Shell companies in the CSE in demand
The Colombo stock market is witnessing a high demand for listed shell companies from those wishing to enter the Colombo Stock Exchange (CSE) without the ‘hassle’ of an IPO (initial public offering).
A shell company is basically a firm which is listed on the CSE but whose business has largely ceased. These firms allow an alternative way of going public without the lengthy, complicated procedure of a traditional IPO process, a stockbroker said. “They enable direct access to the capital market and give visibility to a company,” he said pointing out that buying such companies is one of the most expedient and cost efficient ways for a private business to start trading on the stock exchange.
Certain private companies are in need of quick capital, another stockbroker noted adding that merging with the public listed company is a faster route to raise capital from the market. He added that during 2011– 2013 there was a very high demand for such companies. “This trend is (again) really emerging.”
A third stockbroker said that there are enquiries from overseas businesses for listed share companies in Sri Lanka. “Most are looking for smaller shell companies which aren’t very expensive.”
He added that certain foreign firms are working with his company to buy potential shell firms.
An analyst pointed out that out of the 285 companies trading on the CSE, only about 75 are actively traded. “So, more or less the rest are pretty much dormant and may be up for grabs. There is a real opportunity here.”
He added that merging with the shell company is one of the best options for those seeking an IPO listing. .
However, some industry analysts are weary of shell companies. “The CSE will be making the listing process easier for firms in the future. They are planning to revamp the listing to encourage firms to make it easier and swift for them to go public without a hassle. It will be good to follow the traditional route,” an analyst said.
He said that the CSE is trying to change the approval process for IPOs and the government incentives for listing will boost firms going public this year. Stock market investment will continue to be exempt from capital gains tax, according to last year’s budget. As an additional measure to encourage stock market investment, the government proposed to include investments made in shares of listed companies up to Rs. 100,000 per month as deductible expenditures in the calculation of personal income tax.