Splash247: Chinese lessors use Malta flag to rebuild European business

Published by Splash247

Chinese ship leasing companies are using the Maltese flag to revive financing business with European owners, offering aggressive rates while seeking to distance vessels from mounting China-related trade and compliance risks.

Chinese leasing houses are increasingly structuring bareboat charter transactions through Malta, an EU member state whose flag, tax regime and recently strengthened creditor protections provide a more palatable framework for European shipping companies and their lenders.

Chinese leasing activity with international owners was effectively put on hold last year as tensions between Washington and Beijing intensified and the US moved to impose additional port fees on China-linked vessels.

Chinese leasing firms are now making a comeback with aggressive rates. Central to the renewed push is the use of Malta-flagged special-purpose companies to own vessels financed under long-term bareboat charters.

While the ultimate owner may remain a Chinese financial institution, registering the ship in Malta places its operational regulation, crew standards and environmental compliance under an EU flag administration. This can help reassure European charterers, cargo interests and financial institutions concerned about exposure to Chinese-owned tonnage.

The structure can also make it easier for European shipowners chartering the vessels to meet EU flag requirements associated with national tonnage tax regimes.

Malta has further strengthened its appeal by amending its Merchant Shipping Act last year to introduce a finance charter instrument (FCI), a legal mechanism designed specifically to protect lessors in bareboat charter financing transactions.

The FCI allows a leasing company to register charter-hire and other payment obligations as a security interest attached directly to a Malta-flagged vessel. In the event of a charterer default or insolvency, the lessor gains a statutory route to recover possession of the ship rather than relying solely on provisions in the leasing contract.

The instrument ranks behind registered mortgages and certain privileged maritime claims, enabling lessors to raise conventional bank debt against a vessel while retaining an additional layer of protection over their ownership interest.

A Chinese leasing company was the first financier to use the new framework, registering FCIs against two Malta-flagged ships shortly after the legislation came into force.

Data from VesselsValue shows there are now around 130 Malta-flagged ships effectively owned by Chinese companies, with leasing institutions accounting for the majority.

More than 10 Chinese lessors are represented, including Bank of Communications Financial Leasing, ICBC Financial Leasing, China Development Bank Financial Leasing and China Merchants Bank Financial Leasing.

The fleet spans LNG carriers, large containerships, chemical tankers and small and medium-sized bulk carriers.

Malta places no nationality restrictions on shipowning companies, masters, officers or crews and has developed the largest merchant fleet register in Europe, positioning itself as a European ship finance platform capable of bridging Chinese capital and western shipping markets.