De-listing not the answer to Sri Lanka companies below 20-pct public float: official

COLOMBO (EconomyNext) – Sri Lanka’s Colombo Stock Exchange will not force companies to de-list if they fail to meet a 20 percent minimum public float requirement newly imposed by regulator, a top official said.

The coercive rules advocated by interventionists, which critics say are tighter than several developed markets especially in the US, are due to come on line next year.

"If they do not conform, they would probably be given a little more time to come up with a plan," CSE Chief Executive Rajiva Bandaranaike said.

"De-listing itself would not be an answer, for the simple reason that there are shareholders, and it may not be advisable for companies to de-list merely for that reason."

He was responding to questions at a recent press briefing.

"We are actively engaging listed companies on how they can conform to the minimum public float requirement," Bandaranaike said.

"We are talking to them right now, the regulator is talking to them, so as to arrive at conformity or compliance with the rules."

The rules were imposed before Bandaranaike took-over as Chief Executive, following a process of public consultation.

Critics say the even New York Stock Exchange’s continuing listing criteria (Rule 802.1A) for distribution is less stringent than that of Sri Lanka’s.

At NYSE Euronext a company’s free float can be less than 5 percent of market cap if the volume is greater than 5 million Euros.

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Some of Sri Lanka’s large companies, including multi-nationals have small public floats by percentage but the total volume is equal to several of listed companies put together.

Analysts say big companies are large, because they do certain things right over long periods and can also withstand economic shocks over time, and listing them even with a smaller public float should be encouraged.

At the Hong Kong Stock Exchange a large company can even go for an Initial Offer with a 15 percent public float if the total market capitalization is high.

Freedom advocates say most draconian interventionist rules usually originate in Europe, which are followed by control-happy jurisdictions elsewhere. However the opposite does not happen especially in developing markets.

Europe has also take longer to recover from the last burst credit bubble than the US due to many regulations, classical economists have pointed out.

Unlike in countries like the US, there are no other regional stock markets in Sri Lanka for de-listed companies to move to. There are also no over- the-counter trading boards.

Instead analysts say Sri Lanka should discontinue the All Share Price Index as soon as possible, create a different benchmark index using the public float as one criteria if necessary, and a separate second board index like other markets.

 

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