In a move to broaden the sources of funding in Taiwan, the government's recently enacted financial asset securitization statute has laid the foundation for a prosperous new structured finance market, market participants say.
The regulations in the statute, promulgated at the end of last year, were drafted by the Ministry of Finance and modeled after Japan's Securitization Act. And, after numerous amendments to Japan's SPC law, the law is expected to be successful in launching a securitization market, according to a report released early this year by Freshfield Brukhaus Deringer LLP, a major international business law firm.
"As Taiwan develops its new framework for securitization, we expect this fund-raising technique to be popular in Taiwan," the report said.
In a rather elementary layout of general securitization laws, the regulations state that the special purpose companies will require a minimum paid up capital of NT $1 million (U.S. $28,764.55) and special purpose trusts created under the Trust Enterprise Law will require a minimum paid up capital of NT $5 billion (U.S. $144.8 million).
Under the statute, the assets only provide for performing financial receivables held by financial institutions. However, the Executive Yuan of Taiwan has drafted a bill aimed at the securitization of mainly non-performing loans that may be passed as early as next month (see ASR 2/4/02 p.30).
The Financial Institution Merger Act (FIMA), which became effective in late 2000, allows asset management companies to assist in the sale of non-performing loans and allows for a public notification if a financial institution assigns a non-performing loan.
The regulations also include the criteria for credit ratings and credit enhancements. Furthermore, securitization plans also need to be approved by the Ministry of Finance and, any public transactions will need to seek approval from the Securities and Futures Commission. The regulations allow private placement exemptions to deals that are offered to sophisticated investors or to less than 50 persons.
While there will be no capital gains taxes on the trading of securities, investors will be subject to transactions taxes of 0.3% on shares and 0.1% on bonds.