notice of assignment singapore law

Securitisation 2024

Law and practice.

Rajah & Tann Singapore LLP (“Rajah & Tann”) is recognised in the field of debt capital markets as having highly creative lawyers with strong technical knowledge who can handle the full spectrum of complex and innovative debt capital market transactions. It represents issuers and underwriters in domestic and international offerings, exchange offers, and liability management exercises, leveraging the local law expertise of its network of leading ASEAN firms. It leads various first-of-its-kind transactions, including the first catastrophe bond transaction in Singapore and the first auto asset-backed securitisation in Singapore.

1. Specific Financial Asset Types

1.1 common financial assets.

In Singapore, the most commonly securitised financial assets are receivables, in particular credit card receivables and loan receivables. Recent securitisation transactions in the market have also included other asset classes such as vehicle fleets and related receivables.

The Monetary Authority of Singapore (MAS) has also established a regime for Singapore banks to issue covered bonds in Singapore. The largest banks in Singapore have established several covered bond programmes, which are backed by retail mortgages.

1.2 Structures Relating to Financial Assets

The most usual securitisation structure in the Singapore market involves the issuance of listed and rated debt securities to investors.

In a typical securitisation transaction in Singapore, the issuer would be an orphan special purpose entity (SPE) that is neither affiliated with the originator nor a member of any corporate group.

1.3 Applicable Laws and Regulations

The legal and regulatory system in Singapore provides the framework within which securitisation transactions are structured and documented, under contractual principles based on the common law. There are generally no Singapore laws specifically related to securitisation, other than certain MAS Notices. Please see 4.9 Banks and Securitising Financial Assets .

Depending on the securitisation structure and the underlying assets to be securitised, additional legislation and regulations may apply.

Debt securities are issued typically in reliance on exemptions from the prospectus registration requirements under the Securities and Futures Act 2001 (SFA). 

Debt issuances are typically structured as “qualifying debt securities” under the Income Tax Act 1947 (the “ITA”), which (amongst other things) exempts interest, discount, early redemption fee or redemption premium to non-Singapore tax residents from Singapore withholding tax, and provides Singapore corporate investors with a preferential 10% tax rate on their income derived from the debt securities.

The Approved Special Purpose Vehicle (ASPV) Engaged in Asset Securitisation Transactions (the “ASPV Scheme”) was introduced to support the development of Singapore as a structured finance centre in Asia. The scheme grants a suite of tax concessions to an ASPV engaged in asset securitisation transactions including a tax exemption on income derived by an ASPV from asset securitisation transactions, a fixed Goods and Services Tax (GST) recovery rate on its qualifying business expenses at the prevailing GST recovery rate/methodology accorded to licensed full banks under MAS for the specific year in question and a withholding tax exemption on payments to qualifying non-residents on over-the-counter financial derivatives under certain conditions.

The ASPV Scheme also includes a new sub-scheme named ASPV (Covered Bonds) (“ASPV (Covered Bonds) Sub-scheme”), for special purpose vehicles holding the “cover pool” in relation to the issuance of covered bonds under MAS Notice 648. The ASPV (Covered Bonds) Sub-scheme takes effect from 15 February 2023 to 31 December 2028 and is administered by the MAS.

1.4 Special-Purpose Entity (SPE) Jurisdiction

It is common for SPEs to be established in Singapore for the following factors.

• Low corporate tax rate (which is potentially reduced under the ASPV scheme), and tax benefits, such as exemptions from withholding tax.
• Ease of incorporation.
• Relative political and social stability.
• Investor preference.

Another common jurisdiction for the establishment of offshore SPEs for Singapore transactions would be the Cayman Islands.

1.5 Material Forms of Credit Enhancement

The credit enhancement used in each transaction depends on the parties involved and the rating requirements.

Some techniques used in Singapore securitisation transactions include:

• subordination of junior notes/subordinated loans;
• over-collateralisation;
• cash reserves;
• deferred purchase price;
• credit insurance;
• collateral or guarantees;
• letters of credit; and
• guaranteed liquidity facilities.

