By Chandeepa Wettasinghe
New regulations proposing to grant exemptions for the current minimum public shareholding rules have been proposed due to a stagnant bourse, the Colombo Stock Exchange (CSE) officials said.
“When we did the (earlier) regulations, why it was done by the Securities and Exchange Commission (SEC) was because, to get into indices, we needed floats. We needed around four John Keells type of companies. Now the situation has changed. We can’t force people to give up their holdings in a low market,” former CSE Chairman Vajira Kulatilaka said.
Public floats promote liquidity and lower risks and abuses in a market, which were also among the reasons the SEC cited for bringing in tighter public float regulations.
Speaking to Mirror Business just before the end of his term in office, Kulatilaka said the earlier minimum public float regulations were conceived during a bull market.
“We have to be very careful when forcing somebody. When it’s a growing market, it’s a different story—now the market is down, valuations are too low for them to get out, so we have to respect those decisions,” he said.
Kulatilaka added that companies are not even willing to offer new shares to raise funds at lower rates.
“I for one think if the country was growing at 7 percent and if the companies were growing at 30 percent, they would come here for money. But the problem is that growth has slowed and companies are not growing as much as they would like,” he added.
Under the new proposals to amend the listing regulations published by the CSE last month, is a proposal for the CSE to be given the power to waive the application of any of the minimum public shareholding rules to any listed entity or any class or category of listed entities under ‘exceptional circumstances’ in consultation with the SEC.
CSE Chief Operation Officer Renuke Wijayawardhane said over 60 companies are currently not compliant with the public float regulations.
The SEC relaxed the public float requirements last November, just one month before the end of the grace period for the regulations, which were introduced in 2014, and provided an extra six months for companies to comply with the latest relaxed regulations.
At least two companies delisted, seven announced their intentions to delist and a score of others downgraded to the secondary board of the CSE in the lead up to the relaxation of the requirements.
The Carson group, which announced its intentions to delist four overseas oil palm plantation companies worth nearly 2 percent of the CSE’s market capitalization, said it was in discussions with the regulators on actions to take in the future regarding the public float.
Kulatilaka said the delisting trend raised some red flags for the regulators and facilitators.
“There was a delisting trend that was coming, that also we can’t afford to have. We need companies to be listed here, so it was a big dilemma,” he said.