ST Engineering client terminates shipbuilding contract

Louis Dreyfus Armateurs have alleged that there is a delay in the delivery of the Ropax vessel from ST Marine, the marine arm of ST Engineering.

According to ST Engineering, they have received a notice of ternmination dated 17 March 2011 from LDA in respect of the shipbuilding contract for the Roll-on/Roll-off Passenger ferry contracted in July 2007 for a contract price of approximately $179 million.

LDA further allege that even if the vessel is tendered for delivery there will be deficiency in the deadweight capacity of the Ropax vessel.

The Notice further states that in the event LDA is not entitled to terminate the contract in accordance with the Notice, LDA is fully prepared to continue to fulfill its obligations under the contract but however that it will become entitled in due course to terminate the contract by reason of deficiency in the deadweight capacity.

ST Marine has referred the matter to its legal advisers.

In the event the Notice is valid, ST Marine is required to refund the milestone payments made to ST Marine amounting approximately to S$129m plus interest. LDA has also reserved its right to pursue claims in damages. If liable for damages, ST Marine's position is that under the terms of the contract its total liability for damages is capped at 10% of the contract price.

In the circumstances, the termination of the contract is not expected to have any material impact on the consolidated net tangible assets per share and earnings per share of ST Engineering for the current financial year.