2. Roles and Responsibilities of the Parties

2.1 issuers.

The issuer (typically an SPE) issues debt securities, the proceeds of which will be used to finance the issuer's purchase of the assets being securitised. 

As the SPE is structured as an orphan entity that does not form part of the same corporate group as any other party to the transaction (including the originator), typically, a third-party entity (a corporate services provider) would hold the legal title to the shares in the orphan entity, held on discretionary trust for certain charitable beneficiaries.

2.2 Sponsors

The sponsor initiates the securitisation transaction, and is usually the originator or an affiliate of the originator. Please also see 2.3 Originators/Sellers .

2.3 Originators/Sellers

The term “originator” is used to describe the entity that originates the financial assets to be securitised or acquires the financial assets for the purpose of securitising them. The originator is usually the entity seeking to raise the financing provided by a securitisation structure and will sell the assets to be securitised to the issuer.

2.4 Underwriters and Placement Agents

The underwriter/placement agent acts as an intermediary between the issuer and the investors in an offering.

The underwriter/placement agent usually performs the following functions:

• analysing investor demand;
• advising on structuring of the transaction;
• liaising with investors; and
• after a successful bookbuilding exercise, underwriting the debt issuance by subscribing for the debt securities, for subsequent resale to investors.

The role of an underwriter/placement agent is typically performed by an investment bank.

2.5 Servicers

A servicer is usually appointed to provide ongoing servicing of the securitised assets in accordance with specifically agreed policies. Please see 3.5 Principal Servicing Provisions .

The originator typically performs the role of the servicer, but a third party may also be appointed to perform the role of a servicer.

The servicer generally does not require any licence or permit to enforce and collect on the securitised assets in Singapore.

2.6 Investors

The investors subscribe to notes issued by the issuer.

In Singapore, the investors are typically accredited investors or institutional investors because the notes are typically offered in reliance on the wholesale exemption from prospectus registration requirements under the SFA.

2.7 Bond/Note Trustees

A bond/note trustee is typically appointed, and a fiscal agency structure is not common for securitisation transactions.

The bond/notes trustee acts as trustee for the noteholders and represents their interests. The responsibilities of the trustee will vary from case to case and are expressly spelled out in the trust deed. They normally involve facilitating communication between the issuer and the holders. In Singapore, the trustee typically refrains from exercising discretion and acts on instructions from holders.

Professional trustees will usually perform the role of a bond/note trustee. 

2.8 Security Trustees/Agents

Security trustees hold the benefit of the security in a securitisation transaction on behalf of the holders. If required, the security trustee will take action to enforce the security and distribute the proceeds of enforcement in accordance with the terms of the transaction documents.

Professional trustees will usually perform the role of a security trustee.

3. Documentation

3.1 bankruptcy-remote transfer of financial assets.

The transfer of assets is generally effected through a sale agreement (such as a receivables purchase agreement) that includes clauses which address the following principal subject matters:

• the assets to be transferred by the originator to the SPE;
• the consideration for the purchased assets;
• any conditions precedent;
• any circumstances in which the SPE has the right to perfect its title to the assets;
• any limited circumstances where the originator is obliged to repurchase the assets or indemnify the SPE; and
• any other undertakings, representations and warranties in respect of the originator and/or the assets.

3.2 Principal Warranties

Warranties provided by the originator can generally be categorised into two categories:

• its corporate status (including its capacity, power and authority to enter into the transaction, licensing status and solvency) (“corporate warranties”); and
• the assets being transferred (“asset warranties”).

Asset warranties generally address matters such as title to the assets and compliance with the selection/eligibility criteria set out in the transaction documentation.

Breach of a corporate warranty would generally trigger an event of default and/or early amortisation of the notes, and a claim in damages. Breach of an asset warranty could potentially trigger a repurchase obligation.

3.3 Principal Perfection Provisions

Please see 6.3 Transfer of Financial Assets .

