Lebanese economic reforms feature a new securitization law that shows off the new government's willingness to modernize its capital markets. However, industry sources say the new law is already in need of a revamp before it's ready to roll.
"The new law has been in parliament for five years before it was passed, and it was not substantially modified with the exception of one new paragraph at the end that covers Islamic ABS," said Iyad Boustany, vice president at BEMO Securitization.
The law does not provide for any type of synthetic purchases, and while some provisions have been made for the securitization of future flow receivables, there is no clear indication of the bankruptcy remoteness of these vehicles. Boustany hopes that going forward, amendments to the law will stipulate what happens in the event of a bankruptcy.
But especially backbreaking is the heavy taxation of securitization vehicles, which will make securitizing too costly, said Boustany. He would like to see the law modified so the payment of interest and benefits to investors is exempted from the 5% tax on revenues/interest. He would also like the amounts received from another fund, trust or legal entity (as defined by the law) also exempted from the 5% tax.
"These vehicles are looking to be heavily taxed under the new law and I am not sure it can fly at all under these provisions," he said.
The law provides for the intervention of the Central Bank regarding issues arising from any of the unclear areas that require enhanced definition. He said the Central Bank has been responsive to the several suggested amendments.
"It's been only a few months since Lebanon became a country again, and the new government wanted to modernize, but it has done it without debate," said Boustany, who added that legislators were starting to understand the importance of dialogue.
Going forward, however, BEMO Securitization has no plans to issue transactions under the new law and plans to continue issuing under the Lebanese fiduciary law. Once the tax issue is worked out, Boustany said it's likely the company will be able to issue more bank ABS, CMBS and RMBS deals.
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