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companies and their affiliates accounted for more than 50.0% of our order book. If any one of our major
customers is unable to make payments for vessels it has ordered or otherwise defaults on its payment
obligations or ceases to have business dealings with us or materially reduces the level or frequency of its
orders for new vessels from us and we are unable to secure new orders from other sources to replace such a
loss or reduction, our shipbuilding business, financial condition, results of operations and prospects will be
materially adversely affected. See “Our Business — Our Major Customers”.
We are exposed to default by our customers and/or payment delays.
Our customers may be unable to meet their contractual payment obligations to us, either in a timely
manner or at all, or may otherwise default on these obligations. The reasons for such non-payment or payment
delays may include the customer’s insolvency or bankruptcy, a general down-turn in the market for vessels and
in demand for offshore support services, an inability by the customer to raise sufficient financing for the
purchase of the vessel, and strategic or other business-related decisions by the customer. For example, in 2008,
we entered into agreements with one of our customers for the construction and sale of small AHTS vessels.
Since this customer did not make the payment of the down payments for these vessels within the time
stipulated in the agreements, we have cancelled the construction contracts for these vessels and we intend to
sell these vessels to other buyers. We have other contracts for vessel construction which remain in effect with
the same customer. The amount at risk in relation to these contracts entered into with that customer amounts
to S$48.3 million, which constitutes approximately 5.2% of our order book as at 8 August 2008. While we
have received the corresponding down payments for these vessels, there is no assurance that this customer will
be able to complete its contractual payment obligations to us according to the terms of the construction
contracts.
In addition, we face the possibility that our customers may be unable to honour their contractual
obligations to us. These parties may default on their obligations to us due to bankruptcy, lack of liquidity,
operational failure or other reasons resulting from the current disruption in the global credit markets and
slowdown in the global economy.
While we generally require down payments of 20.0% to 30.0% of the contract value for our shipbuilding
contracts, the remainder of the contract price is typically payable only after trial and commissioning and
shortly before delivery of the vessel. See “Our Business — Our Operations — Shipbuilding”. For our ship
repair and conversion services and our ship chartering business, we usually extend a credit term of
approximately 30 days to our customers. As a result, we incur costs, primarily for equipment, which can be of
significant value, and for direct labour related to shipbuilding, before our customers are obligated to make
corresponding payments. Any failure by our customers to meet their contractual payment obligations to us
could cause us to run into cashflow problems or make significant losses on a contract or several contracts, in
particular, if we do not have adequate financing available or are unable to sell the vessel or vessels in question
to another customer, either at a comparable price or in a timely manner or at all. In addition, we may not be
able to enforce our contractual rights to receive payment through legal proceedings. Such events could have a
material adverse effect on our financial condition and results of operations.
The industries we operate in are highly competitive and require us to continuously upgrade our shipbuilding
and ship repair capabilities and our fleet of vessels available for charter.
The shipbuilding, ship repair and conversion and ship chartering industries are highly competitive. The
primary bases for competition are the matching of the customer’s demands with the capabilities and capacity
of a shipyard, the type and quality of vessel, price, delivery schedule/availability and the type of equipment.
We expect to face increased competition from existing competitors and new entrants into these industries in
the future. See “Industry Overview”.
To maintain our competitive edge, we need to continuously upgrade our shipbuilding and ship repair and
conversion facilities and our fleet of vessels available for charter to match those offered by our competitors.
As many of our competitors are larger players in the industry than we are and may have greater resources to
keep abreast of technological changes and to maintain bigger and more advanced shipyards and fleets, we
cannot assure you that we will be able to compete successfully against our competitors as well as new market
entrants in the future. Our failure to remain competitive may adversely affect our business and growth and
could have an adverse impact on our financial performance. See “Our Business — Competition”.
Our competitors may also have longer operating histories and greater financial, technical, marketing and
other resources than us, as well as greater access to capital. In addition, we may compete directly with some
of our customers when we engage in our ship chartering business.
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