Leading Luxembourg law firm Arendt & Medernach acted as Luxembourg legal advisor to Tawreeq Investments S.à r.l., a UAE and Luxembourg based group with entities licensed by the Dubai Financial Services Authority (DFSA), in connection with setting up of a Luxembourg securitisation vehicle (an “SPV”) in order to securitise the receivables originating from the client’s licensed supply chain finance (SCF) activities in the MENA region. The client is a leading Sharia-compliant SCF provider with services in the MENA region that cover SMEs, corporates, public sector entities and financial institutions.
The SPV issued Short Term Notes (STN) to different investors and applied the proceeds from such note issuances towards financing the purchase of receivables in a Sharia-compliant way.
The deal was led by Bishr Shiblaq, head of Arendt & Medernach Dubai office, together with Matthieu Taillandier, partner in the Bank Lending & Structured Finance practice in Luxembourg.
The Luxembourg law on securitisation adopted in 2004 provides for one of the most comprehensive and advantageous legal frameworks currently existing in Europe, offering both flexibility and protection to investors in addition to a favourable tax treatment. Although it obviously also covers transactions originating in Luxembourg, the regime is clearly designed for cross-border securitisation, creating a highly attractive framework for foreign transactions in which a Luxembourg vehicle is used.
The law gives a very broad scope to the concept of securitisation so as to cover both traditional securitisation structures as well as the most innovative ones.
Only securitisation vehicles which issue securities to the public on a continuous basis must apply for a license from the Commission de Surveillance du Secteur Financier (CSSF), the supervisory authority of the Luxembourg financial sector. Securitisation undertakings which do not cumulatively meet these two criteria, in practice the great majority of securitisation undertakings, are not required to apply for any license and are not regulated.
Additionally, a securitisation undertaking can be comprised of different compartments, each corresponding to a segregated part of its assets and liabilities, in respect of which securities, debt, equity or hybrids, can be issued. As between investors and creditors, each compartment is treated as a separate entity, except if otherwise provided for in the articles of incorporation or the management regulations.
Finally, securitisation transactions enjoy a tax neutral treatment regarding corporate income taxes and VAT. Securitisation companies, as Luxembourg tax resident companies, may in addition be entitled to the benefit of the double taxation treaties concluded by Luxembourg.