The Colombo Stock Exchange (CSE) is expected to see the number of listed companies rising to at least 400 by 2016 from the existing 287. This will address the lack of liquidity, which has been the biggest issue in the Sri Lankan stock market, according to the top most official in the country’s capital market regulator.
“One of the biggest issues we identified while drafting our capital market development road map was the lack of liquidity in the market. So, we wanted to identify why companies were not floating and then started the facilitation process, relaxing certain barriers and providing incentives as reflected in the 2013 Budget,” said Dr Nalaka Godahewa, the Chair man of the Securities and Exchange Commission (SEC).
The Budget 2013 proposed to offer a threeyear half tax holiday for new companies that would be listed on the CSE before December 2013 and maintain a minimum of 20 percent of its shares with the public.
Addressing the 12th LBRLBO CFO Forum on ‘Sri Lanka Capital Market: Opportunities and Challenges’, Dr Godahewa said unlike in many other countries, 95 percent of the Lankan capital market revolved around the CSE and in that also, listed companies consists of only less than 5 percent of the operationally active companies in the country.
Meanwhile, Lloyd Fisher, an emerging markets investor, representing the foreign investors said that they perceived Sri Lanka as neither an emerging market nor a frontier market but somewhere in between.
“But for us, lack of liquidity is the biggest problem we face in the Sri Lankan market. If someone gets in (invest), he should also be able to get out as well,” Fisher noted.
Joining in the panel discussion was the Chairman of the Softlogic group, Ashok Pathirage, who said the country’s equity market was not geared to absorb large Initial Public Offerings (IPOs).
“This is particularly evident in the secondary market and we realized this when we first went to the market to raise Rs.4 billion in 2011,” he said.
Dr Godahewa is also of the view that many successful private sector companies operating in the country are not convinced of the windows of opportunities available by floating and also said that the existing listed companies too should be encouraged to increase the free float.
“The government is also opening up for the recommendation for listing state-owned enterprises (SoEs) as the policy of the government is not privatization. What I believe is listing will ensure greater transparency and better governance of these SoEs.”
As of end-2012, the market capitalization of the CSE stood at Rs.2.2 trillion or US$ 18 billion, one of the smallest in the world. The contribution to the economy was also less impressive of the capital market as it has only 30 percent of the GDP. This is in stark contrast to countries such as Malaysia (160 percent) and Singapore (250 percent), where the capital market is larger than the size of the economy.
During the five years to 2012, the number of listed companies in the CSE increased only by 52.