The pros and cons of leasing in ship financing |
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Authors: | Ying Li |
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Institution: | 1. Department of Comprehensive Planning, Ministry of Communications, P.R. China
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Abstract: | Ship leasing is as old as shipping itself. As a financing device it is an alternative to equity financing through ship mortgages.
Ship financing methodologies are in themselves highly sophisticated, and within that domain, the principal varieties of leases,
namely, the operating lease and the finance lease are both fairly complex mechanisms in terms of their respective uses. Ships
are assets; as such ship leasing falls under asset financing and is subject to the fundamental rules of equipment leasing.
But ship leasing also has its own distinctive characteristics not only in relation to the unique features of the shipping
industry and ship financing, but also, the legal regime within which ship leasing operates. There are variations in the legal
regime which in turn impact on economic considerations. Thus, there are pros and cons involved in ship leasing, and they depend
on a number of variables. This article is an attempt to critically examine these pros and cons from the relative perspectives
of theory-based economists on the one hand, and law and accounting practitioners on the other. To that end, a two-fold literature
review of the subject area is presented. The article concludes that economists identify ship leasing with a positive tax advantage
and an enhanced financial disposition of the lessee. In contrast, the views of practitioners are complex and inconsistent.
It is evident that the literature focuses on the legal arrangements involved in these transactions. These legal arrangements
stem from the inherent risks associated with ships and shipping operations and have led to some disadvantages with respect
to ship leasing. |
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