Page 249 - Invited Paper Session (IPS) - Volume 1

IPS152 Paul F.
Functional category of debt securities issued by SPEs
Let us come back to the above-mentioned second SPE type i.e. “Entities
issuing debt securities (other than securitization vehicles)”. Those conduits
raise capital by issuing debt securities and then channel the funds to other
affiliates of the MNE. They issue debt securities on organized financial markets.
They also issue less standard products including so-called “hybrid”
8
instruments, which are treated as debt securities in Luxembourg . Those
securities may not be transferred outside the group without the consent of the
company. As for the functional category and from a theoretical perceptive,
debt securities issued on open markets are definitely Portfolio Investment
operations. Under certain circumstances , less liquid debt securities might
9
theoretically ex ante qualify as Direct Investment. Mainly for pragmatic reasons
10
(compilation purposes ), in Luxembourg both are classified as Portfolio
Investment. In a similar way, securitisation vehicles, which are financial
intermediaries (BPM6 § 4.77), issue debt securities on open markets. However,
it can happen that, during a transitional period, securitisation makes use of
intra-group financing , which, ex ante, also makes the line blurred between
11
portfolio and direct investment. Again, for pragmatic reasons, the BCL
classifies the operation as Portfolio Investment even during the transitional
period.
In January 2019, the BCL sent a note to the IMF and suggested (research
topic in External Sector Statistics) to remove Direct Investment from the list of
functional categories associated to debt securities (BPM6 table 6.1, which
gives a link between instrument and functional category).

5. Conclusion: SPEs coverage for reduction of asymmetries and BEPS
implementation statistics

Reduction of asymmetries, data sharing and the Legal Entity Identifier
(LEI)
The valuation and even the timing of SPEs equity transactions should be
consistent with those of mirror country, which usually requires, at least at
European level, bilateral discussions. International organizations have recently

8 Those instruments are debt securities for statistical purposes. They may be treated as equity
in other jurisdictions for fiscal purposes.
9 BPM6 § 6.28. In addition, BPM6 § 6.56 details how Portfolio Investment is “not limited to
securities traded on organized or other financial markets.”
10 Issuers are often not in a position to identify the holders of their debt securities. Thus the BCL
uses the residual approach for PI liabilities (total liabilities net of resident holdings), which does
not require the collection of counterpart country detail for debt securities issuances.
The general rule, in the securitisation business, is that securitised assets are held by an
11
undertaking different from that issuing the securities.
238 | I S I W S C 2 0 1 9