine Engineering for a mid-size cruiseship with accommodation capacity of around 2,000 passengers. Newbuilding cost is estimated at about $600m, according to foreign media. If a final contract is sealed, it would mark a first cruiseship order for the Korean major shipbuilder and a first newbuilding for Louis. On the last day of November 2009, another Korean major shipbuilder Samsung Heavy Industries announced it had been awarded a contract from Utopia Residences of the US to build a 100,000-gt apartment-type cruiseship at its Geoje shipyard. Louis is a hotels and cruise group operating a fleet of 12 vessels; all secondhand. That the group is mulling ordering newbuilding at a Korean yard rather than a European one is a sign of growing confidence among shipowners that Asian yards have the technical know-how for building more complex vessels.

3 Signs of this first emerged when Korea's STX Business Group bought Aker Yards of Norway in 2008 for $924m. Industry observers in Europe then predicted a broad technology transfer of cruiseship building capability to Korea. Samsung and Daewoo said they have been targeting the highest value-added ship type, namely cruiseship, for quite a long time and have been preparing for years. Samsung's ambitions to enter the cruiseship sector are already widely known in the industry. It has been eyeing an entry for the past 13 years. "Samsung has been competing with European shipyards for cruiseships for some time," said an official from the yard. "Cruiseship owners have always been comfortable with European shipyards because of their past experiences but they are looking at Samsung now because of our good reputation in constructing ships as well as our competitive pricing." He is confident that Samsung will be able to construct the cruiseship as the yard has built high-value ropaxes. "We have already delivered six ropaxes and are now constructing two units for Stena Line," said Jeong. Daewoo first embarked on developing passenger ships in 1994 and has since delivered a total of seven passenger ferries, accumulating building experience and technical know-how to make inroads into cruiseship arena. Safety crackdown at Daewoo Senior management at leading Korean shipyard Daewoo Shipbuilding & Marine Engineering has promised a safety crackdown following a spate of fatalities in the first few weeks of Within a period of just over 20 days, four workers at DSME died while on duty. Industry insiders have called for tightened safety measures and a special inspection into the facility to put an end to what is being called a "chain of deaths." According to the labor union of DSME, a 45-year-old Lee, a subcontracted painter, died from the explosion of a paint container that occurred Wednesday, 11:30 a.m. at the company's plant in Geoje, South Gyeongsang Province. Lee and his coworkers were applying inflammable paint thinner through a hose with a small nozzle, when a high amount of friction caused the explosion. He was moved to a nearby hospital but died some 16 minutes later. Doctors declared that Lee died of extreme burns. Lee's death is the third disastrous incident at the site since the turn of the New Year. The first took place on Jan. 2, when two workers of a subcontractor died of extreme inhalation of argon gas. The third victim drowned by falling from a service tower on Jan. 8. Samsung to use swing-type safety belt Samsung Heavy Industries announced that it will use swing-type safety belts from January 20th in an effort to prevent fall accidents which take up the highest proportion of industrial accidents nationwide. Currently Korean shipbuilding industry is using waist safety belts which are preferred by many site workers to the swing-type ones because the former is more convenient to wear and to move than the latter. But the waist belts pose a great risk pressing the chest and shocking the waist during a fall and by which subsequent accidents like waist breaking can follow. Therefore, Samsung decided to apply the swing belts which are now used by employees working at high places like offshore structures to all of its workplaces. Kim Hak-bin, executive director of environment and safety team at the company, said, By wearing the swing belts, workers can disperse the impact load evenly throughout the body and breathe smoothly while and after falling. We will replace the 20,000-odd waist belts being used with the swing belts one-to-one by the end of February. STX Finland Turku workers strike Workers walked out of STX Europe s Turku shipyard in Finland on Thursday in protest at job cuts. Union officials said the strike action is planned to last until next Monday. STX said last week it would lay off 370 workers as orderbook dries up at the yard. A local newspaper has reported that the workers are protesting about the shipyard owners decision to make up to 430 people redundant. "The workers cannot understand the layoffs and company outsourcing policy," union spokesman Ari Rajamaki said. "Some operations have been given to an outside company at the same time as they [STX Finland] are reducing their own staff." The only vessel on order at Turku is Royal Caribbean Line's gigantic cruiseship Allure of the Seas, due for delivery this year. The Turku yard employs about 2,300 staff and subcontractors. It announced the redundancies earlier in the month, adding there is the possibility of further redundancies if no new orders were received.

