CSE to revamp listing rules this year
View(s):The Colombo Stock Exchange (CSE) is currently in consultations with the industry to carry out a total overhaul of its listing rules, an official said. “We are currently doing industry consultations with all stakeholders to completely revamp the CSE listing rules,” Rajeeva Bandaranaike, CEO CSE told the Business Times on the sidelines of the CSE’s 2014 Annual Report launch this week.
He added that the CSE consulted investment bankers, stockbrokers, etc. The consultations were to be completed on Friday. Mr. Bandaranaike said that all the gaps in the listing rules will be addressed with the revamp. “Also there are certain practices that are followed (absent in these rules) which we’ll include,” he added.
He also said the CSE plans to replace present net capital requirement with risk –based Capital Adequacy Ratio (CAR) to mitigate stock broker settlement risks. “The present net capital is Rs. 35 million regardless of the risk they (stockbrokers) take,” he said, adding that there’s a ‘mismatch’ between the actual risk taken by stockbrokers and their liquid capital.
He said that the CSE had many discussions with the stockbrokers on this since early this year. “We did a comparison of their present net capital and what should be. So they’re well aware what the requirements should be.” Mr. Bandaranaike adding that the CSE will go through the regulatory approvals for this to include it in the stockbroker rules. “This is what’s practiced globally.”
Mr. Bandaranaike stated that in addition to the proposed new Board of Investment companies and Small & Medium Enterprise listing boards, the CSE will consider to introduce a State-Owned Enterprises (SOE) board as well. “CSE is also working to re-brand both boards (Diri Savi and the main board) and grant greater opportunities to SMEs and BOI companies,” he said, adding that consultations with the investment banks and listed companies have already been carried out and the CSE is now speaking to other stakeholders and will soon be seeking regulator approval.
CSE Chairman Vajira Kulatilaka noted that the lack of market liquidity had been a negative factor in attracting foreign investors to Sri Lanka’s capital market. “The government represents the lion’s share of our economy, controlling banking, insurance, port, aviation, transport, gas sectors. So, it is better to list at least 10 per cent 20 per cent of the government’s profit making entities,” he said.
State owned commercial banks, Sri Lanka Insurance Corporation and Litro Gas are the likely SOE candidates to get listed first, according to officials. When asked whether this tantamounts to privatization, Mr. Bandaranaike added that this will not be privatization (strictly) as only 10 per cent (or the minimum public float) will be issued with the government as the majority shareholder.
In 2014, the CSE raised Rs 77.8 billion through equity and debt IPO’s rights issues and private placements, according to Mr. Bandaranaike. He added that there were five equity IPOs, one equity introduction and 20 debt IPOs. The five equity IPOs raised a total of Rs.2.7 billion, which is the highest recorded since 2011. The market capitalization surpassed Rs 3 trillion and closed the year at Rs 3.1 trillion. The daily average turnover increased by 71 per cent over the previous year from Rs. 828 million in 2013 to Rs. 1.4 billion in 2014.
Mr. Bandaranaike said that the CSE would be introducing secondary trading on Government securities in 2016 and regulate short-selling, stock borrowing and lending in 2017.
“Our vision is to push ourselves to become an active and liquid market with multiple asset classes that is home to vibrant and fully-fledged companies. By focusing on issuers and market intermediaries, innovation, investors, capabilities and infrastructure, we hope to move from being classified as a frontier market to an emerging market,” Mr. Bandaranaike added.