3.4 Principal Covenants

The key covenants in every transaction would differ and are subject to negotiations between parties.

Generally, the SPE’s activities will be limited by negative covenants. The SPE will also provide positive covenants relating to, inter alia, its corporate status, the transferred assets and compliance with various obligations under applicable law and the transaction documents. Failure to comply with any such covenant would generally trigger an early amortisation event or event of default under the notes.

3.5 Principal Servicing Provisions

The servicer is appointed under a servicing agreement entered into with the issuer to service the transferred assets on a day-to-day basis, including collections and enforcements.

The main obligations/role of a servicer include:

• servicing the receivables owed to the originator by the underlying contract counterparties in accordance with the relevant collection policies;
• ensuring that the collected receivables are paid into the issuer’s account(s);
• administering the enforcement of the obligations of contract counterparties in the underlying contracts; and
• maintenance of servicing records.

A fee is usually paid to the servicers for the services rendered (subject to any relevant priorities of payment). Any failure of the servicer to comply with its obligations under the servicing agreement may result in a back-up servicer being appointed to replace it, early amortisation, or an event of default under the notes.

3.6 Principal Defaults

Typical events of default will include:

• non-payment by the SPE of payments as they fall due under the transaction documents;
• material breaches by the SPE of its obligations under the transaction documents; and
• insolvency of or insolvency proceedings in respect of the SPE.

When an event of default is triggered under the notes, the noteholders are entitled to declare all amounts outstanding under the notes to be immediately due and payable, and trigger any enforcement of security given by the SPE (if applicable) and enforce its rights under the transaction documents in respect of the notes.

3.7 Principal Indemnities

Indemnities are extensively negotiated in Singapore but generally fall within the following two categories:

• indemnities from the originator in relation to the sold assets – this would cover (i) breaches of representations or warranties made by the originator under the transaction documents and (ii) instances where the originator include ineligible receivables within the sold pool of assets; and
• indemnities from the servicer in relation to the transaction documents – this would cover (i) breaches of representations or warranties made by the servicer under the transaction documents and (ii) failure by the servicer to comply with its servicing obligations under the transaction documents. 

3.8 Bonds/Notes/Securities

The terms and conditions of the notes would be contained within the notes trust deed.

The terms and conditions of the notes would typically address the following:

• form, denomination and title; 
• status and ranking; 
• issuer covenants;
• redemption;
• events of default/early amortisation events;
• limited recourse and non-petition;
• application of monies/priorities of payment; and
• enforcement.

3.9 Derivatives

The derivative instruments that are used would differ depending on the structure of securitisation transaction, but their function is primarily to address currency and/or interest rate mismatches between the assets and the notes.

3.10 Offering Memoranda

An offering memorandum is typically used to market the notes to investors. 

It is also required for purposes of listing the notes on the Singapore Exchange Securities Trading Limited (the “SGX-ST”), whose rules relating to the listing of wholesale debt requires that an offering document contains information that investors customarily expect to see.

As notes are typically not sold to the retail public in reliance on the wholesale exemption from prospectus registration, there are no express rules on the contents of the offering document. 

The offering document in a securitisation transaction customarily provides information on the issuer, and outlines in detail the terms of the securities and the characteristics of the securitised assets.

4. Laws and Regulations Specifically Relating to Securitisation

4.1 specific disclosure laws or regulations.

There are no specific disclosure requirements relating to securitisation under Singapore law. Depending on the nature of the securitisation transaction, consideration should be given to any applicable disclosure rules in other jurisdictions which could be relevant.

Please also see 4.2 General Disclosure Laws or Regulations .

4.2 General Disclosure Laws or Regulations

All offers of debt securities must comply with the prospectus requirements set out in the SFA, unless the offer is either excluded or exempted from the prospectus requirements.

Most securitisation transactions are structured in reliance on Sections 274 and 275 of the SFA, where the offer is made to institutional or specified persons (including accredited investors) and so do not require a registered prospectus.

