The Securities and Exchange Commission of Pakistan (SECP) has notified the draft Asset-Backed Securitization Regulations, 2022 (The “Regulations”) for public consultation.
These regulations provide a mechanism for asset-backed securitization covering all aspects of the securitization process.
Currently, asset-backed securitization is governed by Asset-Backed Securitization Rules, 1999 (the “Rules”), and the subsequent Regulations are drafted to provide a holistic regulatory framework under the Rules.
Proposed regulations would enable companies to raise funds from the capital market in a timely and cost-effective manner through the issuance of asset-backed securities through two modes: i) public offering and ii) private placement.
Moreover, under these Regulations real estate assets that have the cash-generating ability and actionable claims can also be securitized. Under the proposed regulations companies can issue asset-backed securities by creating a special purpose vehicle (SPV) registered with SECP under the Rules where companies can create a 100 percent owned SPV. The format of application for registration of SPV, Fit & Proper Criteria, and prospectus is provided as Schedule-I, Schedule-II, and Schedule-III to the Regulations respectively.
The regulatory framework has been designed in line with the disclosure-based regime being followed by the regulator and global practices. Process flow for issuance asset-backed securities is covered in detail in draft Regulations and Summary of Regulations and is available at SECP’s website.
Only 7 Special Purpose Vehicles (SPVs) were registered with the Securities and Exchange Commission of Pakistan (SECP) since the promulgation of “The Companies (Asset-Backed Securitization) Rules, 1999” (ABS Rules) to raise funds through the issuance of debt securities, including Sukuk.
SECP documents revealed that the regulator faced this serious problem of less registration of the SPVs since the promulgation of The Companies (Asset-Backed Securitization) Rules, 1999 (ABS Rules) on December 14, 1999. This reflects that the application framework was not conducive.
The Committee on “Capital Market Instruments for housing and construction finance” identified certain limitations in the ABS Rules w.r.t issuance of mortgage-backed securities (MBS) and covered bonds (CB). Therefore, in order to enable the issuance of MBS and CBs, especially for the promotion of housing and construction finance, amendments have been proposed to ABS Rules.
