Bill will regulate property and debt securitization

A long-awaited bill, which according to Economy and Finance Ministry sources will be submitted to Parliament next week, will regulate the securitization of corporate debt and real estate. According to the same sources, the tax on bonds issued against corporate debt or real estate holdings will be the same as the tax on state bonds – 10 percent. The draft bill allows for the issuance of corporate bonds, with no limitation as to their total value, through a simple decision by a company’s board. The issue manager can be a bank or an investment firm. The manager, in essence a representative for the firm issuing the bonds, is obliged to deposit the funds needed to pay back bondholders in a separate account which cannot be seized by the manager’s creditors. The bill defines securitization as the transferring of corporate debt or real estate to a company, called a «special purpose vehicle,» which has as its sole aim to acquire this debt or real estate in order to issue bonds to institutional investors. It can pay back bondholders through the transferred corporate debt, income derived from the real estate, loans or contracts of derivative financial instruments. In case of real estate securitization, the bill will likely state that properties can be transferred to the special purpose vehicle only by banks or listed large-capitalization firms. It is still not certain whether the ministry will use capitalization or assets as its criterion. If the latter option prevails, the bill will stipulate that the company transferring the property to the special purpose vehicle has minimum assets of 100 million euros. The transfer of property and other liabilities is not subject to bankruptcy proceedings against the transferor. No other measures taken after the transfer may limit the ability of the special purpose vehicle to use property income or acquired debt to pay back the bondholders. While ministry officials have decided on the taxation of the bonds, the obligation of a credit rating for the issuer has not yet been resolved. Also undecided is whether all corporate bonds will be offered to all institutional investors. Securitization bonds will be offered exclusively to institutional investors, with the exception of mutual funds. However, Economy and Finance Ministry officials are considering whether to prevent social security funds from investing in these bonds. It is only with great reluctance that unions have agreed to the funds’ investing in the open market, and even then under certain conditions. The potential of a securitization investment by a pension fund going awry is too politically sensitive for the government to handle. Real estate securitization, in particular, will greatly boost property development at a time when there are questions raised over the viability of property market growth after the 2004 Olympics. Pessimists believe that, with fewer large infrastructure projects being executed, the housing and office market will not be able to take up the slack. On the other hand,large construction firms will be encouraged to get more involved in property development, especially with securitization bonds.

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