Ahmedabad, March 23 In yet another boost for ship-leasing business from the International Financial Services Centre (IFSC) at GIFT City in Gandhinagar, the regulator IFSC Authority (IFSCA) on Wednesday ironed out ambiguities relating to employment of ships/ vessels for voyage charter and other commercial transactions by companies at GIFT-IFSC.

This, according to shipping industry stakeholders, completes the bouquet of offerings under the ship leasing and owning business at IFSC.

On Wednesday, IFSCA issued an amendment to its earlier circular titled ‘Framework for Ship Leasing’, and allowed the lessor to undertake activities such as “operating lease, voyage charters, contract of affreightment, employment in shipping pools and all other legal commercial transactions for employment of ships.”

The amended circular also allows “Asset Management Support Services for assets owned or leased out by the lessor or by any of its Group Entities set up in IFSCs in India.”

Further, the sale and lease back, purchase, novation, transfer, assignment, and such other similar transactions in relation to ship lease are, henceforth, granted, besides any other related activity with the prior approval of the IFSCA.

The regulator also clarified that a transaction shall be classified as a lease if it is in accordance with the Indian Accounting Standards (Ind AS 116) on leases.

Also read: Global shippers come calling at GIFT City’s IFSC

Shipping business

Notably, the industry had represented to the IFSCA to notify voyage charter and other commercial transactions for employment of ships, as permissible activities under operating lease, thereby, enabling the full ecosystem for shipping business at the IFSC.

In its amended circular, the IFSCA noted, “The matter was referred to the Directorate-General of Shipping, India, which clarified that these activities are an integral part of the ecosystem and may be included as part of the shipping ecosystem in the IFSC, as at present many Indian players are going off-shore for availing of these services.”

A shipping player remarked, “this was a serious issue impacting the operational aspect of leasing from IFSC.”

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In their representation to the regulator in January this year, the industry had stated that “Voyage charters, contracts of affreightment, pool earnings, etc, are inherently a part of the shipping industry and it may not be possible to meaningfully operate from a jurisdiction that prohibits or restricts these activities.”

Typically, in the ship-leasing business, an asset owned or leased-in by an entity at GIFT-IFSC would have to be further employed. Earlier, the regulations were ambiguous, thereby, restricting the form and type of employment of ships.

This, according to industry players, impacted the commercial value and attractiveness of GIFT-IFSC.

Already several international and India shipping players have started showing interest in kicking off their ship leasing and owning business from GIFT-IFSC, as it promised an attractive cost advantage with a complete ecosystem in place for the sector.

Voyage charter:

A charterer (the person/ entity who is in need of a vessel) enters into an agreement with the ship-owner to hire the ship/ vessel to transport goods/ cargo from one place to another. Under the voyage charter, the owner of the ship leases out the vessel, its staff and crew for a specific voyage or journey between two points, i.e. JNPT, Mumbai to Port of Jabel Ali, Dubai. More than half of all the chartering happening globally is voyage charter. Here the owner of the ship must pay all the costs, including fuel, wages for the staff, berthing, loading-unloading. The charterer pays a fees agreed with the shipowner for using the vessel. This model is considered more attractive for charterers as it gives them freedom from unexpected cost escalations, long-term commitments, and hassles of finding the crew. Once the voyage is over, the commitments from both sides are considered fulfilled.

Time charter:

In a time charter, the charterer or the party who needs the ship, leases the vessel for a certain period of time. They are free to ply the ship on any route of their choice and can call any port of destination during the agreed period of lease. Unlike the voyage charter, where the ship-owner bears most of the costs, in a time charter, it is the charterer who pays for fuel and other supply costs. Time charter has a lesser charter fee than a voyage charter.

Demise charter:

This is a bareboat charter, where the charterer or the person needing the ship gets possession of the vessel for a certain period of time. He is responsible for arranging the crew and other supplies, including fuel. The charterer is also responsible for operation and maintenance of the ship. The charterer is free to sub-let the vessel for time charter or voyage charter.