CSE mulls minimum 20% free float requirement

10 September 2013 03:29 am - 0     - {{hitsCtrl.values.hits}}

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The Colombo Stock Exchange (CSE) is considering the implementation of a minimum 20 percent public float requirement, a top CSE official said.

Speaking during an interview with Euroweek on the sidelines of a roadshow in Hong Kong, CSE Chairman Krishan Balendra stated that a drastically increased minimum public float is being considered in order to combat illiquidity in the market.

“Right now we’re seeing that the Sri Lankan market is fairly illiquid because most companies only have a free float of 5 percent or less.

The Securities and Exchange Commission is currently looking to introduce a minimum free float requirement of 20 percent in the next six months, which will affect t he existing listed companies as well,” Balendra was quoted as saying.

Balendra added that the risk of short-term volatility would be outweighed by the potential benefits of improved market liquidity.

While admitting that the prevalent illiquidity allowed Sri Lanka to emerge relatively unscathed from the recent outflow of foreign capital from emerging markets, Balendra had reiterated that liquidity must improve in the long run with the risk of short-term volatility being outweighed by potential benefits.

He went on to state that Sri Lanka is emerging as a viable investment destination with many foreign investors taking an interest in Sri Lankan equities.

“In the first half of 2013, the market was driven mostly by strong foreign inflow in which 65 percent came from investment funds that are investing in the country for the first time.

Four years ago, you’ll be lucky to have one or two foreign investors visiting Sri Lanka in a year. Now we’re seeing three or four, so it’s a big change,” Balendra was quoted as saying.

The CSE’s market capitalization currently stands at approximately 30 percent, comparatively low to regional peers such as Thailand and the Philippines with 77 percent and 87 percent of the GDP, respectively.
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