DEBT LISTINGS: Above investment grade rating becomes mandatory

2013-12-11 07:31:20

The Colombo Stock Exchange (CSE) announcing a series of amendments to listing rules yesterday made it mandatory for debt issues to have ratings one notch above investment grade, and completely shelved Second Board listing of debt issuances.

Hence, all future debt issuances can only be listed on the Main Board, and such debt instrument must carry a minimum credit rating of one notch above the investment grade.

Minimum par value of a listed debt instrument was also made at Rs.100, but the minimum subscription as well as any subsequent subscriptions in excess of the minimum which was brought down to Rs.10,000 and its multiples respectively remained unchanged.

The rules were made effective from December 09, 2013.

Further, any State Owned Enterprises (SOE) seeking listed debt issuances will have to be guaranteed by the government of Sri Lanka or a commercial bank having an ‘A’ rating. But that SOE’s debt instrument needs to carry only the investment grade rating of BBB.

However, the existing issuances which are already in the Second Board plus the applications received on or before the date these rules come into effect shall deem to be valid until the debt instruments are expired.

The Colombo bourse in the recent past saw few companies with their debt instruments having below investment grade ratings raising capital via listed debenture issues. But capital market stakeholders flagged their concerns over such issuances warning that one such failure could completely shy away investors from the debt market.

“In fact we went and told the minimum should at least be BBB+ and not anything below,” said CSE Director Vajira Kulatilaka who is also a member in a committee to decide the minimum issuer ratings in end October.

Year-to-date 29 entities have raised as much as Rs.45.6 billion in capital via 27 debenture initial public offerings and 2 introductions by Pan Asia Bank PLC and Alliance Finance Company PLC.

While 19 issuances already listed, the balance 08 issuances are awaiting their listing turn.

As it was not certain whether the withholding tax exemption given in the budget 2013 might be reversed by the budget 2014, Sri Lankan corporates were in a debenture rush during the second half of the year.

Sri Lanka’s Corporate debt market is projected to reach at least US $ 10 billion by end 2016.

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