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Tuesday, 20 October 20
BIMCO 'SHIPLEASE' TERM SHEET - WATSON FARLEY & WILLIAMS
 KNOWLEDGE TO ELEVATE
The ever-growing importance of sale and leaseback transactions as an alternative to financing ships by way of loan, makes it both timely and welcome that BIMCO has produced a standardised term sheet. There was strong Asian representation on the drafting committee. Reflecting the position of Chinese leasing companies in the market, the committee included representatives from four of them. The term sheet is accompanied by explanatory notes, following the structure of the earlier BIMCO loan term sheets (SHIPTERM and SHIPTERM S).
“The ever-growing importance of sale and leaseback transactions as an alternative to financing ships by way of loan, makes it both timely and welcome that BIMCO has produced a standardised term sheet.”
Any attempt to produce a standard or indicative term sheet for leasing transactions is challenging. All loan transactions are essentially the same, with differences between the terms of one loan from another being ultimately detail, albeit important detail. The borrower is obliged to repay the loan and once it has done so the lender is obliged to release any security. In contrast, what happens at the end of a lease varies as between one type of lease and another. The broad distinction is between finance leases, where the lessee rather than the lessor takes residual risk and upside benefit, and operating leases, where the reverse is the case to a greater or lesser extent and return conditions at expiry have greater significance. It should be noted, however, that the terms ‘finance lease’ and ‘operating lease’ are not terms of art and mean different things to different people, and in different contexts.
There are also important differences as regards the rights and remedies of a lessor following lessee default, compared with the rights and remedies of a secured lender as against a defaulting borrower. The lessor’s remedies as owner can in certain circumstances be more flexible and favourable than the remedies of a mortgagee. However, English law, at least, requires the lessor to navigate around the risk that a liquidated termination sum is potentially vulnerable to being struck down as an unenforceable penalty, which will be the subject of a briefing note shortly. The English law doctrine of relief from forfeiture can apply to both leases and secured loans but is likely to be more relevant to the former than the latter.
For a lessee, there are two main areas of risk compared with the position of a borrower under a secured loan. First, English law has for a long-time aided mortgagors by protecting their right to get the asset back free of mortgage on repayment (the ‘equity of redemption’) and by imposing duties on mortgagees in relation to the realisation of their security. These protections do not apply to a lessor, at least not to the same extent. Secondly, the fact that the lessor holds legal title to the asset means that a lessee is exposed to greater risks around lessor solvency, ownership and control of the lessor, disposal and lien-creating than is a borrower vis-à-vis a mortgagee.
Since a term sheet for a sale and leaseback transaction will generally originate from the lessor’s side rather than the lessee’s, it is perhaps not surprising that the issues for a lessee briefly referred to above are for the most part not flagged either in the term sheet or in the explanatory notes. Reflecting both the legal complexities of leasing transactions as compared with loans, and also the variety of different structures and types of leasing deal, the term sheet and especially the drafting notes, refer to a number of features and issues, including the following:
• The term sheet generally assumes English law as the governing law of the lease;
• The emphasis is on sale and leaseback of second-hand tonnage rather than newbuildings. Deals involving newbuildings can include additional structural and documentation complexities which are not addressed;
• The intention is that the term sheet can be used for both finance leases and operating leases and even, possibly optimistically or ambitiously, as a basis for specialised transactions such as JOLCOs;
• It is aimed at a single ship deal and expressly does not attempt to address, in any detail, the complexities which can arise from multi-ship deals, especially when the lessors and/or the lessees involved are special purpose companies; and
• The possibility of lessor financing is referred to but not expressly that this can take place at inception rather than by way of ‘back financing’ once a sale and leaseback is completed.
“All-important financial matters such as the calculation of hire, the calculation of the termination sum and financial covenants are left to be completed in annexes.”
Any attempt to provide more detailed explanation or alternative drafting would have resulted in the term sheet itself and/or the explanatory notes become much longer and more cumbersome. One can sympathise with the drafting committee’s tendency towards conciseness. All-important financial matters such as the calculation of hire, the calculation of the termination sum and financial covenants are left to be completed in annexes. The drafting process included wider industry and professional consultation. A close-to-final draft of the term sheet was released for comment a few months before publication took place at the end of September. WFW was among the law firms submitting comments. The explanatory notes were not released in draft during the consultation process.
There are two issues to note, of a mainly stylistic nature. First, as the explanatory notes point out, there are no defined terms as such. The use of defined terms in term sheets is customary and would be familiar to, and possibly expected by, most users. Secondly, the BIMCO style of boxes at the front sits oddly in a term sheet, albeit that it is the format already used in the SHIPTERM term sheets. One example of an area where these features might be more than just one of form and have an effect on substantive issues are the treatment of Purchase Option and Purchase Obligation. If included, these are significant and potentially complex features where clarity is required. The combination of lack of detailed defined terms and the use of boxes imposes a constraint in this and other areas.
