Dec 222013

Having conducted three rounds of public consultations, capital market watchdog the Securities and Exchange Commission (SEC) last Friday issued a directive on minimum public float as a continuous listing requirement effective from January 01,2014.

As Mirror Business last week reported, the new rules will require a Main Board listed company to have a minimum of 20 percent public free float, scattered among at least 750 shareholders. Else, the Main Board listed companies should have shares having a market capitalization of Rs.5 billion in the hands of at least 500 shareholders, while maintaining a minimum public holding of 10 percent.

In the case of a Diri Savi Board listed company, the public float requirement stands at 10 percent and it should be scattered among at least 200 public shareholders.

According to SEC Deputy Director General and Officer in Charge Dhammika Perera, there will be about 70 companies out of the 288 listed companies who will have to adjust their free float to comply with the new rules.

Although the SEC may consider extensions or exemptions to the rule on a case-by-case basis if such applications were received, the regulator said non-compliance would result in sanctions by way of publication of a notice of malfeasance, suspension of trading or mandatory delisting.

Further the listed companies having public holdings below the specified levels are also required to submit a report on the current distribution of shares as at the effective date, on or before March 31, 2014 both to the Colombo Stock Exchange and SEC.

According to the SEC, the new rules were introduced with the objective of promoting a liquid and transparent market with a better price discovery mechanism.

The SEC however has provided transitional provisions for all companies already listed in the Colombo bourse which do not meet these minimum thresholds as of the effective date.

As such, a Main Board listed company should increase its public free float to 15 percent by December 31, 2015 and this must be in the hands of at least 500 public shareholders where public shareholding in not limited to shares held by the government, state pension funds and retail shareholders who are not excluded by the SEC under its directives issued on August 23 and October 11 in 2013.

In case of a Diri Savi Board listed company, a minimum of 7.5 percent of stake must be in the hands of at least 100 shareholders by the end 2015.

While SEC might grant extensions (up to a maximum of two, 12 months each) for an entity to maintain a low percentage for a further specified period, granting of exemptions will be considered provided such a lower percentage is sufficient for a liquid market, including whether there are reasonable grounds to expect the public holding to reach the required threshold at the end of the second extension period if granted.

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Dec 082013
Sampath to list debentures tomorrow
Debentures of Sampath Bank will be listed on Colombo bourse’s Main Board tomorrow.

Samapth raised Rs.5 billion in a five-year debenture issue, issuing 25 million rated, unsecured, subordinated, redeemable debentures at Rs.100 each with an option to issue a further equal amount in the event the first tranche is oversubscribed.

The issue was rated ‘A+(lka)’ by Fitch Ratings, one notch below the bank’s ‘AA-(lka)’ national rating. The bank issued two types of 5- year debentures where interest are paid semi-annually (13 percent) and annually (13.40 percent).

Oct 292013
SEC mulls minimum credit rating for debt issuances
The Sri Lanka’s capital market watchdog Securities and Exchange Commission (SEC) is currently considering the restriction corporate debt issuances which are coming with below investment grade, according to a top SEC official.

Director Capital Market Development at the SEC, Vajira Wijegunawardane yesterday told a forum that the market should not allow issuances with low ratings to be listed even in the second board as failures could damage investor confidence which sometimes could never be regained.

“This is something we are currently looking at to see whether we can restrict them,” he said, speaking at a round table discussion on the Corporate Bond Market (CBM) outlook.

According to the Colombo Stock Exchange’s (CSE) listing rules, a company can list its debt instruments in the Second Board irrespective of their credit rating. However listing in the Main Board requires the debt instrument to have the investmentgraderatingof BBB.

Be it the Main Board or the Second Board, the risk associated with the instrument is the same and thus the investors become vulnerable by investing on such low rated bonds, some analysts point out.

Another section of analysts argue that there should be debt instruments with different risk and return profiles as investors assume different risk appetites. They also said that the regulator should not regulate issuer’s rating, but the investment bankers who manage these issues.

Meanwhile, the CSE Director Vajira Kulatilaka said that unsophisticated investors could sometimes be driven more by a higher interest rate than the credit rating of the debt instrument. “In fact we insisted the minimum should be at least BBB+ and not anything below,” he remarked.

Kulatilaka who is also the CEO of NDB Investment Banking Cluster is one of the members in a committee that decides on the minimum issuer ratings.

Sri Lankan companies are currently in a debenture rush, getting the maximum benefit of the withholding tax exemption allowed on such interest income. Year-to-date, 18 Lankan companies have raised as much as Rs. 40 billion through debentures, breaking the previous highest of Rs. 15 billion recorded in 2010.

“People simply cannot bear a single debenture issue failure at this pace market growth. We have to be very careful in getting credit ratings. So, we are very careful in deciding who should come to the market,” Kulatilaka stressed. In 1996, Bangladesh suffered a debenture issue failure and the corporate debt market never recovered since then.

These comments were expressed at the International Organization of Securities Commissions (IOSCO) Asia-Pacific regional committee, CBM outreach program in Sri Lanka hosted by SEC at Colombo Hilton.

Oct 142013
Separate board to list BoI firms
Both the Securities and Exchange Commission (SEC) and Colombo Stock Exchange (CSE) are currently working on a project to lure the Board of Investment (BoI) companies into the stock market in a bid to increase the number of listings and market liquidity, according to a top capital market official.

SEC Chairman Dr. Nalaka Godahewa told last week that a separate board would be introduced in addition to the existing Main Board and the Diri Savi Board to facilitate the process.

“We have agreed to allow the BoI companies to list on a separate board without having to wait three years to list on the Main Board,” he told a business forum organised by the CSE targeting potential new listings.

Currently, a company seeking a listing on the CSE, irrespective of being a BoI or otherwise, will have to follow the existing listing rules and thus, the BoI firms do not enjoy any special treatment.

Meanwhile, CSE Assistant General Manager for Regulatory Affairs Renuke Wijewardena speaking to Mirror Business said although this is a new development, they have not finalized any rules as yet.

“This is a new thing. But we have not yet finalized any rules so far,” he remarked.

However, to this end, a policy paper has already been prepared and both the SEC and CSE have extensively discussed them.

“These policy papers have been extensively discussed both at the CSE and SEC to address all possible concerns,” Dr. Godahewa added.

According to the BoI, there are about 1,700 BoI companies operating in Sri Lanka but did not have figures as to how many are already listed on the CSE.

“But I believe most, if not all leading Sri Lankan companies such as John Keells Holdings have some of their business units established under the BoI and most of these companies are listed,” said BoI Director Media and Publicity Dilip S. Samarasinghe.

Both the SEC and CSE are currently exploring all available options to lure more companies to go public in their quest to increase the number of listed entities to 400 by 2016 from the existing 288 and to improve the market capitalization to at least 50 percent of the gross domestic product (GDP) by the end of 2016. (DK)

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