Belgium's first public securitization involving the sale of physical assets is in need of a favourable tax ruling to close by the end of this month.
The ruling will determine the viability of the structure of the $100 million diamond-backed securitization, lead managed by Nomura International for Rosy Blue Carat, a privately-owned diamond wholesale company in Belgium that buys rough and polished gem diamonds.
The deal requires Rosy Blue Carat to make a true sale of its stock of diamonds to a Luxembourg special purpose vehicle, with the company continuing to hold, manage and sell the diamonds on behalf of the vehicle. When a buyer was found, Rosy Blue Carat wouldl buy the diamonds back from the vehicle, while interest and principal payments on the notes would come from the sale of the stock to Rosy Blue Carat.
However, diamond dealers in Belgium are taxed on turnover rather than profitability under special laws in the country's Fiscal Plan.
And because the structure of the transaction artificially doubles Rosy Blue's turnover, the parties involved in the deal need the authorities to confirm that half the turnover need not be counted.
Moody's has assigned a prospective A2 rating to the deal based on a favourable tax ruling that would confirm the agency's tax analysis.
"Our understanding is that, verbally, the ruling has been given, but we are trying to get it in writing," said one Moody's structured finance analyst. "The relevant officials are on holiday at the moment."
The deal cannot close without the written confirmation from the Belgian tax authorities, said Richard Stow, a director in Nomura's securitization team. The expected closing date is July 30.
Rosy Blue's groundbreaking transaction structure for the Belgium asset-backed market would follow the Nomura-launched Groupe Marne et Champagne deal of last year as one of the few securitizations backed by an inventory of stock.
The deal has been made possible because the diamond industry is relatively stable and free of price volatility.
