finance

IFSCA Amends Ship Leasing Framework: Key Changes and Implications

Introduction

This blog discusses the recent amendment made by the International Financial Services Centres Authority (IFSCA) concerning the framework for ship leasing. The amendment expands the permissible activities under operating leases to include new commercial transactions, enhancing the operational capabilities of finance companies registered in the International Financial Services Centres (IFSCs).

Amendment to the Framework for Ship Leasing

In accordance with Circular No. F.No. 496/IFSCA/FC/SLF/2022-23/002 dated March 22, 2023, addressed to all finance companies and finance units registered in IFSCs, the following key points outline the changes made to ensure a more comprehensive framework for ship leasing.

Context and Background

  1. The earlier Circular No. 496/IFSCA/FC/SLF/2022-23/001, issued on August 16, 2022, specified permissible activities under operating leases. Since then, IFSCA has received numerous requests from stakeholders to allow for voyage charters and various commercial transactions related to ship employment.

  2. In response, the matter was evaluated by the Directorate General of Shipping, India, which highlighted the necessity of including these activities within the shipping ecosystem of the IFSC, addressing the demand as many Indian entities currently seek such services overseas.

Key Changes

  1. The amendment facilitates the provision of ‘Asset Management Support Services’ not only to wholly owned subsidiaries of the lessor but also to group entities established within the IFSC.

  2. Consequently, Clause 3.E of the original Circular has been updated to permit the following activities:

    • Operating Lease
    • Voyage Charters: This includes contracts of affreightment, employment in shipping pools, and all other commercial activities pertaining to the employment of ships.
    • Asset Management Support Services: Applicable for assets owned or leased by the lessor, including those by any of its group entities situated in IFSCs.
      • Definition of Group Entities: Refers to an arrangement of two or more entities linked through relationships such as subsidiary-parent (AS 21), joint venture (AS 27), associate (AS 23), related parties (AS 18), common brand name, or equity investments of 20% and above.
    • Related Transactions: Including but not limited to sale and leaseback, purchase, novation, transfer, assignment, and similar transactions related to ship leasing.
    • Additional Activities: Other related activities may be undertaken with prior approval from the IFSCA.

  3. An important clarification states that a transaction will be classified as a lease in accordance with the Indian Accounting Standards (Ind AS 116) on Leases.

Conclusion

This circular, issued under the authority provided by Section 12 of the IFSCA Act, aims to further develop and regulate financial products, services, and institutions within the IFSCs. For more details, stakeholders can access the complete circular on the IFSCA.