IFSC publishes Draft Aircraft Leasing Regulations for public consultations

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The International Financial Service Centre Authority has recently published a consultation paper on the DRAFT “International Financial Services Centres Authority (Aircraft Leasing) Regulations” (“Draft Regulations”) to govern aircraft leasing business in the International Financial Services Centre for public comments. The Draft Regulations propose to provide an operational framework for leasing of aircraft, helicopter, engines or parts thereof. Last date for submission of comments on the Draft Regulations is January 11, 2021.

In connection to this, we refer to our earlier article “International Financial Services Centre – Opportunities for Aviation Financing”, published in November 2020 which discussed the reforms implemented by the government to promote aircraft leasing and financing in India, and further steps that are still required for a robust credit protection regime. Link for reference: https://www.azbpartners.com/bank/international-financial-services-centre-opportunities-for-aviation-financing/

The salient features of the Draft Regulations are summarized below:

1. Registration: For an IFSC unit to enter into aircraft leasing business, it must obtain its registration as a ‘Lessor’ from the International Financial Services Centres Authority (“Authority”). The Authority may grant the registration subject to prescribed conditions or reject an application after giving due opportunity to be heard to the applicant.

2. Eligibility criteria: an applicant intending to register a unit in IFSC as a Lessor shall, at all times, comply with the following:

(a) the applicant or thereafter the controlling entity of the IFSC unit shall be located in a Financial Action Task Force compliant jurisdiction;

(b) a minimum capital of USD 200,000 or its equivalent in freely convertible foreign currency, is to be maintained by the applicant at the IFSC unit.

3. Additional capital requirement: In addition to the minimum initial capital as aforementioned, a Lessor shall maintain additional capital based on the size and scale of its operations. The regulations provide milestone based minimum capital to be maintained which is based on its assets size. ‘Assets’ include all the assets of the IFSC unit as per financial statements or on the basis of self-declaration.

4. Eligible Entities: A Lessor may include a bank, a non-banking finance company, a leasing finance company or an operating lessor and other entities as specified by the Authority. It may conduct its business in an IFSC in any mode as permitted by the Authority, including through a subsidiary or a special purpose vehicle or LLP.

5. Permissible services and activities: a Lessor shall be permitted to undertake activities in relation to aircraft leasing, including but not limited to

(i) operating or financial lease or hybrid of operating and financial lease, of aircraft or helicopter and engines of aircraft or helicopter or any other part thereof;

(ii) sale and lease back, novation, transfer, assignment, securitization and such related transactions in relation to aircraft, helicopters, engines or any other part thereof;

(iii) any other financing, leasing and such related transactions in relation to aircrafts, helicopters, engines or any other part thereof

6. Currency for conducting business: Lessor shall deal in freely convertible foreign currency only, provided that it may defray its administrative expenses in Indian Rupee.

We are in the process of analyzing the impact of Draft Regulations. Should you wish to discuss anything or have any queries, please do not hesitate to contact us.

Authors:

Anand Shah, Senior Partner
Rishiraj Baruah, Senior Associate
Abhilasha Agarwal, Associate

Date: December 23, 2020