This BIMCO project has presented a welcome template for parties and their lawyers to work on. That said, it is unlikely – or at least it would be ill-advised – for non-expert parties to use it without assistance in any but the simplest of transactions. It is a starting point and a foundation rather than a fully-refined product – but that is inevitable having regard to the subject-matter and is the intention, as the explanatory notes make clear. Having now taken this step, it will be interesting to see if BIMCO turns its attention to a full-form lease. BARECON 2017 is used in many sale and leaseback transactions with detailed and extensive additional clauses. Although many lessors prefer to use a fully bespoke form of lease, a variant of the BARECON form addressed specifically at sale and leasebacks might be welcomed by those who prefer to use it as a starting point.
Source: Watson Farley & Williams
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Friday, 05 January 24
BANGLADESH’S 2023 COAL-FIRED POWER OUTPUT TRIPLED, EASING SHORTAGES - REUTERS
Bangladesh nearly tripled its coal-fired power output in 2023, a Reuters analysis of government data showed, helping it tide over the worst power s ...
Tuesday, 02 January 24
COAL TRADE CONTINUES TO HEAD EAST - BALTIC EXCHANGE
The global coal trade, once concentrated in the Pacific and Atlantic basins, is undergoing a significant transformation, as highlighted in the Inte ...
Tuesday, 02 January 24
COAL CARGOES: AVOIDING EXPLOSION AND SELF-HEATING - GARD
KNOWLEDGE TO ELEVATE
Despite its contribution to greenhouse gas emissions, global coal consumption climbed to an all-time high in 2022 and is ...
Tuesday, 02 January 24
SINOPEC FORECASTS CHINA’S COAL CONSUMPTION TO PEAK AROUND 2025 - REUTERS
China Petrochemical Corp, or Sinopec, expects coal consumption to peak around 2025 at 4.37 billion metric tons, the state energy group said in an o ...
Thursday, 07 December 23
CHINA TO SET UP COAL PRODUCTION RESERVE TO STABILISE PRICES - REUTERS
China will establish a back-up coal production system by 2027 to stabilise prices and secure coal supply, the state planner said on Wednesday, even ...
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- Power Finance Corporation Ltd., India
- Grasim Industreis Ltd - India
- Orica Mining Services - Indonesia
- ICICI Bank Limited - India
- White Energy Company Limited
- PetroVietnam Power Coal Import and Supply Company
- Thai Mozambique Logistica
- Indika Energy - Indonesia
- Parry Sugars Refinery, India
- Kepco SPC Power Corporation, Philippines
- Wood Mackenzie - Singapore
- Sindya Power Generating Company Private Ltd
- Miang Besar Coal Terminal - Indonesia
- Larsen & Toubro Limited - India
- Orica Australia Pty. Ltd.
- Vizag Seaport Private Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- SN Aboitiz Power Inc, Philippines
- Timah Investasi Mineral - Indoneisa
- Attock Cement Pakistan Limited
- Straits Asia Resources Limited - Singapore
- Coalindo Energy - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Xindia Steels Limited - India
- Makarim & Taira - Indonesia
- Eastern Coal Council - USA
- OPG Power Generation Pvt Ltd - India
- Sakthi Sugars Limited - India
- Leighton Contractors Pty Ltd - Australia
- Standard Chartered Bank - UAE
- Borneo Indobara - Indonesia
- PowerSource Philippines DevCo
- Coastal Gujarat Power Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Central Java Power - Indonesia
- Oldendorff Carriers - Singapore
- Agrawal Coal Company - India
- Coal and Oil Company - UAE
- Trasteel International SA, Italy
- Bahari Cakrawala Sebuku - Indonesia
- Siam City Cement PLC, Thailand
- Electricity Generating Authority of Thailand
- Mintek Dendrill Indonesia
- Intertek Mineral Services - Indonesia
- Banpu Public Company Limited - Thailand
- Indian Energy Exchange, India
- Marubeni Corporation - India
- Carbofer General Trading SA - India
- Planning Commission, India
- Toyota Tsusho Corporation, Japan
- MS Steel International - UAE
- The University of Queensland
- Kobexindo Tractors - Indoneisa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Pipit Mutiara Jaya. PT, Indonesia
- Ministry of Mines - Canada
- Kumho Petrochemical, South Korea
- Medco Energi Mining Internasional
- SMC Global Power, Philippines
- Semirara Mining and Power Corporation, Philippines
- Economic Council, Georgia
- Savvy Resources Ltd - HongKong
- Pendopo Energi Batubara - Indonesia
- Tamil Nadu electricity Board
- Siam City Cement - Thailand
- Romanian Commodities Exchange
- Rio Tinto Coal - Australia
- Kalimantan Lumbung Energi - Indonesia
- Wilmar Investment Holdings
- Interocean Group of Companies - India
- Sical Logistics Limited - India
- Mercator Lines Limited - India
- GMR Energy Limited - India
- Merrill Lynch Commodities Europe
- Gujarat Mineral Development Corp Ltd - India
- India Bulls Power Limited - India
- Indo Tambangraya Megah - Indonesia
- Semirara Mining Corp, Philippines
- PNOC Exploration Corporation - Philippines
- Madhucon Powers Ltd - India
