Prior to the Finance Ministry’s notification, INVITs for ships were not applicable as ships were not part of the Harmonized List of Infrastructure and, therefore, were not counted as infrastructure.Mumbai: Experts said the Finance Ministry’s notification granting infrastructure status to large ships will help fleet owners recycle capital and raise funds through Infrastructure Investment Trusts (InvITs) to fund more ship purchases.
According to the notification issued by the Finance Ministry on September 19, Indian-owned and flagged commercial ships of ten thousand and above gross tonnage (GT) or Indian built, owned and flagged commercial ships of one thousand five hundred gross tonnage (GT) or above will be given infrastructure status.
K Rajaraman, Chairman, International Financial Services Centers Authority (IFSCA) said, “This is a great opportunity to bring ships also under InvIT and monetize the ships owned by various companies to invest in the next round of shipbuilding or owned ships. Therefore, I see that the InvIT framework also provides an opportunity to raise finance for shipbuilding.”
Rajaraman said at the India Maritime Week held in Mumbai between October 27-31 that the biggest challenge in the sector is raising long-term capital, given the market volatility and low recovery expectations.
The Indian shipbuilding industry is set to take a quantum leap in capacity and affordability to meet the potential target of building 1,000 large ships, which cannot be accomplished through government funding alone. Therefore, there is a need for innovative alternative financing models to complement traditional sources of funding. Partial ownership of assets through innovative schemes can be one of the ways to meet these financial needs.
Aggregating shipping receipts, or lease rents into tradable financial instruments could open up the maritime sector to a diverse range of investors with different risk-return appetites – including retail investors, pension funds and insurance companies.
Prior to the Finance Ministry’s notification, INVITs for ships were not applicable as ships were not part of the Harmonized List of Infrastructure and, therefore, were not counted as infrastructure.
“With the infrastructure situation, what will happen is, let’s say someone has built/purchased a ship by investing a huge amount of money, it will take some time for rents to start coming in. You can put that ship in an InvIT, so that you can get some units on it, that InvIT goes to the public, raises funds. Let’s say 80 per cent of the cost of the ship has already been taken from the public, that way, that money can be used by the owners to build more ships. Can be recycled, it’s just like mutual funds, the capital market can help the shipping industry grow,” said Debashish Bandyopadhyay, chief general manager of the country’s capital markets regulator Securities and Exchange Board of India (SEBI).
“It is a way of recycling capital, unlocking capital faster and it is an established regulation. The same set of rules for InvITs can be used in shipping as well,” Bandyopadhyay said.
With ships getting infrastructure status, anyone can become a shipowner, said a Dubai-based ship broker whose company is in the process of setting up a unit in Gujarat International Finance Tech-City (GIFT City) for ownership of Indian ships.
“The way you hold shares in companies, you can have a small token or units of a special purpose company that owns a single asset. If ships are giving 15 per cent or 20 per cent returns, you choose which ship you want to own, depending on your risk appetite,” he said.
