SAUDI ARABIA Law and Practice Contributed by: Faisal Daudpota, Daudpota International (in alliance with Khalil Aljehani Law Firm)
• precedence – maritime debts (like crew wages) have priority over ship mortgages. The most common transactions are: • sale and leaseback, often structured as an Ijara (leasing) agreement – this is common for ship-own - ers seeking to free up capital; • syndicated loans – used for financing large fleet modernisation; and • Murabaha facilities – common in Islamic banking for vessel acquisitions. Security packages beyond mortgages include: • assignment of earnings – lenders frequently require the assignment of charter party income and earn - ings, usually paid into a controlled bank account; • earnings account pledge – security over the account where earnings are received; • insurance policies assignment – assignment of insurance proceeds (H&M, P&I); • corporate/personal guarantees – often provided by parent companies or owners; and • promissory notes – frequently used to support the mortgage and facilitate enforcement. 2.2 Ship Leasing Ship leasing transactions are increasing in Saudi Ara - bia. The Saudi maritime fleet grew by 32% in 2025, the second-fastest among G20 nations, indicating a massive surge in investment. Trends in Ship Finance These include: • shift in finance sources – there has been a notable shift towards diversified financing, including sale and leaseback, Sharia-compliant structures (such as Ijara) and private debt; • Chinese leasing houses – Chinese leasing compa - nies have expanded significantly into the market, taking advantage of the gap left by traditional bank lending restrictions and providing alternative capital; • alternative credit providers – though currently small (2% of debt stock), private capital financing and
alternative credit has grown tenfold since 2020 to reach USD3.7 billion in 2024; and • bank lending – despite the rise of alternatives, tra - ditional bank loans remain a cornerstone of ship - ping finance in the region, particularly for estab - lished players.
Lessor/Lessee Versus Lender/Borrower Important points include the following.
• Ownership: In a lease (specifically a sale and leaseback), the lessor is the registered owner of the vessel. In a traditional loan, the ship-owner retains ownership, and the bank holds a mortgage as security. • Default handling: If a borrower defaults on a loan, the lender must go through legal proceedings to enforce the mortgage. If a lessee defaults on a lease, the lessor (as owner) can typically terminate the charter and take possession of the vessel more easily than a mortgagee, making it a faster, less cumbersome process. • Relationship: The lessor/lessee relationship is gen - erally closer, resembling a “buyer and operator”, whereas lender/borrower is more of a “creditor and debtor” relationship. Differences in Enforcement These include: • mortgage enforcement – enforcing a mortgage requires legal proceedings and can be affected by the vessel’s condition, or if the mortgagor goes bankrupt; • lease enforcement – sale and leaseback structures often allow for smoother repossession of assets upon default, particularly under Sharia-compliant Ijara (leasing) agreements; and • court system: Saudi Arabia has established a spe - cialised execution/enforcement judge (EJ) system for enforcing contracts, especially for authenticated
documents like lease agreements. Sale and Leaseback Transactions
Sale and leaseback transactions are common in Saudi Arabia, particularly for financing new or second-hand tonnage, as they allow owners to improve liquidity and access capital without incurring high debt on their bal -
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