4.3 Credit Risk Retention

Singapore has not implemented express legislation or regulatory requirements on credit risk retention which are similar to the credit-risk retention rules effected in other jurisdictions in Europe and the United States of America.

4.4 Periodic Reporting

There are no laws or regulations requiring any periodic reporting on a securitisation transaction. However, please note that MAS Notice 628 – Securitisation does set out investor disclosure and MAS notification requirements after completion of the securitisation transaction. Please refer to 4.9 Banks Securitising Financial Assets for further information.

Companies whose debt securities are listed on the SGX-ST are required to comply with the obligations set out in the Listing Manual of the SGX-ST (the “Listing Manual”) and the eligibility to list letter issued by the SGX-ST.

Under Rule 323 of the Listing Manual, a debt issuer must immediately disclose to the SGX-ST via SGXNet any information which may have a material effect on the price or value of its debt securities or on an investor’s decision whether to trade in such debt securities.

Under Rule 324 of the Listing Manual, a debt issuer must also immediately announce the following:

• the redemption or cancellation of debt securities when every 5% of the total principal amount of debt securities is redeemed or cancelled;
• the details of any interest payments to be made (except for fixed-rate debt securities offered only to specified investors and traded in a minimum board lot size of SGD200,000); and/or
• any appointment of a replacement trustee.

There are generally no periodic reporting requirements imposed on issuers of wholesale debt under the rules of the SGX-ST or under Singapore law. The frequency of financing reporting to noteholders would be governed by the contractual provisions of the relevant trust deed.

Under Chapter 14 of the Listing Manual, the SGX-ST can initiate disciplinary proceedings against issuers for the contravention of the Listing Manual and upon conclusion of the hearing, impose sanctions against an issuer, which include:

• issuing a private warning;
• issuing a public reprimand;
• requiring the issuer to perform remedial action to rectify the consequences of contraventions;
• issuing an order for the denial of facilities of the market, prohibiting an issuer from accessing the facilities of the market for a specified period;
• imposing fines on the issuer payable to the SGX-ST of up to SGD250,000 per contravention, subject to a maximum of SGD1 million per hearing for multiple charges, which are to be paid by way of instalments which shall not exceed 12 months from the date of the imposition of the fine;
• issuing an order for the suspension of the trading of an issuer’s securities for a specified period; and
• issuing an order for the removal of an issuer from the Official List.

Section 25 of the SFA also grants power to the court to order observance or enforcement of the rules in the Listing Manual.

Further, it is an offence under Section 203(2) of the SFA for companies to intentionally, recklessly or negligently fail to notify the SGX-ST of such information as is required to be disclosed by the SGX-ST under the Listing Manual or other requirement of the SGX-ST. A person found to have contravened Section 203(2) of the SFA shall be liable on conviction to a fine not exceeding SGD250,000 or to imprisonment for a term not exceeding seven years or to both.

4.5 Activities of Rating Agencies

Credit rating agencies in Singapore who provide credit rating services (“CR services”) are regulated as capital markets services (CMS) licence holders. As with all other CMS licensees, licensed credit rating agencies in Singapore are required to comply with regulations, guidelines and notices issued by the MAS under the SFA.

Additionally, the MAS has prescribed a Code of Conduct for Credit Rating Agencies (the “Code”) under Section 321 of the SFA which applies to CMS licensees who provide CR services. The Code, which is based largely on the IOSCO credit rating agencies code, seeks to:

• promote quality and integrity of the rating process;
• strengthen rating agencies (RA) independence and avoidance of conflicts of interest;
• ensure timely disclosures to investors on rating and the procedures, methodologies and assumptions; and
• promote procedures and mechanisms to protect non-public information from premature disclosure or by use unrelated to a RA’s rating.

The Code is non-statutory in nature. A failure by any person to comply with any requirement in the Code shall not of itself render that person liable to criminal proceedings. However, a failure by an RA to comply with the Code will be taken into account by the MAS in determining whether an RA satisfies the requirement that it is fit and proper to remain licensed and whether to revoke or suspend the RA’s licence under Section 95 of the SFA.

