Sri Lanka’s financial market players are looking for ways to carry out securitisation transactions, to cut costs and legal uncertainties. Sri Lanka’s financial market players are looking for ways to carry out securitisation transactions, to cut costs and legal uncertainties. The latest proposal is a legal techniques knows a Declaration of Trust, where a group of identified assets are separated from a the parent entity.
“It’s used rather extensively in India, and some local firms are now looking at introducing it here as well,” says Neomal Goonewardena, Partner, Nithya Partners – a legal firm, addressing participants of a seminar organised by the Chartered Financial Analysts Sri Lanka Chapter.
Industry players have been pushing for a Securitisation Act which will clear grey areas around asset securitization.
In a transaction transaction, cashflow generating assets, (leases, housing mortgages, or credit card receivables) are taken out of the balance sheet of the originator and ‘sold’ to a special purpose vehicle SPV. The SPV is usually a limited company.
The assets of the SPV are supposed to be ‘bankruptcy remote’ or separated