News
20% in CSE companies must be held by public
Sri Lanka’s stock market regulator, after three to five years of discussions, has introduced rules prescribing the minimum quantity of shares that must be held by the public after January 1, 2014 in companies on the Colombo Stock Exchange (CSE). This means than some companies which are controlled by majority stakeholders with just a fraction of the public having shares, have to sell off a part of their stake in the market.
The December 20 ruling and issue of guidelines by the Securities and Exchange Commission (SEC) were sent out to all CSE companies directing them to ensure shares held by the public (outside the main shareholders) described as the ‘public float’ should be a minimum 20 per cent at all times. There are no such minimum rules as of now.Analysts and brokers said the ruling would affect companies like Nestle, the third largest market capitalisation company in the CSE (after John Keells Holdings and Ceylon Tobacco Company), CDIC, James Findlays, AIA Insurance and Commercial Leasing among others in which the public own less than 20 per cent of the shares. In most cases, some 90 to 95 per cent of the shares of these companies are owned by the majority shareholders.
Good governance activist K.C. Vignarajah, who has shares in some companies, welcomed the move but said it should have been as high as 30 per cent. “We need much more to be in the hands of the public to ensure transparency and good governance,” he told the Sunday Times.
The discussion for a bigger public float took place during the years when Indranee Sugathadasa and, thereafter Thilak Karunaratne, were at the helm of the SEC. A consultative process was held and comments called for from the public, and followed up under the new SEC administration.
In a statement, the SEC said a sizeable public holding is a necessity for a transparent and liquid market. “It is perceived that greater the public holding less is the potential for market abuse. Therefore, a minimum public holding as a continuous listing requirement is introduced with the aim of promoting a liquid and transparent market with a better price discovery mechanism. Further, the maintenance of a minimum public holding is expected to provide a greater opportunity for the citizens of Sri Lanka to share the wealth produced by the Public Listed Entities in Sri Lanka,” it said.
The guidelines provide for a minimum public holding of 20 per cent of its total listed ordinary voting shares in the hands of a minimum of 750 public shareholders; or a market capitalisation of Rs. 5 billion of its public holding in the hands of a minimum of 500 public shareholders while maintaining a minimum public holding of 10 per cent.
It said a listed entity on the Diri Savi Board (second board at the CSE) shall maintain a minimum public holding of 10 per cent of its total listed shares in the hands of a minimum of 200 public shareholders. The SEC said extensions and other measures would be provided to a company to rectify any shortfall in the requirement but if such a shortfall is not corrected within 30 market days, the SEC is authorised to impose sanctions like publishing a notice of malfeasance (wrongdoing); suspending trading or ordering a mandatory delisting.
Analysts said that how strict the SEC would be in enforcing the rules or provide exemptions remains to be seen.