4.6 Treatment of Securitisation in Financial Entities

The MAS administers the international Basel III regulatory framework in Singapore and provides requirements for the capital treatment that financial institutions in Singapore can give to securitisation positions taken, as well as circumstances in which capital relief can be obtained when such financial institutions undertake a securitisation. In connection with securitisation transactions, Singapore incorporated banks are required to comply with the regulatory capital adequacy requirements set out under MAS Notice 637 (Risk-based capital adequacy requirements for banks incorporated in Singapore) (“Notice 637”).

Separately, outside the scope of this guide, there is a separate framework for the issuance of insurance-linked securities set out in the Insurance (General Provisions and Exemptions for Special Purpose Reinsurance Vehicles) Regulations 2018. In particular, there are separate capital adequacy requirements for special purpose reinsurance vehicles (SPRV), which are set out in the Regulations. An SPRV is an insurer licensed under the Insurance Act 1966 of Singapore as a reinsurer to carry on life or general business or both classes of business and:

• is created for the sole purpose of entering into contracts of reinsurance with one or more ceding insurers; and
• at all times fully funds its obligations under the contracts of reinsurance with the ceding insurer or insurers (mentioned in the paragraph above) through insurance securitisation.

4.7 Use of Derivatives

The SPE may enter into derivatives with a swap provider to hedge certain exposures.

There are no specific laws or regulations that apply to the use of derivatives in securitisations or with regard to SPEs.  However, the separation requirements in the MAS Notice 628 contemplate that any transaction (including interest rate swaps and currency swaps) entered into between the SPE and the bank in Singapore which the notice applies to must be conducted at arm’s length and on market terms and conditions. Regulatory requirements for OTC derivatives, including mandatory trade reporting and regulatory margin, may also apply.   

It should be noted that for an SPE to qualify under the ASPV scheme (unless waived by the MAS), any cross-currency or interest rates swaps carried out by the SPE are to be transacted with a swap counterparty in Singapore.

4.8 Investor Protection

Investor protection in Singapore is generally achieved through restrictions in the SFA on the offer and sale of securities, prospectus requirements, and provisions prohibiting making false or misleading statements in the offer of securities, market manipulation, false trading and market rigging transactions. The SFA is enforced by the MAS. 

See also 4.1 Specific Disclosure Laws or Regulations and 4.2 General Disclosure Laws or Regulations .

4.9 Banks Securitising Financial Assets

The MAS Notice 628 – Securitisation (“Notice 628”), which applies to Singapore incorporated banks and branches and offices of a bank located within Singapore, sets out requirements on such banks when acting in securitisations. Banks in Singapore who act as an “ABCP programme sponsor” (as defined in Notice 637), “manager” (as defined in Notice 628) or an “originator” (as defined in Notice 637) have to comply with the separation requirements set out in Annex A and disclosure requirements set out in Annex B of Notice 628. Additionally, post-issuance MAS notification requirements in accordance with Annex C of Notice 628 also apply. Where the bank in Singapore acts as a servicer (as defined in Notice 637), or provides liquidity facilities or credit enhancements (as defined in Notice 637) must comply with the requirements set out in Annex D and Annex E of the notice respectively. Where Annex D and Annex E are not complied with, these banks are deemed to be providing implicit support to the securitisation and will have to calculate its credit risk-weighted assets pursuant to MAS Notice 637 as though the underlying exposures of the securitisation were on its balance sheet.

Singapore incorporated banks which issue covered bonds must comply with MAS Notice 648 (“Notice 648”), and in such case, Notice 628 does not apply. A bank incorporated outside Singapore may not issue any covered bonds through its branch in Singapore. Notice 648 sets out requirements on the composition of the cover pool assets and encumbrance limits. Risk management requirements set out in Notice 648 must also be put in place. Lastly, the notice also sets out MAS notification requirements, including the requirement to submit a memorandum of compliance to set out how the bank has complied with the notice.

