Stockmarket doings and the CSE

A group of investors has complained to President Mahinda Rajapaksa of stock market manipulation and urged the president to take action particularly on the issue of bonus shares.

In a letter, the group of 34 investors raised the issue over price manipulation saying it was diluting the government’s effort to develop investment promotion strategy and capital market development.

It said the Colombo Stock Exchange (CSE) hasn’t taken any action such as educating the investment community, conducting any awareness programme or any other such activities in respect of bonus announcement of listed companies at the time of such announcement is made. There was no clarification from the CSE whatsoever regarding these bonus issues and possible impact on the new Companies Act.

Consequently, thousands of retail investors who invested their hard earnings in the stock market have lost all what they invested since they have purchased shares at very high prices after announcing bonus issues under the old Companies Act on the understanding that approval would be granted by the CSE as per the old Act, the letter said.

For example, consequent to the 5 for 1 Bonus announcement by the Carson Cumberbatch & Co. Ltd, the share price of the company went up from Rs. 1,850 to Rs.5,000 per share, and a large number of retail investors purchased the share at around Rs. 5,000 until May 3.

“However, to everyone’s surprise, the CSE informed the respective company that the bonus issue should be as per the New Companies Act even though the Board of Directors made an announcement before the effective date of New Companies Act”.

Since the new Act does not make any provision for issue of bonus share at par value basis, the share prices of Carson went down from around Rs.4,800 to Rs.1,800, leaving a loss of about Rs.3000 per share for the retail investors.

The status of other bonus issues is also the same as above.

In view of this, investors are now reluctant to actively participate in stock market activities with the impression that the present government is not concerned about capital market development.