Poland's tentative steps into the securitization world, after its inaugural deal last year, are gathering pace. Last week, Warsaw-based Bank Pekao launched a small scale pilot deal to see how securitization could work within the Polish legal and tax framework.

The bank will retain the notes on the non-rated 4.3 million Zloty ($1.06 million) transaction, backed by lease payments on computer equipment to Bank Pekao's leasing arm. "We are issuing this bond as a pilot program," said the head of Bank Pekao's leasing arm, Wieslaw Weitz. "The legal structure has been worked out in detail but we want to see how the auditors and tax authorities react to it."

Should the reaction of the authorities prove positive, the bank said that it will look at possible securitizations of its 230 million Zloty portfolio, but they might only come when amendments have been made to the country's bond law, which the government is still working on.

Tomasz Kwczynski, a lawyer with Allen & Overy in Poland, believes that expansion in the Polish market will only really get going when the current legal issues are resolved. "The major problem so far has been waiting for the amendments to the bond law, which will hopefully take place in the second half of the year," he said. "I assume that once this is done people will be more willing to do securitizations."

Under the present law, securitizations are tricky because, in the absence of a bank guarantee, any SPV company wishing to issue bonds needs to present financial statements for the previous three years, making it difficult to establish such companies. The government - with the aid of legal practitioners - is working on amendments to remove that problem and provide a clearer framework.

Certainly, many market experts believe that Poland has the potential for growth. "Poland has the biggest scope for securitization in Eastern Europe," said Mitchell Lench, director of structured finance for Central and Eastern Europe and Africa at Duff & Phelps Credit Rating Co. "This is because of the size of the economy in comparison to other countries and because of the variety of asset classes."

So far, the only deal completed was BRE Bank's 50 million Zloty asset backed commercial paper issue, launched in July last year (ASRI 7/26/1999 p1.). The transaction, backed by receivables originated by a pharmaceutical company's sales to hospitals, was structured with tranches ranging from six months to one year. It received the top rating from the Central European Rating Agency.

Other attempts at securitization in Poland have been made, including a previous attempt by Bank Pekao to launch a $100 million deal backed by consumer loans, but they were abandoned in the face of the legal difficulties.

However, Bank Pekao's willingness to test the waters again, coupled with renewed hope for an amended bond law, will hopefully ensure that Poland will develop a significant market for securitization in the years to come, paving the way for its Eastern European neighbors to join the fun.

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