By Uditha Jayasinghe
Attempting to encourage retail investors cashing in on the increasing number of Initial Public Offering (IPO) listings on the Colombo Stock Exchange (CSE), Ceylon Asset Management yesterday launched the Ceylon IPO Fund.
Aiming to take advantage of the large number of IPOs and the regulations of the Securities and Exchange Commission (SEC) that have reserved 10% of each IPO for unit trusts, the new fund aims to encourage retail investors towards long-term commitments in the CSE.
Insisting that the CSE – the best performing market in Asia – has great opportunities for retail investors, Bartleet Mallory Stockbrokers Director Angelo Ranasinghe told the media that the daily turnover of the CSE had almost doubled over the past year to around Rs. 2.5 billion.
Outlining other positive indicators, he pointed out that 2011 would be a historic year for IPOs, with high levels of oversubscription and new companies listing. With high post-war growth, companies are becoming keener on IPOs and Ranasinghe stressed that SriLankan Catering and Sri Lanka Insurance along with other State enterprises, unlisted registered finance companies and unlisted insurance companies would be listing this year.
“At the moment our market cap to GDP is 50%, which is a deterrent to foreign investors when compared with the rest of the region. However, it is clear that Asia has the largest share in capital markets and Sri Lanka will benefit from this,” he said.
Encouraging retail investors is important to make the market grow, observed Ceylon Asset Management Managing Director Dulidra Fernando, adding that the Ceylon IPO Fund would invest in selected IPOs and would not participate in the secondary market except to dispose shares allotted from IPOs.
“The fund ensures that the investor gets a better return on IPOs that are highly oversubscribed. In fact, our studies have shown that it is better than for a direct investor. The earnings are tax free and the all excess cash will be invested in short-term fixed income instruments that earn around 7% per annum, so at no point does the money lie idle.”
The minimum level of investment is Rs. 1,000 but can go up to Rs.10 million. Cash can be withdrawn from the fund at any time. Ceylon Asset Management has already received several offers from the Middle East, but Fernando insisted that their focus will be on local investors.