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6. Risk of unforeseeable increase in operating or other expenses Operating expenses continue to increase from year to year and the increase fluctuates in accordance with
Indonesia’s economic condition. In addition, other expenses not anticipated by the Company may arise and may increase vessel operating expenses, which eventually affects the Company’s profit.
7. The Company is exposed to its customers‟ credit risks The Company generally grants certain payment terms to customers and therefore is exposed to delays in
payments andor payment defaults. There is no guarantee that the Company will be able to collect the receivables as they fall due or to collect them in full. In the event that the Company’s customers experience cash
flows problems or setbacks in their business performance, they may not be able to meet their obligations to the Company. In addition, economic recession may adversely affect the Company’s customers and increase the
likelihood of payment defaults. Accordingly, the Company may experience delayed payments or unpaid receivables. In that event, the Company may have to set up an allowance for doubtful account or write-off the
receivables in question, which will adversely affect the Company’s profitability. 8. Risk of loss of human resources
Currently, the Company is managed by several senior management and employees, who are experienced in the Company’s operating activities and the shipping industry. If the Company fails to maintain the senior management
or personnel due to health issues or other reasons, and is unable to recruit competent replacements in a timely manner, the Company’s operating activities, revenue and profit may be adversely affected.
The Company believes that the Company’s ability to maintain competent, qualified and experienced employees and maintain its vessel crews is a key factor to the Company’s success. If the Company fails to attract, maintain
and motivate its employees and vessel crews, the Company’s performance result may be adversely affected. 9. The Company‟s ships may be detained, which may disrupt the Company‟s operational activities
The Company’s vessels may be detained for investigation by the authorities with regard to violations of laws and regulations, such as compliance of safety aspects, or in the event of dispute with the respective customer, either
disputes related to the cargo being transported or other disputes. Detention of one or more vessels owned by the Company will prevent the vessels from being chartered and the Company will have to pay significant amount to
release the vessels referred to above, and therefore the Company’s business activities, financial position and performance will be adversely affected.
During the past few years, the Company’s vessels have never been detained by the authorities. However, as is the case with other fixed assets such as buildings, heavy equipment and other, we realize that the risk of vessel
detention does exist and has the potential to disrupt the Company’s operational performance.
B. RISKS ASSOCIATED WITH SHIPYARD SERVICES BUSINESS ACTIVITIES
1. Risk of changes in production cost prior to ship handover
Building large size ships requires construction time that may extend beyond one year since the signing of the contract, therefore there is a risk that production cost may fluctuate greater than those estimated by the Company
during formulation of the contract value. Such risk may affect the Company’s profitability. 2. Risk of failure in obtaining new shipbuilding contracts
As of the date of issuance of this Prospectus, the first phase of shipyard facilities has reached the completion stage. However, the existing facilities are ready to be used for several shipbuilding contracts. Although the
Company has obtained several shipbuilding contracts, there is no guarantee that the Company will be able to obtain other shipbuilding contracts upon completion of the currently existing contracts.
3. Risk of losses arising from cancellation of new shipbuilding contracts that are currently underway
New shipbuilding activities in the Company’s shipyard generally last from 6 months to 2 years, depending on the technical specification and complexity of the building process. Shipbuilding works always require an agreed
building contract between the customer and the Company before the start of any shipbuilding activities. Should there be any difference between technical specification ordered by the customer and the actual condition of the
shipyard during the shipbuilding process, the Company is exposed with the risk of bearing all losses incurred from
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39 all costs and work in progress that are already underway. In extreme cases, the customer may cancel the order
and terminate the previously agreed contract. The foregoing may affect the Company’s financial condition as all cost and components as well as spare parts
purchased will not be immediately sold. In certain cases, considering ship orders generally have very specific use, the work in progress may need to be reworked or adjusted in order to sell the ship to another customer who
requires the ship. 4. Risk of work accidents
Shipbuilding and ship works carry with it the risk of work accidents, which may result in claims from third parties, which may eventually delay the completion of the project in progress and affect the Company’s revenue. Although
the Company has insurance policies for work accidents, there is a possibility that certain work accidents are not covered by the Company’s insurance policies.
5. Risk of social community and environment
Shipyard construction may face substantial disruptions from communities in the surrounding areas of the project. The community may have negative reactions to changes in their environment, particularly if the Company does
not provide any benefit to their quality of life. Although the Company strives to meet proper environmental management standard, there is a possibility of damages to the natural ecosystem and environment that may
affect the relationship with its surrounding communities. 6. Risk of human resources
The Company’s activities in building and operating shipyards require a large number of labor. Therefore, labor management must be conducted properly to avoid undesirable turmoil.
7. Risk of delays in completion of shipbuilding projects
On-site project execution highly depends on site condition, rainfall, material availability and project management. The construction work must be supported by contractors and supervisors experienced in executing shipyard
projects. If all the above factors are not properly managed, the project may not be completed according to schedule, which will result in the decrease of the Company’s revenue projection as well as the risk of fine from
customers as the party injured by the Company’s delay. 8. Risk of shipyard facilities construction
Currently, the construction of the Company’s shipyard has reached the finalization of the first phase phase 1 development and the shipyard is currently available to carry out shipbuilding works. However, there remains the
risk of disruption in the construction of other shipyard supporting facilities, which may result in delays in the completion of shipbuilding or ship maintenance works, which ultimately hinder the accomplishment of the
Company’s business plan. Factors that may give rise to the risk of shipyard facilities construction are, among others, the availability of funding required for the shipyard facilities construction and social and security issues
that may arise in the area where the Company’s shipyard is located.
C. RISKS ASSOCIATED WITH THE SHIPPING INDUSTRY
1. The global and regional economic, social and political condition may lower demand for the Company‟s services
The shipping industry generally depends on the global and regional economic, social and political condition. The slowdown in global economic condition or unfavorable social and political conditions such as terrorist attacks,
wars, riots, trade sanctions and embargoes in general may result in the decline in shipping industry. In vessel charter industry, the slowdown of economy in general may affect demands for certain goods transported by the
Company. Therefore any unfavorable economic, social and political events may affect the Company’s financial performance.
