INDONESIA Law and Practice Contributed by: Stephen Igor Warokka and Mutiara Kasih Ramadhani, SSEK Law Firm
2.2 Ship Leasing Leasing remains a recognised but relatively limited form of ship financing in Indonesia. While domestic and foreign banks continue to provide the bulk of ves - sel acquisition financing through secured loans and ship mortgages, some Indonesian shipping compa - nies have explored lease-based alternatives such as finance leases and sale-and-leaseback arrangements, which are most often observed among local fleet operators seeking to monetise existing vessel assets by selling their vessels to a financing party (typically a leasing company or financier) and simultaneously leasing them back for continued use. These trans - actions are typically structured as long-term finance leases, with a nominal purchase option at the end of the lease term. In a loan transaction, the borrower acquires legal title to the vessel, and the lender obtains a security inter - est in the form of a registered ship mortgage. In a lease, legal title to the vessel remains with the lessor throughout the lease term, and the lessee is granted contractual rights to use (subject to the lease fee), maintenance covenants, and restrictions on dis - posal. From an enforcement perspective, Indonesian law draws a clear distinction between ship mortgage claims and lease defaults. A registered ship mortgage grants the lender, as mortgagee, a secured interest over the vessel and carries executorial force equiva - lent to a final and binding court judgment. In theory, this permits direct enforcement without the need for separate civil proceedings. However, in practice, Indo - nesian courts often require a fiat or supervisory order from the competent district court before permitting execution or judicial sale, particularly where the debt is contested or the borrower resists enforcement. Meanwhile, lease defaults are treated as breaches of contract rather than enforcement of a security inter - est. The lessor, as the legal owner of the vessel, may therefore seek to terminate the lease and repossess the vessel.
The master register will be open to the public. Fur - thermore, the MOT has established the SPKE, which allows ship ownership and registration to be viewed and accessed by the public. An application to the rel - evant vessel title transfer and registrar can be made to obtain a vessel legal status statement letter that indicates whether a mortgage has been imposed on a vessel.
2. Ship Finance and Leasing 2.1 Ship Loan Finance
Ship financing in Indonesia is commonly undertak - en through a combination of debt and equity, with debt financing – typically provided by international or domestic banks or non-bank financial institutions – playing a predominant role in vessel acquisitions. Transactions are often structured either around the purchase of second-hand vessels, where disburse - ment occurs against delivery, or the construction of new-build vessels, where financing is released pro - gressively in line with milestone achievements dur - ing construction. Such arrangements are treated as secured asset-based lending, with the vessel serv - ing as the primary collateral under a registered ship mortgage. The loan documentation typically includes com - prehensive covenant packages, including negative pledges, undertakings to maintain proper insurance and certification, restrictions on further encumbranc - es, and requirements to maintain compliance with Indonesian cabotage and licensing rules. Events of default are usually tailored to shipping-related risks, such as arrest of the vessel or prolonged off-hire. Off - shore lenders extending facilities to Indonesian bor - rowers may be subject to Bank Indonesia reporting obligations, particularly if the proceeds are disbursed in foreign currency. Equity financing is often carried out in the context of Indonesian shipping joint ventures, particularly where a foreign shipping company seeks to acquire equity in a local ship-owning entity. Such structures, how - ever, remain subject to the shareholding and vessel ownership requirements introduced under the Third Amendment to the Shipping Law.
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