This page updated regularly deals with securitization developments in specific countries. If you have any news or development to contribute to this country, please write to me.
Links on Sri Lanka
Updated 1st Jan., 2001:
In a bid to improve securitisation markets, the stamp duty on mortgage backed securities has been reduced from Rs.20 to Rs. 5 for every Rs. 1000 or part thereof.
Update 15th Dec., 2000:
Citi National Investment Bank, an affiliate of Citibank has successfully raised Rs. 500 million over the year through asset securitisation, consisting of lease receivables. The other deals so far to have happened in Sri Lanka include Ceylinco Leasing Corporation, Mercantile Leasing Ltd., and Commercial Leasing Company Ltd apart from Orix noted below. The common features of most of these deals are that they relate to lease receivables, and in each case, the originator guarantees payment irrespective of his own collections, giving the deals a quasi-securitization nature, closer to a loan than securitisation.
State of the Market:
It might sound surprising to many that the Sri Lankan market has already had about 4-5 securitization transactions. All of these have been originated by leasing companies, and in at least 4 out of these 5, the Colombo branch of Deutsche Bank has acted as the trustee, perhaps also as the principal adviser.
The first securitization in Sri Lanka by Orix group leasing company, Lanka Orient Leasing Company, drew much attention in local press. Daily Newsimpressed readers with impressive looking graphics describing the transaction. In essence, though the transaction claims to be using the pass through device, Sri Lankan securitizations are not any more than borrowings drawing upon the general credit of the leasing company, though using the leasing receivables as a collateral. They should be described as collateralised lending rather than securitization.
Ceylinco Leasing is another originator of Lankan-style securitization transactions.
I happened to be in Sri Lanka (a training course on securitization which drew 33 participants from 13 organisations, mainly banks and leasing companies, and their lawyers and consultants) and I could gather that in most of these deals, the originator clears the payments to the investors, unrelated to the actual collections on the assigned receivables.
The fact that leasing companies are prime takers of securitization deals in Sri Lanka is not surprising – leasing companies are not allowed to access public savings directly and have to depend on such methods as bank borrowings, bonds, etc. The Sri Lankan bank regulators do not prescribe any capital adequacy requirements for leasing companies which do not access public deposits: as such, off-balance-sheet treatment could not be the main motivation of the Sri Lankan securitzers. Obviously, therefore, the only motive at work was liquidity, under the guise of an apparently-innovative financial instrument.
Leasing entities in Sri Lanka include banks too: most of the banks are engaged vigorously into leasing.
All the securitization transactions in the past were unrated : therefore, whether securitization helped to lower the cost to the originators by improving the quality of the instrument also is irrelevant. So at the end of the day, it was the general credibility of the originator that fetched them the cash, at rates at which they would sell their usual debt paper.
The complex and highly intensive Sri Lankan taxes could have easily marred any scope for securitization: they have stamp duties on transfer of any asset (as transfer of receivables could well be taken as the transfer as a transfer of movable or immovable property); they have the GST Act which of course is not applicable on securitization of only receivables, etc. Local lawyers pointed out that the Stamp authorities have given an opinion that transfer of lease receivables are not liable to stamp duty, while transfer of the lease itself would have been!
Duff and Phelps Credit Rating recently set up shop in Sri Lanka. They have essentially been engaged in rating of corporates, rather than instruments. Debt instruments are still not very popular among Sri Lankan takers – therefore, corporates are using the rating of the corporate itself as a proxy for equity rating.
In time to come, Sri Lankan market should possibly see mortgage receivables securitization, future flows securitization and slightly more developed models of equipment lease securitization. May be, bank CLOs also hit the market.