Following a decline in shipbuilding over the past century, the UK government has launched a National Shipbuilding Strategy Refresh Plan to boost the industry. Part of this is the UK Shipbuilding Credit Guarantee Scheme.
From the limited information released about the scheme, we know it will be available where the following main criteria are met (although it is likely that further criteria will be added as more detail is released):
• the shipyard must be carrying on business in the UK
• the lender must determine that the loan is acceptable
• the finance arrangements and shipbuilding contract must be deemed acceptable.
The scheme provides a partial guarantee (up to 80%) to a lender making a loan in connection with the build of a new vessel or a refit, retrofit or repair of an existing vessel at a UK shipyard.
The scheme aims to boost the growth of the UK’s shipbuilding industry by facilitating payment to the shipyard as though it were a cash contract, enabling the buyer to access extended loan repayment terms and protecting the lender against non-payment of the guaranteed loan.
Whether it achieves growth will largely depend upon the finer details of the scheme and if lenders will buy into it. Whilst there has been a great deal of enthusiasm from shipyards and from vessel owners and operators, lenders are (understandably) awaiting further details of events that will trigger the lender’s right to recover its loan. The scheme will not remove all risk for the lender, who will still be concerned with the financial stability of the borrower and the shipyard, but it is widely hoped that it will be sufficient to give lenders an additional level of protection to encourage the provision of finance for builds/refits/repairs that, without the scheme, would not have been offered.
In a change to similar schemes that have previously been available only to non-domestic buyers or investors, this one will also benefit domestic buyers and exporters, which should encourage companies and individuals to invest in the UK’s industry.
We anticipate that vessel owners who are looking to undertake net-zero conversion to comply with the industry’s commitment to lowering emissions will make use of the scheme.
We do not yet know how much the scheme will cost, the UK government simply saying that the premium will be determined on a case-by-case basis. Applications will be processed through UK Export Finance, but it is unclear how long the process will take.
It’s an ambitious scheme, and only time will tell if the finer details are attractive enough for lenders to buy in as well as vessel owners and operators.
LA Marine is the specialist marine law team at Lester Aldridge LLP, offering expert legal advice to the shipping, logistics, superyacht & leisure marine sectors. Please contact our team with any queries you may have in relation to the issues discussed in this article.
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