4.10 SPEs or Other Entities

While there are no particular regulatory requirements that apply to the form of an SPE, an SPE must meet certain conditions to fall under the Approved Special Purpose Vehicle scheme for certain tax exemptions under the ITA.

In addition, the structure of the transaction and nature of the underlying securitisation assets dictates whether the SPE requires any regulatory approvals or other licences.

Typically, the material factors considered in the choice of the form of an SPE include tax treatment, investor preference, bankruptcy remoteness and certainty of enforcement.

4.11 Activities Avoided by SPEs or Other Securitisation Entities

The business undertaken by SPEs is usually restricted in the transaction documents and in the constitution of the company. Typically, the securitisation transaction will be structured in such manner that the SPE does not require any licences in order to carry on the transaction. Please note that this does not apply to Special Purpose Reinsurance Vehicles, which is outside the scope of this guide.

There is no regime under Singapore law comparable to the US Investment Company Act of 1940.

4.12 Participation of Government-Sponsored Entities

In Singapore, government-sponsored entities have issued notes to finance the purchase of securitised assets, which includes project and infrastructure loans and infrastructure asset-backed securities. 

Government-sponsored entities are also not prohibited from participating as investors in the securitisation market. 

There are no particular laws or regulations in Singapore that will apply differently to the government-sponsored entities (whether as issuer or investor) as compared with other regular participants in the securitisation market in Singapore. Such entities remain subject to regulations applicable to other entities that are not government sponsored.

4.13 Entities Investing in Securitisation

Typically, securitisation investors include financial institutions, insurance companies and private funds. Such entities are usually licensed and already subject to the applicable regulations and licence conditions.

4.14 Other Principal Laws and Regulations

The key principal laws and regulations are discussed in 1.3 Applicable Laws and Regulations .

5. Synthetic Securitisation

5.1 synthetic securitisation regulation and structure.

Synthetic securitisations are not prohibited under Singapore law, although these are not common in the Singapore market. Such securitisations must comply with the regulatory requirements which similarly apply to traditional securitisations, including, if applicable, regulatory capital requirements under MAS Notice 637.

In the context of a financial institution, such deals are structured to enable it to achieve a reduction of the amount of regulatory capital it is required to retain. This involves the transfer of the credit risk of the financial institution's assets to investors while retaining the assets on its balance sheet.

6. Structurally Embedded Laws of General Application

6.1 insolvency laws.

Securitisation transactions in Singapore are typically structured to be insolvency remote in order to, among other reasons, obtain better credit ratings and pricing terms. To achieve this, insolvency laws will need to enable such a structure, such that the underlying assets of the securitisation are insulated from any risk of insolvency of the originator/seller of the assets, and to ensure that the creditors/liquidators of the originator/seller of the assets will not have recourse to the assets. 

Aspects of an SP E

For Singapore securitisation transactions, the SPE will purchase assets from the originator and issue notes to the investors.

The SPE is usually established as a bankruptcy remote entity, to prevent the originator’s creditors from bringing claims against the SPE, in the event of the originator’s insolvency. This is typically achieved by structuring the SPE as an orphan vehicle (whose shares are held by a trust company for charitable beneficiaries), so that the SPE falls outside the corporate groups of other parties to the transaction (in particular the originator).

The other usual characteristics of an SPE are as follows.

• Appointment of a third-party corporate administrator, whose directors are placed on the board of the SPE.
• Imposing restrictions on the activities that the SPE can undertake, by ring-fencing its activities in the constitution of the company as well as subjecting it to restrictive covenants in the transaction documents.
• Including limited recourse and non-petition provisions in the transaction documents so that secured creditors have limited recourse to the SPE’s assets and that none of the secured creditors are able to bring claims against the SPE or petition its insolvency.
• Providing the assets and cashflow generated from the assets as security for the securitisation transaction.

