SAUDI ARABIA Law and Practice Contributed by: Faisal Daudpota, Daudpota International (in alliance with Khalil Aljehani Law Firm)
The following applies regarding access to ship registry information. • Legal standing: The registry acts as conclusive proof of title and mortgage. Registration ensures that mortgages are effective against third parties. • Verification methods: Information can be obtained through official requests to the TGA, the competent authority for vessel registration. • Judicial/official access: In cases of debt or arrest, creditor notification and court processes allow for the verification of registered ownership and encumbrances. • Registration details: The register includes the vessel name, owner details and the nature of the mortgage, allowing for verification of ownership, although not fully public. Concerning mortgage and ownership registration, the following applies: • registration duty – the registration of a mortgage is essential to give it effect against third parties; • application process – ship-owners submit applica - tions to the TGA, providing documents that prove ownership and the vessel’s technical specifica - tions; and • transfer of ownership – any sale or transfer of own - ership must be registered to be effective against third parties.
• structures – conventional term loans and revolving credit facilities are common, often utilising Loan Market Association (LMA) templates; • Sharia compliance – due to the prohibition of inter - est (Riba), Murabaha (cost-plus financing) and Ijara (leasing) structures are widely used; • loan-to-value (LTV) ratios – generally 50–60% of the vessel’s value; • key clauses – specific LTV maintenance covenants require periodic independent valuation reports; and • regulatory approval – syndicated loans in Saudi Riyal involving foreign banks require prior Saudi Central Bank (SAMA) approval. Equity financing The following applies to equity financing: • joint ventures – preferred for large maritime infra - structure projects; • ownership requirement – to fly the Saudi flag and access local financing, 51% Saudi ownership is generally required, although exemptions exist; and • public investment fund (PIF) involvement – PIFs play a significant role in providing equity to develop the local maritime sector. Ship Mortgages (Key Provisions) Ship mortgages are a vital, distinct form of security in Saudi Arabia, governed by the 1955 Ship Mortgage Regulations and reinforced by the 2019 Commercial Maritime Law: • registration – must be registered with the Saudi Ministry of Transport (MoT) at port offices in Dam - mam or Jeddah to be effective; • capacity to mortgage – only vessels registered under the Saudi flag can be mortgaged; • formalities – the mortgage must be an official, writ - ten contract, signed by both parties, often requir - ing authentication by a Chamber of Commerce or notary; • required documentation – a declaration from the mortgagor (stating no prior liens) and a summary of the mortgage details are required; • default and enforcement – the mortgagee can enforce the mortgage through Saudi enforcement courts, which may order a public auction; and
2. Ship Finance and Leasing 2.1 Ship Loan Finance
Ship loan financing in Saudi Arabia is very sophisticat - ed, involving a mix of conventional, Sharia-compliant and sale-leaseback transactions, generally under - pinned by the Commercial Maritime Law (Decree No 33, 1440 AH). Key Terms and Operative Provisions: Debt and Equity
Debt financing (most common) Pertinent details are as follows:
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