Low public float in listed firms concern for foreign investors
View(s):NDB Capital Holdings PLC could probably have the lowest free-float of shares in the Colombo Stock Exchange with just 0.34 per cent of its shares available to the public, raising concern again about the lack of sufficient shares in the market for public consumption.
Analysts said the low public float in firms is a real concern especially for foreigners, who have been net buyers in the past month. Free float is a technical term used to describe the amount of stock of a company is available to the public.
NDB Bank owns 99.66 per cent of NDB Capital Holdings PLC (CDIC which is the stock code of the company) as at 30th June this year, which makes its free float just 0.34 per cent. CDIC by this Wednesday had a market capitalisation of Rs16.8 billion which brings it within the top 30 largest capitalised companies on the CSE.
“The low free float reduces the depth of the market. Since the supply of shares is limited it would lead to sharp price movements given strong buying in those counters,” Danushka Samarasinghe, Director Research TKS told the Business Times. He added that lack of market depth is a deterrent for larger funds to participate in the market.
When companies gets publicly listed on the main board of the CSE, they will have to float 25 per cent of total shares, but there is no rule to prevent these firms or related parties from buying back these shares from the market and diluting the public float.
The Securities and Exchange Commission has proposed that listed companies should have a free float of at least 10 per cent to increase market liquidity and this is under discussion.
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