New Polish legislation on investment funds, designed to fall in line with European Union rules, may make public government ABS easier in the future, said market sources.

Details on how the bill will be incorporated are still sketchy because the bill is currently under government review and only excerpts have been released to securitization industry participants. "We have only just received the official draft; the complete draft will depend on what the Minister of Finance has to say about tax legislation on these investment funds," said one market source.

At this point, Poland's security regulator KPWiG has submitted the drafted proposal to the government. Sources say it's an unofficial consultation that typically would not peak the interest of the securitization world, except that the current proposals also include legislation on several new types of funds including securitization funds. The banking community is expected to be allowed a period of commentary following adjustments made by the Ministry of Finance.

"At first read, we don't agree with anything," said the source. "It looks like it may be intended for a very specific purpose and not for the industry in general. One of the general problems from the point of view of the banking entities is that the bill does not allow the transfer of assets to an SPV if those assets are for the bank creating the SPV." Market sources speculate that with Poland one step closer to joining the EU, government securitizations are becoming an option. Under current law this structure is not allowed, but the preliminary reading of the current draft bill sounds sympathetic to the securitization of public assets.

As more investors and originators express interest in securitizations, Polish market players have lobbied heavily for changes to legislation that addresses securitization structures. While the current law does not prohibit transactions, certain aspects are difficult to work around and structures still face a number of hurdles.

For example, synthetic deals are stumped by banking confidentiality rules prohibiting any information about obligors to be released by arranging banks to a third party without a written consent. And in true sale transactions, a civil action tax of between one to two percent is applied. Most transactions avoid the actual sale of the assets in order to bypass that taxing charge.

To avoid the tax, some transfers occur through cessation as security or a transfer of title for security purposes where the originator undertakes to pay the cash flows into the SPV and then turns over the collateral assets to the SPV as security for the obligation. If the originator becomes insolvent, the assets would revert back to the estate of the originator. SPVs are also are subject to a 28 percent income tax.

A task group of banks affiliated with the Association of Polish Banks, together with Polish legal counsel, has presented a securitization prospectus to the National Bank of Poland and the Banking Supervision Commission at the end of last year proposing changes to the law that would ease the process of securitizing bank assets. These changes, aimed at reducing the costs and development time frame for transactions, were largely well received. Currently a draft of the amendments to the securitization law is underway.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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