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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