Bermuda plays to its strengths

BERMUDA continues to thrive as a first-class offshore financial jurisdiction. It was the shipping industry that first put the island on the international business map more than fifty years ago, and today Bermuda also has a thriving international ship finance and registration industry.

At the end of 1999, there were 145 vessels registered with the Bermuda Registry of Shipping, aggregating about 7m gross tons. The Bermuda Registry of Shipping continues to expand exponentially.

Many of the world's leading owners, managers, builders, insurers, lawyers, accountants, and bankers have developed close relationships over the years with Bermuda, in order to put together financial structures tailored to the specific requirements of the shipping industry. As a result, Bermuda lawyers practising shipping law are able to follow developments in the industry very closely.

The past few years, in particular, have afforded lawyers in Bermuda the chance to observe significant developments in ship financing, which seems finally to be coming out of its most recent economic downturn.

There is always a need to provide some form of financing to existing vessels, so there are always a number of deals taking place, whatever the economic climate. In the downturn, however, there was a noticeable fall in the number of financing deals, and an aversion to risk by lenders, other than through straightforward mortgage lending.

There have been very few deals these past three or four years which have involved securitisation, or attempts to raise finance through public offers. This may now change, however, as confidence seems to be returning, albeit slowly, to the shipping industry. Hopefully, there will be less need for restructuring of over-extended groups. There have - over the past few years - been a fair number of these.

In the past six months, the number of ship financings has increased, with many shipping groups taking advantage of competitive prices for new buildings in Asian shipyards to modernise their fleets, and to position themselves for the upswing in the economic cycle. There have also been a number of deals for newbuildings in European shipyards, primarily for cruise and ferry operators. There is always the fear that this spurt of newbuilding activity will sow the seeds for the next downswing of the economic cycle due to overcapacity. Much of the world's ageing tanker fleet, however, is getting to the stage when it has to be replaced. Accordingly, it is to be hoped that a prosperous equilibrium will be achieved between the forces of supply and demand.

Another recent trend observed from Bermuda is the movement towards consolidation through mergers between various shipowning groups, as well as through joint ventures, in pursuit of profit. This trend is particularly observed in the tanker, liquefied natural gas and cruiseship industries.

It has been interesting to observe, also, the involvement of the shipping industry in the internet start-up, as a means of increasing efficiency and minimising costs. With the enactment of its Electronic Transactions Act 1999, Bermuda is well- positioned to take advantage of this latest trend.

There are a number of reasons why Bermuda continues to be used as a jurisdiction of choice for the shipping industry. These include:

1. a sophisticated and stable regulatory framework;
2. shipping industry expertise;
3. an advanced and sophisticated communication infrastructure;
4. an English law-based legal system that provides for the application of legal principles and concepts well-known to the shipping industry. The legal system is based on that of the UK, with a final appeal to the Privy Council of the House of Lords in England;
5. sophisticated banking, telecommunications, computer, legal and accounting services; an efficient and well-run shipping registry;
6. the lowest port state control detention figures for 1996 and 1997 as recorded by the Paris MOU;
7. a government committed to the flexibility and adaptability of Bermuda's international laws in order that they may keep pace with the current requirements and demands of international clients;
8. no income tax or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by a Bermuda company or its shareholders, other than shareholders ordinarily resident in Bermuda;
9. no exchange controls.

Over the next three-to-five years it will become clear whether the nascent signs of returning prosperity in the shipping industry will endure. Given the cyclical nature of the business, this goal may ultimately prove to be elusive. Bermuda, however, will continue to provide financial and legal services to the international shipping industry, in good times and bad.