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Defense Ministry cancels warship contract with Ching Fu

ROC Central News Agency

2017/12/13 16:54:10

Taipei, Dec. 13 (CNA) The Ministry of National Defense (MND) has, as expected, terminated a multi-billion dollar contract with financially troubled Ching Fu Shipbuilding Co. to build minesweeper ships because the company has breached the contract.

The MND said in a statement Wednesday that it has sent a letter to Ching Fu informing it that the NT$35.85 billion (US$1.185 billion) contract it won in 2014 to build six minesweepers has been terminated.

Ching Fu, which is reportedly on the brink of bankruptcy, was guilty of breach of contract in two major areas, according to the MND statement.

Major events occurred that made it impossible for the company to meet its contractual obligations in the future, and the company was unable to correct previous breaches after given a 10-day extension, the MND statement said.

Ching Fu was found to be unable to fulfill its future obligations because it has suspended operations since January 2017 and has failed to pay more than US$36 million it owes to subcontractors.

It also did not complete the construction of a domestic minesweeper factory in May as was stipulated in the contract.

Another problem was the shipbuilder's inability to get its creditors to provide an advance payment guarantee by the required deadline, according to the MND.

Ching Fu was contractually obligated to put up the amounts of NT$1.5 billion, NT$3.3 billion and NT$2.4 billion in three separate phases to back the advance payment guarantee as well as funds to cover a NT$1.7 billion performance bond.

But while Ching Fu put up the NT$2.4 billion for the third phase of the process, the consortium of banks financing the deal decided not to issue the guarantee by the Nov. 28 deadline, preferring instead to cut their losses.

Because of that, the MND notified the company in writing on Nov. 28 to make the necessary improvements by Dec. 8 to avoid termination of the contract.

The company was unable to rectify the situation, however, prompting the ministry to start the procedure to cancel the contract, the MND said.

Because of the company's inability to meet the terms of the contract, the MND has confiscated the NT$2.4 billion put up by Ching Fu and is seeking to also seize the remaining NT$4.8 billion put up by the company for the advance payment guarantee and the NT$1.7 billion from the performance bond.

The ministry also cited Ching Fu's financial difficulties as a reason to end the contract.

It said several banks have filed petitions for provisional attachments of Ching Fu's assets, said to be worth about NT$6.4 billion, after the company used bogus documents to obtain a NT$20.5 billion syndicated loan from nine domestic lenders led by First Commercial Bank.

The Kaohsiung District Court also impounded the headquarters of Ching Fu Group, the shipbuilder's parent company, the MND said.

In the statement, the ministry reiterated its stance on handling the case in accordance with the law and said it would pursue compensation for the losses from Ching Fu by legal means and will blacklist the contractor.

(By Lu Hsin-hui and Evelyn Kao)
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