- Samtan Co., Ltd - South Korea
- Global Coal Blending Company Limited - Australia
- Ministry of Finance - Indonesia
- International Coal Ventures Pvt Ltd - India
- Ministry of Transport, Egypt
- New Zealand Coal & Carbon
- Indonesian Coal Mining Association
- Sinarmas Energy and Mining - Indonesia
- Meralco Power Generation, Philippines
- Salva Resources Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Kapuas Tunggal Persada - Indonesia
- Eastern Energy - Thailand
- Karbindo Abesyapradhi - Indoneisa
- Barasentosa Lestari - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Binh Thuan Hamico - Vietnam
- Meenaskhi Energy Private Limited - India
- Holcim Trading Pte Ltd - Singapore
- Indian Oil Corporation Limited
- Jorong Barutama Greston.PT - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- TeaM Sual Corporation - Philippines
- Ind-Barath Power Infra Limited - India
- Posco Energy - South Korea
- Bangladesh Power Developement Board
- Sarangani Energy Corporation, Philippines
- Anglo American - United Kingdom
- Directorate Of Revenue Intelligence - India
- CNBM International Corporation - China
- Star Paper Mills Limited - India
- Georgia Ports Authority, United States
- Metalloyd Limited - United Kingdom
- Asmin Koalindo Tuhup - Indonesia
- Kartika Selabumi Mining - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Latin American Coal - Colombia
- Iligan Light & Power Inc, Philippines
- McConnell Dowell - Australia
- Karaikal Port Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- GVK Power & Infra Limited - India
- Indogreen Group - Indonesia
- Jaiprakash Power Ventures ltd
- Port Waratah Coal Services - Australia
- Bayan Resources Tbk. - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- London Commodity Brokers - England
- Kohat Cement Company Ltd. - Pakistan
- Bulk Trading Sa - Switzerland
- Central Electricity Authority - India
- Kideco Jaya Agung - Indonesia
- Australian Coal Association
- Renaissance Capital - South Africa
- Gujarat Sidhee Cement - India
- Commonwealth Bank - Australia
- Riau Bara Harum - Indonesia
- Formosa Plastics Group - Taiwan
- Chettinad Cement Corporation Ltd - India
- Sree Jayajothi Cements Limited - India
- The State Trading Corporation of India Ltd
- Videocon Industries ltd - India
- San Jose City I Power Corp, Philippines
- Bhatia International Limited - India
- Dalmia Cement Bharat India
- Heidelberg Cement - Germany
- LBH Netherlands Bv - Netherlands
- Malabar Cements Ltd - India
- IHS Mccloskey Coal Group - USA
- Bukit Asam (Persero) Tbk - Indonesia
- Sojitz Corporation - Japan
- Parliament of New Zealand
- Maharashtra Electricity Regulatory Commission - India
- Singapore Mercantile Exchange
- Price Waterhouse Coopers - Russia
- Vedanta Resources Plc - India
- Simpson Spence & Young - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Ceylon Electricity Board - Sri Lanka
- Bhoruka Overseas - Indonesia
- AsiaOL BioFuels Corp., Philippines
- South Luzon Thermal Energy Corporation
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- SMG Consultants - Indonesia
- Edison Trading Spa - Italy
- Deloitte Consulting - India
- Global Business Power Corporation, Philippines
- Thiess Contractors Indonesia
- Altura Mining Limited, Indonesia
- Gujarat Electricity Regulatory Commission - India
- Chamber of Mines of South Africa
- Globalindo Alam Lestari - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- European Bulk Services B.V. - Netherlands
- Directorate General of MIneral and Coal - Indonesia
- ASAPP Information Group - India
- Bharathi Cement Corporation - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Jindal Steel & Power Ltd - India
- Bhushan Steel Limited - India
- Kaltim Prima Coal - Indonesia
- Energy Link Ltd, New Zealand
- The Treasury - Australian Government
- Energy Development Corp, Philippines
- Mercuria Energy - Indonesia
- Aditya Birla Group - India
- Global Green Power PLC Corporation, Philippines
- IEA Clean Coal Centre - UK
- Independent Power Producers Association of India
- Therma Luzon, Inc, Philippines
- Lanco Infratech Ltd - India
- Baramulti Group, Indonesia
- Australian Commodity Traders Exchange
- Mjunction Services Limited - India
- Petron Corporation, Philippines
- Goldman Sachs - Singapore
- Ambuja Cements Ltd - India
- Cement Manufacturers Association - India
- Bukit Baiduri Energy - Indonesia
- PTC India Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Electricity Authority, New Zealand
- Billiton Holdings Pty Ltd - Australia
- Africa Commodities Group - South Africa
- Rashtriya Ispat Nigam Limited - India
- Bukit Makmur.PT - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Essar Steel Hazira Ltd - India
- Manunggal Multi Energi - Indonesia
- Aboitiz Power Corporation - Philippines
- Tata Chemicals Ltd - India
- Krishnapatnam Port Company Ltd. - India
- VISA Power Limited - India
- Antam Resourcindo - Indonesia
- Uttam Galva Steels Limited - India
- Minerals Council of Australia
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