Ship financing plays an important role in contributing to the maritime industry’s growth and sustainability. However, challenges can arise, particularly in jurisdictions where foreign ownership of immobile assets faces legal hurdles. This article delves into the nuances of ship financing, exploring potential roadblocks and innovative solutions that savvy players in the industry employ to navigate them.
Understanding Ship Financing: A Vast Ocean of Opportunities and Challenges
Ship financing involves the provision of capital to facilitate the acquisition, construction, or operation of ships. The assets in question, often considered immobile due to their nature, can pose challenges when seeking to pledge them as security in certain jurisdictions. This limitation arises from legal frameworks that restrict or prohibit foreign ownership of immobile assets, complicating the traditional avenues of securing loans.
Navigating Legal Waters: Overcoming Jurisdictional Challenges
In jurisdictions where the foreign ownership of immobile assets, including ships, is restricted, strategic structuring becomes paramount. One effective approach is the establishment of a local legal entity that acts as an intermediary for securing loans. The lender, in this case, can incorporate a local entity through which security is obtained, ensuring compliance with local regulations. This entity then becomes the borrower, facilitating a workaround for foreign entities seeking financing in regions with stringent ownership restrictions.
Setting Sail with Jurisdictional Arbitrage: A Case for UK Incorporation
Another viable strategy involves the incorporation of a legal entity in England or Wales to serve as the borrowing entity. This entity, in turn, owns the local legal entity responsible for the ship. By structuring the financing arrangement in this manner, the terms of the loan fall under the governance of English and Welsh laws. This approach not only provides a legal framework that is often conducive to international business but also opens avenues for leveraging established legal systems renowned for their stability and reliability.
The Role of Legal Entities in Smooth Sailing: A Two-Tiered Approach
In scenarios where immobile assets face ownership restrictions, the incorporation of legal entities becomes a pivotal tool. The lender can establish a local entity for securing loans, or the borrower can strategically structure ownership through a two-tiered entity system, mitigating legal obstacles and ensuring a smooth financing process.
Conclusion: Charting a Course for Success in Ship Financing
Ship financing, a cornerstone of maritime industry growth, presents challenges in jurisdictions where immobile asset ownership is restricted. However, by adopting innovative strategies such as incorporating local entities or leveraging the legal frameworks of established jurisdictions like England and Wales, industry players can navigate these challenges successfully. As the maritime landscape continues to evolve, strategic structuring remains a compass for those seeking to secure financing while respecting the legal nuances of diverse jurisdictions.
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With a network of 700+ alternative investors which includes venture capital funds, venture debt lenders, corporate VC arms, private credit funds and family offices, Langdon Capital assists innovative and high growth companies with at least £1m in annual revenue growing at a minimum of 30% YoY, raise between £1m and £25m in debt, or equity at Series A or beyond.
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About the author
Sabbir Rahman is Managing Director of Langdon Capital. He has held prior roles with Morgan Stanley, Lazard and Barclays Investment Bank. He has executed over £60 billion in notional value of debt, equity, M&A and derivatives transactions with global corporates, private equity funds and financial sponsor groups.
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This is not financial advice or any offer, invitation or inducement to sell or provide financial products or services or to engage in any form of investment activity.
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