Banks (Will Not) Finance Investments in Maritime Property Projects

There has been much discussion about the lien on the concession, and an entrepreneur who is a member of the Association Voice of Entrepreneurs (UGP) has requested that President Zoran Milanović not sign the Law on Maritime Property and Ports recently passed in the Croatian Parliament. My superiors tasked me with studying this in detail and finally clarifying whether there are potential problems or not. Despite discussions about the ‘sale of maritime property’, it seems to me that there could even be fewer investments in maritime property because banks have been placed in a worse position compared to the previous law.

I consulted four experts, and I spoke with two of them. The owner of the consulting firm Dedicato Zoran Tasić often writes about maritime property, and since I also do, I must admit I made a mistake by initially explaining to him what I would write about (I mentioned the lien on maritime property and then immediately switched to the term ‘concession’ instead of ‘maritime property’), that expert immediately warned me about the contradiction in those terms that, he says, has often been heard in public in recent months in the context of the discussion about the proposal for a new law.

Restrictive Provision

So he taught me that these are two completely different things. Although I do not consider myself an expert, I even think my knowledge is modest, I would note that I know the difference he pointed out and my interlocutor: – The lien on maritime property is not allowed at all because the law explicitly excludes such a possibility. (Article 5, paragraph 1: ‘Maritime property is outside legal traffic and ownership rights or other real rights cannot be acquired on it for any reason.’). That provision was also in many previous versions of that law.

– The lien on the concession is another matter – emphasized Tasić, adding that this institute is not new either.

In the previous Law on Maritime Property and Ports, it was somewhat regulated by Article 34, and in the new one, Articles 65 – 70 do so, even in more detail. These provisions allow financial institutions to finance investors in maritime property with a lien on the concession as a security instrument. In other words, if the investor does not repay the loan, the bank takes over the concession for the maritime property.

However, as the other expert Branko Kundih, founder of the expert portal Pomorskodobro.com, says, Article 68, paragraph 2, is controversial, which does not reject banks but forces them to somewhat pull the brakes when deciding on financing investments in maritime property, for example, the construction of infrastructure and commercial facilities in ports, marinas, hotels, and similar. Kundih, who actually said the same thing as Tasić, notes that our first interlocutor pointed out this problem. Namely, Article 68, paragraph 2 states: ‘The concession provider will deny consent to the transfer of the concession agreement and revoke the concession if the lien creditor or a third party does not meet the capacity conditions set for the concessionaire (…).’

Finding the Measure

Hmm, this seems more like a possibility that in the case of non-payment of loan installments, the bank would activate the lien on the concession, and since financial institutions do not meet the capacity conditions set for the concessionaire, the state as the concession provider could deny it in that case. And where are we then? In that case, the state would reissue the tender, but if no one applied for the concession because they do not want to start the project, the bank would be left out. Tasić says:

– The interest of the concession provider to control the transfer of the concession is understandable, but a measure must be found to avoid the inefficiency of this institute due to excessive restrictions. The passage of time and the implementation of this institute in practice will show whether and how much it has fulfilled its purpose.

Therefore, it will be interesting to see whether this article will actually slow down investments in maritime property rather than encourage them, or whether it will devastate them, as opponents of this law fear. It does provide for special treatments for investments in mega hotel complexes (with four or more stars), but with public engagement, devastation can be prevented, and it would be good not to legally complicate investments in projects that would benefit everyone.

POST SCRIPTUM

Maritime property expert Branko Kundih believes that for financial institutions, the mentioned instrument of the lien on the concession is questionable because it is restrictive and imprecise, and they will generally not apply it, but will seek other ways and solutions to protect and secure their claims, primarily through project financing (lien on business shares).