SEC approves regulatory framework for Infrastructure Bonds
View(s):To promote both foreign and local investments in infrastructure projects contributing to the economy and development of the country, the Securities and Exchange Commission (SEC) on January 2 approved a regulatory framework enabling issuing, and listing of Infrastructure Bonds on the Colombo Stock Exchange (CSE).
Infrastructure Bonds aim to raise capital for vital projects such as roads, rail, water management, waste management systems, airports, seaports, mixed development projects, natural disaster protection systems, deep water ports, gas supply systems, utility projects, telecommunications infrastructure, etc which are integral to economic growth and sustainability.
This initiative reflects SEC’s commitment to creating an enabling environment for long-term investments in infrastructure projects that support the nation’s economic growth and development, Chairman SEC, Faizal Salieh said. “The misallocation of capital is a root cause of our economic crisis. It is our objective to enable instruments that can raise long-term capital for development projects and provide investor assurance that such capital is allocated to the project’s stated purpose with transparency and accountability. We have now created an opportunity for Government bodies such as Municipal Councils, Urban Councils, Local Government Councils, the Urban Development Authority, etc., and even large private sector companies to finance infrastructure projects through these bonds.”
These are issued based on a concession agreement or public-private partnership agreement and are not strongly affected by fluctuations. The main buyers of these bonds are institutional investors such as pension funds, insurance companies, and credit institutions.
Sri Lanka must develop a market for Infrastructure Bonds and raise the long-term capital needed for infrastructure projects, SEC officials said. The scope of infrastructure development in emerging economies has evolved significantly in recent decades and now includes a range of traditional infrastructure projects such as power, oil and gas, and water as well as low-carbon, climate-resilient infrastructure such as renewable energy projects.
The SEC had carried out a study of comparable jurisdictions that had successfully used Infrastructure Bonds listed in the capital market to finance major development projects of their respective governments.
The introduction of infrastructure financing products is part of the regulator’s capital market reforms agenda and is strategically designed to propel the capital market to new heights and contribute significantly to its growth and sustainability. The CSE is expected to market this product actively among potential issuers.
The regulatory framework for Infrastructure Bonds has provisions to ensure investor protection, stringent due diligence, disclosure, and reporting requirements for issuers to keep investors informed on the performance of the infrastructure projects, utilisation of proceeds, and risk factors on the infrastructure projects as well as enforcement procedure for non – compliance with the regulatory framework.
Disclosure requirements include details of the project in which the capital raised is deployed or allocated, progress updates on how the project fulfills its core purpose and objectives and benefits to the public at large, and any deviations in the use or allocation of the capital proceeds.
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