CSE get even!

New stated capital rules must apply to old firms too say analysts; large number of already listed firms fall short of existing and future norms

New minimum stated capital rules applicable to IPOs from April onwards are being recommended for old listed firms as well, to ensure a level playing field and higher liquidity in the Colombo Bourse.

The Colombo Stock Exchange (CSE) last week announced new rules in terms of minimum stated capital for companies keen to list in either Main or Diri Savi Boards from April onwards.

For Main Board listing, the minimum stated capital is Rs. 500 million up from Rs. 100 million at present, whilst for the Diri Savi Board it is Rs. 100 million, up from Rs. 35 million. This move is to ensure higher liquidity, which is welcome.

However, analysts said that at present a substantial number of companies out of a total of 243 listed at present fall below even the existing minimum stated capital, while a larger number will fall below the proposed new limits from April.

Analysts warned that by mid this year the bourse would run the risk of a group of companies adhering to a stringent yet welcome new set of rules whilst a majority will continue to enjoy being under the shades of old rules. “The CSE will have to ensure that there is a level playing field going forward,” analysts said, adding that existing companies must be told to comply with higher stated capital.“The respective companies could be given a timeframe to comply with in stages or face a downgrade,” they emphasised.

The same goes to the public float as minimums aren’t maintained at present, whilst a few companies have within weeks or months seen a drastic reduction in public holding.

As per CSE notice, existing rules for public float will also apply to those who are planning to list from April.

New companies wanting to be on the main board will have to ensure a minimum public holding of 25% in the hands of a minimum 1,000 public shareholders holding not less than 100 shares each.

The CSE may accept a percentage lower than 25% if it satisfied that such lower percentage is sufficient for a liquid market in such shares.

For Diri Savi Board aspirants, the minimum public holding is 10% of the total in the hands of a minimum 100 public shareholders holding not less than 100 shares each.

What is your capital?

If one ignores the future rule of minimum stated capital of Rs. 500 million for Main Board listing and Rs. 100 million Diri Savi Board listings for IPOs and analyses the existing rule of Rs. 100 million and Rs. 35 million for respective listings, there are several who are noncompliant.

However, it must be qualified that when some the old firms listed, there weren’t stated capital rules and minimum requirements.

Furthermore, though some firms' stated capital is low, their Equity and Shareholder Funds are higher on account of retained earnings and other reserves. The following are some of the companies whose stated capital are dismally low (below Rs. 30 million) than the current Rs. 100 million minimum for Main Board and Rs. 35 million for Diri Savi. See table