In February this year, Singapore’s RBB Ship Chartering Ltd became the first maritime player to open a ship leasing business at the International Financial Services Center (IFSC) at GIFT City in Gandhinagar, Gujarat.
The IFSC Authority (IFSCA) granted a provisional license to RSCPL (IFSC) Ltd, a wholly owned subsidiary of RBB Singapore, to begin commercial operations this month.
Kolkata-based Ripley, another leading shipping player, is joining the GIFT IFSC for ship leasing and ship ownership through its Dubai branch.
The hustle and bustle surrounding the niche business of ship leasing is no ordinary development. According to industry experts, this will unlock tremendous value for the shipping sector as players begin to shift their operations from overseas to Indian shores, keeping cost benefits and operational efficiencies in mind.
What is ship leasing?
Ship financing or leasing is used to finance ships with the asset/ship as security. Leasing is becoming increasingly popular because it is a way of financing ships. Most of the Indian shipping community is full of operators who do not own ships as it is a low capital entry into shipping. Ship leasing therefore allows them to stay in the shipping business without owning ships.
According to Petrofin Research, the total global ship financing risk in 2021, including leasing and all other forms of financing, was around US$500 billion.
About 95 percent of India’s trade in goods by volume and 70 percent by value is handled by sea, according to the Ministry of Shipping. Despite a coastline of 7,517 km, India still lags behind the smaller hubs that are world leaders in ship financing. These are Singapore, Hamburg, Rotterdam, Hong Kong and London.
In the past, Indian shipowners and operators have preferred nearby international maritime centers to operate. This is mainly due to the high cost of financing, lack of exposure to marine finance and insurance and prohibitive tax regimes within the domestic regime in India.
But in January 2022, IFSCA filed “ship leasing” as a financial product, opening up new opportunities to enable finance and operational leasing activities.
Ten-year tax exemption for the first 15 years
No alternative minimum tax under new tax system
No inbound GST on services from Indian or NRI providers
No GST for services provided to other IFSC entities
Free transaction for money movement outside of FEMA jurisdiction
Amit Oza, Director of Astramar Shipping said: “UAE and Singapore will be very expensive, while at GIFT-IFSC there are advantages in terms of personnel and costs. Proximity to the large growing Indian market, availability of a skilled and trained workforce and lower costs are three key benefits.”
In 2021, IFSCA had formed a committee to develop pathways for IFSC ship acquisition, financing and leasing activities in India. This committee, with the help of Price Waterhouse & Co LLP, developed a shipping and financing model.
Oza, who was a member of the committee, said: “With the new framework, more Indian shipping companies abroad will return to India. We will see the potential of the Indian shipping sector realized with the commencement of such operations,” he said.