CSE awaits SOE listings to reignite market

By Chandeepa Wettasinghe
The top management of the Colombo Stock Exchange (CSE) is depending on the listing of state-owned enterprises to reignite the bourse, after two and a half years of stagnation.
“We’re hoping and praying that it will happen soon,” CSE Chairman Vajira Kulatilaka said.
He indicated that newly created funds are now active internationally, but are turning a blind eye towards Sri Lanka. “They are not yet coming here because they have not seen something they can come and invest in.  Once they look at Sri Lanka, they will look at everything. First you need to make them look at Sri Lanka. It can happen through SOE listings,” he added.
The sale of shares in around 10 non-strategic government investments is expected to generate US$ 1 billion in funding for the government, which would be used to strengthen the country’s foreign reserves and repay some of the debt. Public Enterprise Development Minister Kabir Hashim recently said SOE listings would double the market capitalization of CSE. The current market capitalization of the bourse is approximately US$ 17 billion.

Kulatilaka noted that the bourse had received massive boosts when the state listed Asian Hotels, the Distilleries Corporation, DFCC, NDB and other SOEs during the past few decades.
The main All Share Price Index peaked in August 2014 after breaking past the 7,000 point mark, but has steadily declined since, due to uncertainties created by successive elections and the inconsistencies of government policies.
Kulatilaka noted that the government has crowded out the private sector, with 50 percent of the banking sector, 70 percent of the energy sector, 80 percent of public transport, 80 percent of the land, and the entirety of infrastructure, among others, and the proposed listing SOEs would increase investor confidence in the country.
However, judging from the remarks of cabinet ministers, the government is likely to retain 51 percent of the shares in the entities.
Kulatilaka stressed that the government should push forward with reforms to commercialize the SOEs prior to listing, in order to assure investors that the government would not interfere with the running of the listed entities.
“Reforms are required. Look at what happened in former socialist countries like China, Vietnam and India. They’re thinking commercial. Singapore is also a good example where most commercial operations are owned by the government, but it gives independence to boards,” he said.
Five SOEs recently signed Statements of Corporate Intent to become more commercial minded, with more SOEs expected to follow the trend in coming years.
The government is currently drafting a bill which would help commercialize SOEs and create a holding company for all SOEs.
How soon the bill would be ready, and when the SOEs will be listed are the pertinent questions, since the current government has shown a track record of delaying promised legislation for months and years.
Meanwhile, Kulatilaka noted that large debentures and the proposed dollar-denominated board would also help increase Sri Lanka’s visibility in the international sphere.