4 Shipping & Business News Order rebound or bottom fishing? According to Goldman Sachs research, Baltic Dry Index (BDI) seems to have touched the bottom when it dived by 35% in November 2009 from the peak in August 2008, while it is making a gradual rebound now. However, whether China s shipbuilding and shipping industry can step out of the low tide soon is still in doubt. Mr Ren Yuanlin, Chairman of Yangzijiang Shipbuilding (Holdings), said he is not sure how Chinese yards will go on depending on global economic situation. BDI was always fluctuating, especially in recent two years. In 2008, it slumped to 500 points in October from the peak of 12,000 points in August. Last year it has surged to 5,000 points but dropped to 3,000 points soon. So, the recent slight rebound cannot be regarded as the symbol of recovery. In Ren s view, the overcapacity still exists in the market. More cancellations may be emerging in the future. Nobody can make sure how long the market downturn will last. Definitely, shipbuilding industry has yet to be back on highway. The process would take one or two years. The rebound is triggered by bottom fishing, due to expectable pressure of inflation but not huge demand. At present, the orderbook of Yangzijiang Shipbuilding would keep the yard busy for the next three years. But how the future will be? Mr Ren didn t give his answer. Chinese face uncertainty in 2010 When the plan of Adjust and Revitalize Shipbuilding Industry was issued by Chinese government in February 2009, Chinese shipbuilders were being troubled by orders drought, delivery delays and financing difficulties. Nowadays the situation has improved but new problems are emerging means uncertainty for shipbuilding industry, said Mr Liang Zhiyong from Chinese Shipbuilding Industry Economic Centre, showing his anxiety. Statistics from the China Association of the National Shipbuilding Industry (CANSI) show that from January to November 2009, Chinese builders occupied 61.1% of the global market in terms of order intakes. But most of the new orders were contracted at CSSC and CSIC, as well as some coastal large shipyards. About 65% builders received 0 order in Some of them are likely to face bankruptcy. Actually the standoff in the order book and delivery delays is referred to the same question. Pessimistic views were spread widely due to the break in fund chain. During financial crisis, shipowners were very careful to place new orders meanwhile they began to consider postponing delivery date. That resulted in dilemma situation for builders. Implementing export buyer s credit capital is workable in government s plan, Liang pointed out. The stalemate in order intake and delivery delays will be mitigated if buyer s credit channel becomes smooth. For example, German shipowners gained $149m from Bank of China, supporting the constructions of nine chemical tankers in Jiangzhou Union Shipbuilding. Moreover, Torm, which is the second largest shipping enterprise in Denmark, got $167m from Societe Generale and Bank of China. As China's Shipbuilding Industrial Investment Fund rolled out, the financing problems will not be always the Mountain Everest for buyers. Since April 2009, CSSC, CSIC, Rongsheng, Jinhai and STX Dalian Shipbuilding have signed financing agreement with banks respectively. Chinese government s plan not only focuses on the solution to financing crisis but also on its long-term target by China will continue revamping and innovating, as well as restricting. Considering sustainable development, more and more builders are switching to offshore plant field. Although the market recovery is occurring, it doesn t mean shipbuilding industry has stepped out of tough time. Mr Miao Shugen, general manager of Zhoushan Chenzhou Ship Industry Group, said that it still had a long way to go for revitalizing. Many local banks are still negative to offer credit aid to shipbuilders, especially to private shipyards. Most of them are even excellent ones. Chinese rush holds dangers It has been about one year since China adopted its shipbuilding stimulus plan. Apart from pledges to support Chinese shipbuilders financially, the stimulus plan focuses on the necessity to control overcapacity in the industry. Looking back over the past year, the warnings about excessive capacity seem to have been neglected by some. Regardless of the gloom lingering in the global shipbuilding industry, some local governments in China continued to be obsessed with plans to create shipbuilding bases in their jurisdiction. An official in central China's Hunan province, for example, earlier expressed the ambition to turn the province into a world-renowned shipbuilding base. Another province in central China even sets the goal of achieving 100-million DWT ship output in the coming years.

5 Although shipyards have already criss-crossed the southeastern provinces of Jiangsu and Zhejiang, some local governments were still giving encouragement to the industry. Under the shipbuilding stimulus plan, government authorities, including land, maritime, environment and financial departments will not accept applications for the building of new shipyards or berths. Some local companies, however, built the shipyards or berths before getting permission, falsifying the fact that they had already had such facilities. The urge to build more ships is mostly driven by administrative forces, rather than the market. Statistics from the China Association of the National Shipbuilding Industry (CANSI) show China's ship output totaled million DWT in January to December 2009, up 47 percent from the same period in New orders came to 26 million DWT, down 55 percent. Order books at the end of December amounted to million DWT, down 8 percent from the start of the year. Besides this, 65 percent of shipyards received no new orders over the last year. The figures have set the alarms bells ringing about overcapacity and lack of demand in the shipbuilding industry. But why the rush for more ships? As is well known, the shipbuilding industry involves massive investment. It serves the local governments' interest by creating jobs, generating taxes and boosting the Gross Domestic Product (GDP) growth. The high investment levels involved also means a lot of shipbuilders borrow large sums from banks. If delivery problems occur, both the shipbuilders and the banks will suffer losses. It is improper for local governments to push the industry, said Bao Zhangjiang, a researcher at the China Ship Scientific Research Center. The shipbuilding industry still has its woes, he added. Blind investment in the sector will eventually backfire when market conditions in the industry worsen, he warned. Bao urged local government officials to respect the rule of the market in developing the shipbuilding industry. Korean Shipping Messenger Daily News Report is released and distributed freely by Mutualmar. The information in this report is derived from a variety of sources, public and private and Mutualmar explicitly does not claim it is the source of this information. While Mutualmar has used reasonable efforts to include accurate and up-to-date information in this report, makes no warranties or representations as to the accuracy of any information contained herein or accuracy or reasonableness of conclusions drawn there from. Mutualmar assumes no liabilities or responsibility for any errors or omissions in the content of this report.