INDONESIAN-focused marine logistics player Marco Polo Marine is the latest to jump on the Indonesian cabotage bandwagon, doing an $11.9 million sale-and-leaseback deal on eight tugs and barges that will not only give it cash in hand, but also a lead in to the Indonesian market.

Marco Polo, through its Marco Polo Shipping unit, has entered into the arrangement with a related party where the vessels will be re-flagged as Indonesian vessels after the sale and then leased back to MP Shipping.

Marco Polo CEO Sean Lee said there are two reasons for the deal. 'First, it allows us to reduce our gearing and improve cash flow, while maintaining our current fleet size since we will continue to have full commercial and operational control of the vessels,' said Mr Lee. 'By doing this, we are able to deploy capital more efficiently towards developing our existing businesses and acquiring new vessels.'

The other reason is to gain greater flexibility in operating in Indonesian waters. The implementation of cabotage rules will prevent Marco Polo from owning Indonesian-flagged vessels as these can only be owned by Indonesians. 'By embarking on this sale-and-leaseback arrangement, we are able to operate Indonesian-flagged vessels freely in Indonesian waters to continue supporting our customers' logistic requirements in Indonesia and to avail ourselves to the business opportunities and operational cost benefits accorded to such vessels which ply Indonesian waters,' said Mr Lee.

There has been a rush to acquire Indonesian-flagged tonnage as the cabotage ruling, which requires vessels operating between ports in Indonesian waters to be locally registered, was due to have kicked in on Jan 1.

There has, however, been some confusion over the timing of the policy's implementation. The Jakarta Post on Tuesday reported that Indonesian Transport Minister Freddy Numberi had said full implementation was not due until May 2011, three years after a shipping law enforcing the policy came into force, rather than the Jan 1 date according to a 2005 presidential decree.

The deal is expected to contribute positively to the group's consolidated profit after tax for Q1FY10 ended Dec 31, 2009.