Introduction
Colombo Dockyard PLC (CDL), Sri Lanka’s pioneering shipbuilding and repair company, is at a pivotal moment in its history as its majority shareholder, Japan’s Onomichi Dockyard Company Ltd., has decided to exit. This decision brings an end to over three decades of partnership and leaves CDL in search of a new strategic investor to ensure its continuity and growth.
This blog explores the implications of this significant decision, the challenges CDL faces, and the opportunities it holds for potential investors.
Onomichi’s Decision to Exit
Onomichi Dockyard Company Ltd., the majority shareholder of CDL since 1991, announced its decision to withdraw its 51% shareholding and end its management agreement. This decision aligns with CDL’s strategy to invite a new investor who can bring fresh management perspectives and a commitment to reviving the company.
In a statement to the Colombo Stock Exchange, CDL confirmed preliminary discussions with interested parties. Key creditors have been informed, and they have expressed their willingness to support the company through the transition.
Financial Challenges and Performance
CDL’s financial struggles have been mounting over the years, with FY2023 marking its worst performance. Key financial highlights include:
- FY2023 Losses: CDL reported a loss of Rs. 11 billion, exacerbating its financial difficulties.
- Revenue Decline in FY2024: In the first nine months of FY2024, revenue dropped by 35% to Rs. 18.8 billion.
- Retained Losses: As of September 30, 2024, CDL’s retained losses stood at Rs. 7.5 billion, a significant increase from Rs. 4.7 billion a year earlier.
Despite these challenges, CDL has maintained an impressive export revenue stream. In 2023, export revenue grew by 36% to Rs. 31.7 billion, with Norway, India, and France being the primary markets. This export segment remains a silver lining for the company.
Strategic Advantages of CDL
Despite its financial troubles, CDL holds strategic advantages that make it a valuable prospect for potential investors:
- Prime Location: CDL’s location in Colombo provides easy access to major shipping routes, offering a competitive edge in the shipbuilding and repair industry.
- Diverse Capabilities: From constructing complex vessels like cable layers and hybrid bulkers to repairing sophisticated offshore vessels, CDL has demonstrated its technical prowess.
- Export Growth Potential: The company’s strong export performance indicates significant untapped opportunities in the international market.
Key Stakeholders and Shareholding Structure
Onomichi Dockyard currently owns 51% of CDL, amounting to 36.65 million shares. Other major shareholders include:
- Employees’ Provident Fund (16.34%)
- Sri Lanka Insurance Corporation (10%)
- Sri Lanka Ports Authority (3%)
With a public float of 49%, CDL’s shareholder base includes over 5,000 individual shareholders, highlighting its wide-reaching impact.
Challenges Over the Years
CDL has faced a series of setbacks, which have contributed to its current financial crisis:
- Easter Sunday Attacks (2019): The attacks caused economic and operational disruptions.
- COVID-19 Pandemic: Global lockdowns and reduced shipping activities adversely impacted operations.
- Sri Lanka’s Economic Crisis: The country’s financial instability added further pressure on CDL’s profitability.
Despite these challenges, CDL has shown resilience, adapting its operations and continuing to serve both domestic and international clients.
Future Prospects and Investor Appeal
The exit of Onomichi opens doors for new investors to capitalize on CDL’s potential. Key factors that make CDL an attractive investment include:
- Strategic Turnaround Potential: A new management team with expertise in financial restructuring could turn CDL into a profitable enterprise.
- Global Demand for Shipbuilding and Repair: With international shipping volumes increasing, CDL can position itself as a regional leader.
- Support from Stakeholders: CDL’s creditors and shareholders have shown willingness to support the company, ensuring a smoother transition.
Recent Developments
Following Onomichi’s exit announcement, its representatives on the CDL Board—T. Nakabe, K. Kobatake, and J. Flurukawa—have resigned. In their place, L. Ganlath, a seasoned director with decades of experience, has been appointed Non-Executive Chairman.
CDL’s 50-Year Legacy
Celebrating its 50th anniversary in August, CDL highlighted its journey from building harbor support vessels to constructing complex ships like dredgers and cable layers. The company has also ventured into heavy engineering projects, including underwater restaurants and steel structures.
Managing Director and CEO Thimira S. Godakumbura acknowledged the challenges faced in recent years but emphasized CDL’s resilience and commitment to excellence. He highlighted the company’s ability to adapt to challenging conditions, which serves as a testament to its robust foundation.
What’s Next for CDL?
The Board of Directors remains optimistic about CDL’s long-term potential. They believe that with the right investor and management team, CDL can overcome its current crisis and continue to thrive as a leader in the shipbuilding industry. The Board has also assured stakeholders that they will be informed of any material developments moving forward.
Conclusion
The exit of Onomichi Dockyard from Colombo Dockyard PLC marks the end of an era but also presents an opportunity for a fresh start. With its strategic location, technical expertise, and export potential, CDL is poised to attract investors who can help it navigate its financial challenges and achieve long-term success.
While the road ahead may be challenging, CDL’s legacy and resilience offer hope for a brighter future. Investors looking to enter Sri Lanka’s maritime industry should keep an eye on this evolving story as it unfolds.
