Market regulator tells listed firms ready to be flexible over timelines

But stresses public float should be maintained

By Chandeepa Wettasinghe

Capital market regulator Securi t ies and Exchange Commission (SEC) will be flexible in terms of extensions and implementing alternative regulations to the minimum public float rules as a requirement for continued listing, which is essential for a more liquid market.

“The commission is flexible with regard to timelines but would like to maintain the public float which will have wider benefits to our market as a whole. For a fair, transparent and efficient market, public float is essential. Then price manipulation and abuse is less,” SEC Director General Vajira Wijegunewardene said.

He was speaking at the ‘Minimum Public Float: An Open Discussion’ forum organised by the SEC.

SEC Chairman Tilak Karunaratne said that there would be no amendments to the percentage of public float.

“PLCs will have to support us and we will support you but we have to stop splitting hairs over percentages,” he said.

SEC Commissioner Ranel Wijesinha said that instead of timeline extensions, the regulator would welcome alternative regulatory suggestions similar to the market capitalization requirement, which was included in the original regulations.

Under the public float requirement, the main board companies should maintain a 20 percent public float all the time spread among 750 shareholders or a 10 percent public float representing Rs.5 billion market capitalization spread among 500 shareholders, while the secondary board companies should have a 10 percent public float among 500 shareholders.

The rule was implemented after consultations with the International Organisation of Securities Commissions and consultations with most listed companies which had begun in 2010.

Wijegunewardene said that the companies had all supported the regulation then and most of their requests were acceded. The regulation was enforced in January 2014, with all companies who were non-compliant being awarded an extension till December 2014 and further extensions till December 2016 in a case-by-case basis.

However, currently, 20 percent of the entities in the main board and 35 percent of the entities in the secondary Diri Savi Board are noncompliant with the regulation. Seven companies have delisted since the implementation of the rule, although at least two have been over reasons not connected to the rules. Numerous companies have moved to the secondary board, while more are contemplating delisting or demotion, threatening investor confidence in the bourse.

Wijegunewardene said that at least 40 companies have written saying that they would like to comply but forces beyond control are limiting them. “We don’t like to see companies delist. Please comply, but we would welcome your representations. Please send to us in writing before too long. If there are any compelling reasons, we would consider it,” he said. Keells Consultants (Private) Limited’s Nadija Tambiah, while lauding the rules, said that John Keells Holdings had found the current illiquid state of the market too wanting to divest shares in its listed subsidiaries, whose share valuations had not factored in the performances and potentials of the companies.

“If you want to time it to get the right value, this is not the right time for it. The investors may have some valuation in mind, which might not be possible at this moment,” Colombo Stock Exchange Chairman Vajira Kulatilaka said. Karunaratne noted that the market might pick up in 2017 with increased investments coming from China, giving a window to divest shares with higher realizations. Wijesinha requested the majority owners who are unwilling to sell down shares anytime in the future to consider delisting within a year of the deadline. “Forcing delisting will affect our credit ratings and give us a black mark.

Don’t compel the regulator to forcefully delist you. Either delist yourself or make right the numbers,” he said. He added that foreign investors would be attracted by the greater public float. Most stock exchanges in the region have a minimum public float rule of 25 percent which has been implemented since their inception.

Singapore has a 10 percent requirement, while Bangladesh has a 30 percent requirement. Sri Lanka too has had a minimum public float requirement since its start in 1985. However, Wijegunewardene said that companies, following their Initial Public Offerings, had made use of a loophole in the rule, which does not mention it as a requirement for continued listing.