SEC sets stage for growth

Friday, 25 February 2011 02:49 -     - {{hitsCtrl.values.hits}}

By Uditha Jayasinghe

In a bid to lay the groundwork for a growth focused 2011 the Securities and Exchange Commission (SEC) yesterday announced new regulations for price band affected companies and private placements while recording a high turnover for the first two months of the year.

SEC Chairperson Indrani Sugathadasa told the media that several regulations pertaining to the price band had been changed. Once a company has been slapped with the share price band their trading is limited for 15 days; this stipulation has been reduced to 10 days while the 50% credit issue has also been dropped enabling stocks to be bought on credit.  This will come into effect from 1 March.

Reuters reported that the SEC would introduce a minimum free float for all listed firms on the Colombo Stock Exchange this year.

Quoting the SEC Director-General it noted that lack of free float has been one of the main concerns in what has been Asia’s best-performing bourse for the last two years as many institutional investors and funds have shied away because they cannot get enough shares. “When companies get listed for the main board of the Colombo Exchange, they will have to float 25 percent of total shares, but there is no rule to prevent listed firms or related parties from buying back shares from the market.  

The SEC is now considering a regulation to maintain a minimum limit of free float after listing, aiming to increase liquidity in the bourse,” it said.

The decision will be across the board once it is taken and it is expected to be implemented in the second or third quarter this year.

“Despite the criticism from some quarters over the price band introduction we have seen the market become the best performing in the world. In 2010 the market turnover was Rs.570 billion and for the first two months it recorded Rs.127 billion. We are optimistic that this trend will continue,” stressed Sugathadasa adding that from 1 April private placement shares will have a locking period of one year. This means that transactions cannot be done for one year after the private placement has been made.

“We have noticed that sometimes those with private placement shares enjoy an advantage and we wish to control this; so this decision was taken. However since the regulation became official from 7 February it does not apply to placements before that date.

The CSE has seen foreign investors selling Rs.7 billion worth of shares this year followed by Rs.26.4 billion outflow last year. However Sugathadasa was upbeat of prospects insisting that money was not flowing out of the country and was being re-invested in other projects. She also emphasised that with a large number of Initial Public Offerings (IPOs) set to enter the market foreign investors would return. 

CSE eyes IPO growth

The Colombo Stock Exchange (CSE) is targeting a minimum of 50 Initial Public Offerings (IPOs) this year and expects several to enter the market within the next few months with at least two issues hitting Rs.5 billion.

 Securities and Exchange Commission (SEC) Director General Malik Carder told reporters that around 10 IPOs are expected to enter the market before April. He noted that at least two of them will hit Rs.5 billion with others expected to surpass the Rs.2.5 billion mark. State firms are also expected to enter the market according to Carder.

IPOs backed by bank guarantees are also “under consideration” by the regulator but the SEC Chairperson Indrani Sugathadasa pointed out that it created a level playing field by enabling small and large players to enter the market.