Asset Backed

May 30, 2007 (LBO) – Sri Lankan companies that securitize leases will get to retain capital allowances and be exempt from stamp duty under a new law being drafted by capital markets regulators, officials said Monday. Such instruments required mature markets, developed infrastructure, comprehensive legislation, and human expertise.

Asset-securitization would help reduce the cost of capital and give investors alternative forms of investment, they told a seminar on future prospects and challenges for securitization in Sri Lanka.

Marina Fernando, Director, Legal & Enforcement of the SEC, told a seminar organized by Investec Capital, SEC and Deutsche Bank that the aim of the new law was to have an "adequate but not too onerous legal framework,"

In a securitization transaction cashflow generating assets like housing mortgages, vehicle leases or even credit card recievables, are taken out of the balance sheet of the originator and 'sold’ to a separate entity like a legal trust or specially incorporated company called a special purpose vehicle (SPV).

Debt instruments are then issued against the assets, which can have a credit rating higher than the original issuer and reduce the cost of capital.

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