Experts opine sector-centric SL firms have brilliant potential for cross-border listings

By Charumini de Silva

Capital market industry experts opined Sri Lanka has some brilliant sector-centric companies that have the potential to go for cross-border listings, but insisted it was critical to position the country’s jurisdiction to enable this.

“There are many Sri Lankan companies that have the potential to go for cross-border listings. Certain sector-centric companies such as retail and healthcare companies can do it brilliantly,” Softlogic Group Head of Investments Niloo Jayatilake said at a panel discussion at the 6th Capital Market Conference 2018 titled ‘Transform’ organised by UTO EduConsult in Colombo.

She said the best case study for Sri Lanka has been the listing of Virtusa in the Nasdaq. “It was an amazing journey in takingVirtusa there and listing. No offense to the CSE, but if they decided to list in Sri Lanka, they wouldn’t have got the valuations they command now.”

“If you see the multiples of some of the retail companies in Asia, it is huge and similarly Sri Lankan retail companies can go to Singapore or to other Asian markets to get multiples – similarto what Virtusa did with the IT-based company and listing on the Nasdaq. Sri Lanka’s healthcare companies can also do the same,” she added.

Considering the healthcare multiples in Singapore or India for that matter, she said it was relatively double the value of what Sri Lankan multiples command. Thereby she encouraged sector-centric companies to go out and experience this journey. 

Jayatilake highlighted the fact that cross-border listing also enhances company’s brand equity and expansion plans regionally.

However, while encouraging sector-centric companies to go for cross-border listing opportunities, she did not support diversified conglomerates to do so.

High costs and regulations were pointed out as major hindrances for cross-border listings for Sri Lankan companies.

“Cross-border listing is a huge initiative. The costs are high and also the regulation is high in those markets. So you have to build scale in these companies in Sri Lanka itself to take a company overseas,” she emphasised.

Jayatilake also tipped there were a few companies that would soon go and explore such opportunities.

“Although it is a harder journey, I am very confident that you will very soon see some of these Sri Lankan companies going and exploring, matching their business model in their expansion plans regionally who would be looking to do cross-border listing,” she added. 

Noting that Sri Lanka was a small market, she said it was harder for the local firms to build scale than an Indian company going and listing in Singapore or elsewhere.

Candor Equities Group CEO and Director Ravi Abeysuriya said despite stakeholders lobbying the Government to allow Global Depositary Receipt (GDR) and American Depositary Receipts (ADRs) in the last Budget, the request was not accepted.

“Politically Sri Lanka doesn’t have the space or the will to take most of the action required for the development of the capital market. It didn’t get acceptance, may be they didn’t understand,” he quipped.

He said the companies needed a little bit of regulatory support to allowa dual listing mechanism, which would enable firms to list there and also be available in Sri Lanka at the same multiples. 

Abeysuriya stressed that there were several companies that were interested in facilitating these mechanisms.

In agreement with both speakers, Colombo Stock Exchange (CSE) Chief Executive Officer Rajeeva Bandaranaike said: “Sri Lankan companies need scale and size. The level of compliance is high and it’s expensive. I think it made a lot of sense for Virtusa to go to Nasdaq because its clientele was overseas.”

In terms of dual listings, he said they were coming up with the multi-currency board enabling local companies to raise capital in dollars both in debt and equity and also to encourage companiesincorporated outside to use the board to raise capital. 

“We are targetingcompanies in the Maldives and the proposal is with the regulator for approval. We have got Central Bank approval, but we need Securities and Exchange Commission (SEC) approval. If we can get that, Sri Lankan companies can also come into the multi-currency board and raise capital in dollars,” Bandaranaike stated.

NDB Zephyr Partners in Sri Lanka Managing Director SenakaKakiriwaragodage said other than the traditional high compliance and high cost involved, it was critical to position Sri Lanka in the global map to allow cross-border listing.

“I was looking at a couple of other jurisdictions for overseas listing for one Sri Lankan company in Hong Kong. They have a list of allowed jurisdiction countries where those companies could be listed in Hong Kong, but Sri Lanka was not there,” he pointed out.  Kakiriwaragodage said as a country Sri Lanka was not accepted to be listed in those countries.  “I think this is one of the initial hurdles and that’s the positioning of the country. The jurisdiction needs to be accepted first by the market, which is going to be a long-term task. So, what companies practically do isheadquarter themselves in US or Singapore. I think country positioning is very important and that was a key challenge I think is a more macro reason than a micro reason,” he added.

Pix by Lasantha Kumara