Substantive Consolidation

Under Singapore law, SPEs are treated as having their own separate legal personality. In other words, their rights, obligations, assets and liabilities will not be consolidated with those of the originator. The Singapore courts have been slow to disregard a company’s separate legal personality, and are only willing to pierce the corporate veil in limited circumstances, such as fraud.

6.3 Transfer of Financial Assets

Transfer of Assets

In the context of a Singapore securitisation transaction, the originator and the SPE will typically enter into an asset purchase agreement which sets out details of the underlying assets being transferred to the SPE, the consideration for the transfer, and other key terms relating to the sale of such assets to the SPE.

The transfer is most commonly effected by way of assignment (which can be legal or equitable), and can also be effected by way of novation or a declaration of trust under Singapore law. Whether an assignment is structured as a legal or equitable assignment ultimately depends on the transaction in question.

In the context of a securitisation transaction involving receivables, transfers are effective only in equity and will not take effect as a legal assignment if written notice of such assignment is not given to each of the underlying debtors. The absence of such notice to underlying debtors will have (non-exhaustively) the following consequences:

• each underlying debtor is entitled, by virtue of his lack of knowledge of the receivables purchase agreement and the transactions contemplated therein, to continue to make payments to the originator as the party legally entitled to receive the same;
• the originator can grant each underlying debtor a good discharge for payments when it receives the relevant moneys from such debtor;
• any rights of set-off which accrue in an underlying debtor’s favour against the originator before notice is given to that underlying debtor of the receivables purchase agreement and the transactions contemplated therein will bind any person(s) equitably entitled to the relevant moneys;
• if the originator were to assign the benefit of the receivables to a third party acting in good faith, and for value and without notice of any person(s) equitably entitled thereto, and such third party gave notice of his interest, to the relevant underlying debtor before such person(s) so equitably entitled did so, such third party would gain priority over the interests of such person(s) equitably entitled; and
• in order to bring proceedings against an underlying debtor, the SPE would have to join the originator in the proceedings against the underlying debtor as a co-plaintiff and if the originator does not consent to being joined as a co-plaintiff, then as a co-defendant.

Under Singapore law, the courts have recognised that financing transactions may be effected equally in the form of a secured loan or by means of a legal sale. The key in the interpretation of the legal nature of a transaction is the intention of the parties, as inferred from the documentation, rather than the economic consequences of a documented transaction.

This means, for a legal true sale analysis, it is assumed that the transaction is that which is inferred from documents so long as there is no sham or façade and parties do not act inconsistently with the transaction documents. A transaction will only be held to be a sham if the extrinsic evidence shows that the parties concealed the true nature of the transaction or by their conduct replaced it with some other agreement.

Whilst there is generally no one clear touchstone by which a transaction would be treated as a sale rather than a secured loan, generally where the originator retains any equity of redemption of the receivables or retains the risks of losses incurred on the transferred assets in the case of a re-sale by the SPE, this tends to be more indicative of a secured loan transaction instead.

It is generally agreed that any one of the factors below would not in itself be inconsistent with a sale transaction.

• The originator continuing to service and collect the receivables following the transfer of the receivables to the SPE (in fact this is fairly common for securitisation transactions in Singapore).
• Credit enhancement mechanisms such as the entry by the originator into arm’s length derivative transactions with the SPE.
• The originator holding a degree of credit risk as first loss position.
• A deferral of part of the purchase price payable by the SPE to the originator.
• The obligation of an originator to repurchase receivables in certain limited circumstances (such as breach of warranty or a “clean-up call”, as opposed to a general repurchase right).

It would be usual to request a true sale opinion to be delivered in connection with a Singapore securitisation transaction in Singapore.

6.4 Construction of Bankruptcy-Remote Transactions

Where there are contractual prohibitions or other restrictions against assignments or transfers of the underlying assets, a trust structure can be used in the alternative. This would involve having the originator declare a trust over the underlying assets in favour of the SPE. The SPE obtains an equitable interest in the assets. However, unlike an equitable assignment, this interest cannot be converted to a legal interest by delivery of notice.

