The deteriorating relations between the West and Russia could have an impact on the superyacht industry if clients for new build and charter find themselves on the receiving end of financial and travel restrictions
For the superyacht industry, Russian clients—both customers for new builds and second-hand yachts as well as charterers—are a key constituency. Russian wealth has a reputation for being spent in profligate manner on yachts, charters and the breadth of services available to yachts, their owners and guests, including helicopter charters, orders for fine wine, entertainment and equipment.
While data detailing the actual number of Russians who own yachts or who charter year on year are unavailable due to non-disclosure agreements signed by shipyards and brokers, it is generally accepted that Russians occupy a very important place in the market.
“I haven't spoken to any of my Russian clients for three weeks—and that is the first time in six years that has happened,” says Björn Moonen of Dutch firm Ghost Yachts. “The downing of MH17 and the sanctions seem to have had an effect on the industry, especially in the range of high-end customers.”
However, Sergei Dobroserdov, yacht designer and owner of Nakhimov, a brokerage firm based in Monaco who himself is Russian and who claims a long list of Russian contacts, says his business hasn’t been affected by the sanctions. “None of our clients are involved in the situation with Ukraine,” he said. “But from what we know, some large yacht owners are cancelling their charters in Europe and US and moving their yachts out of European territorial waters to jurisdictions in Asia.”
According to Benjamin Maltby from the specialist superyacht consultancy MatrixLloyd, the Russian market has presented the bulk of his company’s business over the past eight years. “Understandably, the current crisis in the Ukraine has required us to keep a close eye on the various legal developments and practical ramifications,” Maltby says. “Since 15 April this year, punitive restrictions have been put in place, in stages, by Ukraine, the European Union and the United States. While we know, for example, that some Russian privately-owned business jets have been grounded (and stranded), the restrictions have so far had little practical effect on our superyacht clients.”
Dobroserdov says he is concerned about the long-term impact of the sanctions on the Russians who engage with the superyacht industry, which supports tens of thousands of jobs worldwide. “The economic situation in Russia will definitely suffer from the political decisions of our authorities,” Dobroserdov said. “Capital is escaping from Russia and some big superyacht projects have stopped. As a result we will have much less potential clients from Russia and Ukraine in the coming three to five years. That will be a huge impact on superyacht industry.”
John Leonida, superyacht specialist partner with London law firm Clyde & Co. says neither he nor his clients have seen any impact of the sanctions at all, but the mood is certainly cautious. “People are concerned as to what would happen if sanctions were applied to any of their clients, and they would need to know what to do,” Leonida said. “No one is being alarmist about the situation; everyone I have spoken to is simply being pragmatic and practical.”
Moonen suggests that the current geopolitical situation with Russia has applied further strain to an already challenged commercial environment. “The 2013 financial collapse in Cyprus—a key offshore banking centre for Russians—made everybody nervous. Then in response to the Crimean conflict, we started seeing sanctions against Russian officials, oligarchs and companies. Up to this point it is fair to assume that the wealthiest Russians haven’t lost significant amounts of money yet, but I increasingly get the impression that cash-flow issues are starting to show in the form of unexpected sales of yachts and extended delivery schedules of some of the largest projects.”
The prevailing sentiment from those in the superyacht industry who have Russian clients and who keep abreast of the evolving current geopolitical landscape is that this current crisis in Crimea and Ukraine is not something that is about to dissipate anytime soon. The industry—as with the rest of the world—is keeping tabs on the shifting situation, but remains focused on doing business as best it can during this time of heightened concern.
Sanctions and Superyachts
Analysis by MatrixLloyd
15 April – Ukrainian Law No 1207-VII (as amended)
Various Crimean ports closed, including Sevastopol: not that owners are likely to cruise these areas anytime soon, but once hostilities cease calling at Ukrainian ports after a Crimean one will cause problems.
16 July – United States Office of Foreign Assets Control Sectoral Sanctions
Restrictions placed on the provision of finance to three major Russian financial institutions, which may have a knock-on effect on the availability of Russian funding for superyacht newbuilds (although this is unlikely given that most serious Russian wealth is already held offshore).
25 July – EU Regulation 810/2014
Assets of 15 named individuals and nine organisations frozen. It is not known whether any of the individuals are the beneficial owners of yachts. It is important to note that providing services to an offshore yacht-owning company, rather than directly to the beneficial owner, does not circumvent this Regulation. The named organisations included Crimean ports, effectively barring them to EU-owned, flagged and/or managed vessels.
30 July – EU Regulation 825/2014
Investments in Crimea restricted, in particular with regard to transport, and banned exports of key equipment and technology related to this sector. So if anyone from the EU was considering developing port infrastructure in cooperation with the new régime, they need to think again.
30 July – EU Regulation 826/2014
Assets of 15 further named individuals and nine further organisations, plus EU travel bans imposed on persons involved.
31 July – EU Regulation 833/2014
Sale and export from the EU to Russia of certain “dual-use” goods and technologies restricted – i.e. those which could be used in a military or civilian context. Access to EU capital markets restricted for certain Russian financial institutions. To understand the scope of “dual-use” goods, see EC Regulation 428/2009 (Annex 1 Category 8).