Financial Times

Govt. urged to list stakes in SLPA, CPC to boost market size
By Duruthu Edirimuni
The government should take steps to improve the size of the capital markets and stimulate investment in the country by bringing in larger issues such as the Sri Lanka Ports Authority (SLPA) and Ceylon Petroleum Corporation (Ceypetco), an investment professional said last week.

Asanga Seneviratne, head of the Stockbrokers Association, told The Sunday Times FT it is a concern that overall size of the market has not risen significantly. "For a very long time the market capitalisation has been in the range US$ 3.7 billion," he said, adding the market needs to have larger initial public offering (IPO) issues to augment its size.

He said the onus is on the government to introduce more companies to the stock exchange so that it will help attract more international players. "At the moment a lot of international players are constrained from investing in small capital companies, because without an issued capital of about US$ 50 million they are not allowed to participate in the Colombo Stock Exchange (CSE)," he explained, adding there are liquidity issues as well.

"Despite the stock market picking up during the last two years, the funds are still cautious in their approach because they know the past and now we see a very few fund managers like Arisaig, Stewart Ivory, Aberdeen and Emerging Market Management involved in the CSE," he said.

Seneviratne, also CEO, Asia Capital Ltd, said, "had Sri Lanka Insurance Corporation (SLIC) sold 60 percent and done a listing with the rest it would have increased the market capitalisation by a significant amount." He emphasised the government must initiate the capital market development.

He said there was a revival in the stock market when Sri Lanka Telecom (SLT) came in, which was synonymous with NDB and DFCC issues. "We are looking at the port and the Petroleum Corporation coming in, but with divisions in the UPFA government policy it doesn't look possible," he said.

He said the LIOC issue was well received in the market. "It came at a discount into the market and stimulated the market," he said, adding hopefully it will continue to spill over to the secondary market.

"In my view it is much easier to attract investment through listed entities because people feel much more comfortable and they understand how these investments work much more," he said, adding this method is much easier than attracting FDI. Seneviratne said it is a concern there does not seem to be any big IPOs lined up at the moment. "We have taken it up with the Minister of Finance," he said, adding the government has to collectively support this cause.

Seneviratne said many people who are not aware and educated in capital markets feel it is a quick gamble or easy money. He said this has to be changed. "The employment and the wealth created through capital markets is enormous and it can be a major contributor to the economy," he said, adding that for graduates the stock market is an ideal forum for job creation.

He said the Finance Minister, Dr. Sarath Amunugama, was instrumental in preventing a major crisis in the capital markets by doing away with the proposals regarding capital gains and the turnover tax brought by the previous government. "The capital gains tax is unheard of in Asian countries," he said, adding the transaction-based tax, which is in force now is very effective, easy to collect, understand and monitor.

About the dialogue the Stockbrokers Association and the Colombo Stock Exchange (CSE) is having, he said a majority of the stockbrokers had an issue about the CSE not being proactive and being lethargic.

"We felt that CSE should develop new instruments and the deficiencies in the trading system were also an issue," he said, adding the new ATS version 4 is expected to perform better than its predecessor, version 3. Seneviratne said the trading time was increased by an hour from 10 a.m. to 1.30 p.m. through these discussions with the CSE.

At present the two entities are focussing on demutualisation, which means distributing the shares among the members of the CSE.

The 15 members of the CSE feel there is not enough business to allow more members in. Seneviratne said after the demutualisation, which is about one and a half years away, the exchange will grant more membership licenses to stock brokering companies.

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