Algoma Central Corporation (Algoma) (TSX: ALC), a leading provider of marine transportation services, Friday announced that it has received full refund of all instalment payments made in connection with the now-cancelled shipbuilding contracts with Uljanik d.d. and 3Maj Shipyard of Croatia.
Algoma entered into five shipbuilding contracts with 3Maj Shipyard, an operating unit of Uljanik d.d of Croatia. After considerable delay, the first of the five vessels was delivered in 2018; however, Algoma cancelled the remaining four contracts as the shipyard’s financial difficulties led to a much-publicized attempt to refinance the company and shipyard management was unable to put forward a credible plan that would lead to completion of the remaining hulls. Demands for repayment of the related instalments were made in December 2018 and the banks guaranteeing the repayment of the amounts have now remitted a total of CAD$115 million in full settlement of the claims.
“While we are extremely disappointed in the failure by the shipyard to complete the vessels on time, the shipyard and its banks have been very cooperative in finalizing the cancellations and refunding the instalments promptly”, said Peter Winkley, Chief Financial Officer of Algoma. “The impact of these transactions, including foreign exchange gains, interest income and other adjustments will be reflected in our fourth quarter earnings, which we expect to issue in early March,” Mr. Winkley continued.
As a result of the cancellation of these contracts, the Company has taken steps to extend the expiry dates on three existing option contracts held with Yangzijiang Shipyard in China (YZJ) until later in 2019. These options, which provide the Company with a choice to build Equinox Class self-unloaders or gearless bulkers at attractive prices, were to expire at the end of December.
“The extensions provide Algoma time to assess which type of ship to build, taking into account our current fleet plan and the needs of our customers,” said Gregg Ruhl, Chief Operating Officer of Algoma. “We have developed a strong relationship with YZJ shipyard over the past three years and we have good experience with their ability to deliver a quality new-build on time and on budget,” Mr. Ruhl continued.
Algoma contracted for the building of two Equinox Class seawaymax self-unloaders by YZJ in 2015 and subsequently enlisted the support of the shipyard to complete two of the partially built Nantong Mingde hulls, which Algoma acquired from that bankrupt shipyard. Three of the four ships have been delivered. The final Nantong Mingde hull, the Algoma Conveyor, is scheduled for delivery in February and is expected to be in service for the 2019 navigation season.