Luxembourg’s flexible and tax efficient regime for securitisation vehicles (SVs) has earned its recognition as an international structured finance hub.
One of the driving factors is the wide range of eligible assets that can be securitised. Risks relating to the holding of assets, whether movable or immovable, tangible or intangible, as well as risks resulting from the obligations assumed by third parties or relating to all or part of the activities of third parties, may be securitised. Luxembourg SVs have been used in several murabaha or ijarah structures.
Generally, Luxembourg SVs are entities not subject to prior authorisation. Only SVs issuing securities to the public on a continuous basis must be approved by the regulator. The acquisition of securitised risks by a Luxembourg SV has to be financed through the issuance of securities, the value or yield of which is linked to such risks. Luxembourg SVs may be financed through the issuance of sukuk.
An SV can be formed as a corporate vehicle or as a co-ownership of assets (without legal personality) managed by a management company. Securitisation funds constituting co-ownership(s) provide a closer connection to the securitised assets and easily ensure compliance with shariah principles.
The SV may be structured with multiple compartments, whereby each compartment (or sub-fund) represents a distinct part of the assets and liabilities of the SV. The SV may issue several classes of sukuk, each class being allocated to a specific compartment of the SV.