SEC considering extension for mandatory public float

From left: SEC Commission members Lasantha Wickremasinghe, Ranel T. Wijesinha, Suresh Shah, Chairman Thilak Karunaratne, CSE Chairman Vajira Kulatilaka, SEC Director General Vajira Wijegunawardane, CSE CEO  Rajeeva Bandaranaike and COO Renuke Wijayawardhane

By Shehana Dain

With nine months ahead of the deadline and amidst a dampened Colombo bourse, the nation’s securities regulator yesterday declared its intentions to extend the deadline in compliance of the minimum public float regulations. 

The Colombo Stock Exchange (CSE) has been going through an extensive value wipe out over the past year while companies in the main board find it difficult to sell down shares for the sole purpose of a public float requirement. 

According to the Securities and Exchange Commission Director General Vajira Wijegunawardene the commission received requests from over 40 companies asking for further time to be compliant, thus far 98 PLC’s in the main board are within the guidelines required by the minimum float regulations. 

Noting that minimum float regulations are a must to revamp the CSE the SEC Chairman Thilak Karunaratne said: “The market has to develop, for example markets that were way behind ten years ago like Bangladesh, Vietnam and Pakistan have gone far ahead of us. For the last thirty years we have been stagnating except for the pump and dump boom period. If they need more time the possibility always exists to get the market to move. If there is an extension required we will look at it and there is no issue at all.” 

Karunaratne who made these remarks at an open discussion on the minimum public float organised by the SEC on Wednesday, pointed out that in the absence of the minimum float requirement, foreign investment will not come into the country via the stock exchange.

 “All the countries around the world are looking for foreign investors it’s not only we who have to show them that there is something interesting in the market which we have failed to show yet.”

Addressing the gathering CSE Chairman Vajira Kulatilaka noted that the persistent illiquidity in the market is predominantly a deterrent for companies to accommodate mandatory public float rules.

 “As it is valuations are different the market was in a completely different place than what it is now. If we are to time it and get the highest possible value, now might be the correct time to do so. I don’t think any shareholder will like to take their shares to the market at lower prices, they have their own valuations in mind and they would like to have it.” 

Additionally the SEC Chairman highlighted that there is a high possibility the much debated capital gains tax will not return to the picture anytime soon.

 “If you see the capital gains tax we lobbied against it heavily and they agreed to pause it for six months but I’m sure that it would be removed,” he added. 

In comparison minimum public holding in stock exchanges such as Bursa Malaysia, Hong Kong, India, Pakistan and UK are at 25% while Bangladesh is 30% meanwhile Singapore stands at 10%. 

However Bank of Ceylon Director Ranel T. Wijesinghe stressed that currently in Singapore which is the only capital market where one cannot list a company in more than one exchange, the public float is 10%. Therefore it’s not necessarily a benchmark. 

The minimum public float directive was issued to create a critical mass of quoted shares which in turn generates capital value for foreign portfolio investors. Thus far net foreign outflows in the stock market for the year have reached up to Rs. 2.63 billion primarily as a result of the fed hiking interest rates depicting a more attractive proposition. 

Currently the Colombo bourse is a frontier market and to attract foreign investors CSE has to elevate its position to an emerging market status. In order to up the game the stock exchange needs three companies with a free float market capitalisation of $ 500 million.

– Pix by Lasantha Kumara