Long wait for new rules; likely to pose problems for select big cap firms
Monday, 23 December 2013 01:57
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The long-awaited new rules are likely to impact firms with high market capitalisation.
For example, whilst a new rule requires Main Board firms to have 20% held by minimum of 750 shareholders, third largest with market capitalisation Nestlé’s public float is only 9.18% but has 5,649 shareholders. Second largest stock Ceylon Tobacco is also below the 20% threshold with a public float of 15.87% but has 3,742 resident shareholders though holding a 3.7% stake.
The popular Dialog Axiata’s public float is 14.73% but has a high shareholder base of 22,194. Conversely, SLT has 12,807 resident shareholders but overall public float is only 5.5% AIA Insurance’s public float is mere 2.85 but has 2,300 shareholders (2,175 individual local shareholders with 4.58% stake as at end 2012). Some companies such as Finlays are clearly noncompliant. Finlays has only 645 shareholders and its public float is a mere 2.89%. The new definition of public will also require all firms to review their respective shareholding and more firms could fall below the minimum requirement. The biggest problem for SEC and CSE will be to activate companies which have a higher public float but hadn’t traded for months or years.
The specification of Rs. 5 billion of market capitalisation in the hands of 500 shareholders, one of the two requirements for minimum float for main board firms will be contentious as well.
The final directive from the SEC comes after multiple consultations starting from 2010.
"Selected stocks: Top firmsCompany Public floatCTC 15.87%Nestle 9.18%Dialog 14.73%SLT 5.52%Finlays 2.89%Union Assurance 4.34%"
Originally the SEC had a Consultation Paper No. 6 dated 24 September 2010 and thereafter a ‘Draft Rules on Minimum Public Float as a Continuous Listing Requirement’ (Consultation Paper No. 8 dated 8 July 2011).
In September 2013, the SEC further revised for the third time and developed the set of draft rules on a minimum public float as a continuous listing requirement and public consultation was ended in mid-October 2013.
Based on inputs, there were few changes from the final draft. For example, what was proposed for Main Board firms is 20% held by 1,000 public shareholders whereas last week’s directive had reduced the latter to 750.