6.5 Bankruptcy-Remote SPE

See 6.2 SPEs .

7. Tax Laws and Issues

7.1 transfer taxes.

Singapore stamp duty is a documentary tax generally imposed on instruments that effect the transfer of immovable property in Singapore, shares of Singapore incorporated companies and shares of foreign companies that have a share register in Singapore.

A transfer of receivables that do not involve any interest in the aforementioned assets is generally not subject to stamp duty in Singapore. However, it should be noted that any mortgage, agreement for mortgage or debenture of such assets, as well as the transfer or assignment of any mortgage or debenture may be subject to stamp duty if they are executed or received in Singapore.

7.2 Taxes on Profit

Singapore generally adopts a territorial basis of taxation. Any income accrued or derived in Singapore, as well as any income earned from any source outside Singapore (ie, foreign-sourced income) that is received or deemed to be received in Singapore will be taxable. The ascertainment of the source of income is a practical hard matter of fact and the broad guiding principle is to examine what the taxpayer has done to earn the profits in question and to identify the location where those activities that the taxpayer has engaged in took place.

Where the income is considered to be sourced in Singapore, companies are subject to corporate income tax at the prevailing rate of 17%, subject to any applicable tax exemptions.

Please see 1.3 Applicable Laws and Regulations for tax concessions that apply in the context of a securitisation transaction.

7.3 Withholding Taxes

Withholding tax is applicable in Singapore in respect of certain types of payments such as

• interest, commission, fee or any other payment in connection with any loan or indebtedness or with any arrangement, management, guarantee, or service relating to any loan or indebtedness which are:
• borne, directly or indirectly, by a person resident in Singapore or a permanent establishment in Singapore (except in respect of any business carried on outside Singapore through a permanent establishment outside Singapore or any immovable property situated outside Singapore); or
• deductible against any income accruing in, or derived from, Singapore; or
• any income derived from loans where the funds provided by such loans are brought into or used in Singapore.

Such payments, where made to a person not known to the paying party to be a resident in Singapore for tax purposes, are generally subject to withholding tax in Singapore. The rate at which tax is to be withheld for such payments (other than those subject to the final withholding tax rate of 15%) to non-resident persons (other than non-resident individuals) is currently 17%. However, if the payment is derived by a person not resident in Singapore otherwise than from any trade, business, profession or vocation carried on or exercised by such person in Singapore and is not effectively connected with any permanent establishment in Singapore of that person, the payment is subject to a final withholding tax of 15%. The rate of 15% may be reduced by applicable tax treaties.

However, where the above-mentioned payments are made pursuant to securities that are “qualifying debt securities” under the ITA, such payments are not subject to Singapore withholding tax. See 1.3 Applicable Laws and Regulations .

7.4 Other Taxes

A transfer of receivables is generally exempt from GST under the Fourth Schedule to the Goods and Services Tax Act 1993.

7.5 Obtaining Legal Opinions

Singapore tax opinions are generally sought for securitisation transactions in Singapore. For instance, if the receivables are transferred to a purchaser that is not resident in Singapore at an artificial discounted price, the transaction may be recharacterised in whole or in part as a loan or indebtedness where such discount is considered to be interest that is subject to withholding tax.

8. Accounting Rules and Issues

8.1 legal issues with securitisation accounting rules.

Accounting issues relating to securitisation transactions are addressed by accountants, and accountancy firms will render the relevant accounting advice to parties seeking to undertake such securitisation transactions. In particular, originators will typically require advice on whether or not a particular desired accounting treatment under the applicable accounting standards can be achieved.

Key considerations are whether or not a securitisation transaction can receive off-balance sheet treatment from the originator’s group.

8.2 Dealing With Legal Issues

One of the key factors that auditors typically consider is whether the assignment of the receivables takes effect as a true sale, that is, whether the assignment of the receivables by the originator to the SPV would constitute a sale of the receivables, rather than a loan secured by the relevant assigned receivables.

Rajah & Tann Singapore LLP

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+65 6535 3600

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