From rogue traders, mafia members to oblivious punters, the Colombo stock market has seen it all. It has seen unprecedented highs during the past months with certain quarters claiming super valuations while others are going gaga over reaching certain benchmarks. At this strange time when nobody wants to acknowledge negativity and do something about it, [...]

Business Times

Low free-float shares excite stock market

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From rogue traders, mafia members to oblivious punters, the Colombo stock market has seen it all.

It has seen unprecedented highs during the past months with certain quarters claiming super valuations while others are going gaga over reaching certain benchmarks.

At this strange time when nobody wants to acknowledge negativity and do something about it, investors – many new to the market since after the Columbo Stock Exchange (CSE) was digitalised last year – are riding a rally based on social media information/advice.

These are the ones who want to make a quick buck and get caught up in the manipulation by veterans in this game.

They play shares with pitifully low free-float such as Commercial Leasing & Finance PLC (CLC). Freefloat at 0.45 per cent, fingers are invariably pointed at the CSE. How is this company still listed on the CSE? The same goes for LOLC Development Finance PLC (NIFL) with a free-float of 0.11 per cent.

Kotmale Holdings PLC is another company with a low free-float of 0.49 per cent and so is Capital Alliance Finance with a 0.95 per cent free float. The key question that many right thinking analysts asked is how such companies are allowed to remain listed; why this question repeatedly comes up is a simple economy theory which is with an increase in demand for a particular company with a limited supply of shares its share price will rise. Earlier this week, the CLC share price increased by more than the entire city main index. Analysts point out repeatedly that illiquid shares are bound to see such unprecedented rallies.

Either the promoter should sell down required shares to meet adequate free-float percentages or the company should seek a delisting – none of which seems to be happening so far.

Analysts point out that these companies have been in violation of free-float rules for years, but the CSE denies it saying these companies have been transferred to the second board of the CSE for breaking these rules.

Companies that are ‘listed’ on CSE, but have never traded are AMW Capital Leasing and Finance PLC and Aitken Spence Plantation Management PLC.

These two companies claim free-floats of over 10 per cent but have never traded since listing on the CSE over a decade ago.

“This suggests that ‘free-float is not really in the hands of the public – and likely is a front for controlling shareholders,” a stock market analyst pointed out repeating the question – what is CSE doing about it?

Some promoters promote the shares based on one side of the company’s story and they usually insist all the followers be positive, he added. “If some followers raise a concern, they will block them and label them as negative people/vibes.”

Another analyst noted that these companies have a responsibility, not to be silent on this. “They need to either delist or take the right measures to issue shares. The CSE and the companies must come out with a solution.”

It is imperative that someone comes up with a solution before the CSE becomes the joke.

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