The Colombo Stock Exchange's (CSE) amendments to the existing listing rules for firms hoping to go public have identified an investor protection mechanism where firms must show a clean balance sheet before going public, according to analysts.
"The new rules say that if a listing hopeful's liabilities are greater than its assets that it cannot go public, which is also saying that one must clean up its balance sheet before approaching the public for money," an analyst pointed out.
The CSE says this was mainly done in a bid to raise the bar for listing and also beef up the liquidity in the bourse. "The CSE reviewed listing rules and tried to bring in best market practices by amending them," Surekha Sellahewa, CEO CSE told the Business Times.
Rules pertaining to the eligibility criteria for listing on the Main Board and Diri Savi Board were amended by the CSE last week.
These rules say that to be listed on the Main Board of the CSE, a firm’s stated capital has to be more than Rs 500 million (earlier Rs 100 million) at the time of listing and the firm needs to have posted positive net assets as per the consolidated audited financial statements for the last two financial years immediately preceding the date of application.
“These rules with regard to assets say a lot about a firm’s duty to be accountable when approaching the public for money,” the analyst said. He noted that earlier companies with negative net assets could go public, raise monies and then clean up their balance sheets. “But with the new rules, the investing public is protected in that they will not give their monies for non performing firms with bad accounts,” the analyst added.
CSE stipulates that a minimum public holding of 25% of the total number of shares for which the listing is sought has to have a minimum number of 1,000 public shareholders holding not less than100 shares each. “This will enhance the liquidity, which is already a major issue in the market,” Mrs. Sellahewa said.
Further the rules say that the CSE may accept a percentage lower than 25% of the total number of listed shares if the CSE is satisfied that such lower percentages are sufficient for a liquid market. The rules on Diri Savi Board say that a firm’s minimum stated capital has to be more than Rs 100 million at the time of listing (earlier 10%) and that it’s net assets should be positive for the financial year immediately preceding the date of application.
The listing percentage should be 10% and a minimum of 100 shareholders holding not less than 100 shares each is specified while the company should have at least a history of one operating year.