Saudi Arabia is implementing drastic changes to transform the Saudi market, attract substantive foreign investors (Investors), and develop all public and private sectors. We have recently witnessed essential changes in the transportation sector and the security regime under specific finance transactions. As a result, Saudi officials are currently adopting eased procedures to govern commercial transactions entered with Investors. This article outlines everything you should know about the mortgage registration process before investing in marine vessels in Saudi Arabia.
While Investors were able to register mortgages in Saudi Arabia over specific categories of assets such as marine vessels (Vessels), the overall regulatory process and requirements were extensive and in certain circumstances Investors were required to establish an actual legal presence in the Saudi market. Given our continuous and strong working relations with Saudi officials, we have successfully concluded various mortgage registration transactions relating to Vessels for well-known international financial institutions, transportation, shipping, maritime and shipbuilding Investors.
The primary Saudi government authorities and departments that regulate the registration of mortgages over Vessels are:
- The Ministry of Transport (MoT);
- The Public Transport Authority; and
- The Marine Transport Department(s) (Marine Department).
Scope of Application
The registration of Vessels' mortgages shall be accessible and applied upon request by any:
- Investor with legal presence in the Saudi market;
- Overseas operating Investor; and
- Local Saudi company and/or individual.
Investors must satisfy certain requirements in order to register the mortgage over Vessels. The crucial step is to ensure that the Vessel(s) is registered before the relevant Saudi Port and Marine Department and holds a Vessel Registration Certificate (the Certificate) issued by the MoT. During and/or upon completion of the Vessel(s') registration in Saudi, Investors may request that the specific mortgage be recorded and must provide the following documents:
- Executed and fully authenticated Mortgage Agreement between the Investor and the local Saudi company and/or individual;
- Official registration request letter addressed to the Head of the MoT;
- Copy of the Certificate if the Vessel(s) was already registered in Saudi; and
- The officials may also request to have copies of the Vessel(s') certificates in the originating jurisdiction (i.e. the jurisdiction in which it was constructed/built).
Process of Registration
Once the above requirements are satisfied, the documents and the registration application must be submitted all together to the MoT in Riyadh. The officials will review the application thereafter, request any additional documents (if any) and provide their initial approval to complete the registration of the mortgage.
Following the issuance of the MoT approval, the application will be transferred to the competent Marine Department located in the Vessel(s)' city of registration in Saudi (i.e. Dammam or Jeddah). At this stage, the parties' authorised representatives must attend in person before the officials, to submit the original copies of the documents and record the mortgage in the Certificate.
In case of the mortgagor's default under the mortgage agreement, the mortgagee may opt to enforce the mortgage before the competent Saudi courts. Upon the submission and acceptance of the relevant claim or enforcement application, and as a general practice, the Saudi enforcement courts could order the sale of the Vessel(s) in an auction before the public to recover the mortgage specific amount as an end result of the enforcement process.
Investors entering into commercial transactions with Saudi companies should consider the available options to secure their rights. The mortgage registration over certain types of assets could be the ideal method to achieve this kind of protection and debt recovery under the new Enforcement Law. Clyde & Co's experienced and dedicated team in all sectors will assist in evaluating the possible approach to facilitate your business operations in the Saudi market.
For further information regarding the practical implications of the mortgage registration on your business planning, please do not hesitate to contact Alain Sfeir.