Minimum public float impact minimal in near term
While the minimum public float requirement by the Securities and Exchange Commission (SEC) will promote more ‘investable’ firms, the rules won’t immediately impact the Colombo Stock market, analysts say.
“This will not come into effect soon. The full compliance comes into effect in two to three years,” an analyst said, adding that most companies will try their luck attempting to obtain exemptions from these rules. From 1 January 2014, all main board listed companies are instructed to have a minimum public float of 20 per cent in the hands of a minimum of 750 public shareholders or a market capitalisation of Rs. 5 billion of firm’s public holding in the hands of minimum of 500 public shareholders whilst maintaining a public holding of 10 per cent.
Murtaza Jafferjee, CEO JB Stockbrokers said that the immediate impact of this directive is minimal as the firms will have to ensure by 31 December 2015 a minimum public holding of 15 per cent of its total listed ordinary voting shares are held by 500 public shareholders. “We may see firms de-listing, as most are thinly traded,” he said. The move is healthy for the share market as more firms will be seen actively traded. “We are left with a less number of firms (in the event that they are de-listed), but there will be more firms that one can trade in with higher public float,” he added.
The analyst said that multinational companies (MNC) such as Nestle, Sri Lanka Telecom (SLT), Ceylon Tobacco and Dialog Axiata will see a big impact as their free float is below the stipulated amount in the directive but this again would be in coming years. These main board firms in the Colombo Stock Exchange (CSE) are directed to have 20 per cent held by minimum of 750 shareholders.
Nestlé’s public float is only 9.18 per cent but has 5,649 shareholders and they will have to sell down 0.8 per cent if they want to remain on the main board, according to analysts.
Ceylon Tobacco’s public float is 15.87 per cent with 3,742 shareholders holding a 3.7 per cent. SLT with 12,807 shareholders has a 5.5 per cent public float and Dialog Axiata’s public float is 14.73 per cent with 22,194 shareholders.
“Increasing the capitalization of these firms will help the market as international investors who identify with these MNCs will invest in them,” he added.
Another analyst said that since the SEC allows firms to downgrade themselves to the second board some firms will also take up that option.
He said that as local institutional investors were not seen investing last year, this directive by the SEC will ignite their interest as they too will buy into firms who will dilute their shareholdings.