Sri Lanka relaxes minimum public float rule

ECONOMYNEXT – Sri Lanka’s capital markets regulator has decided to relax rules for listed companies to maintain a continuous public float of 20% by end-2016, after finding a high degree of non-compliance and several firms delisted.

The Securities and Exchange Commission (SEC) said new public holding thresholds with a wider range of options to comply with would come into effect from 1 January 2017.

A grace period of six months extending up to 30 June 2017 will be granted for listed companies to comply with any one of the revised thresholds, it said in a statement.

“The revised minimum requirements will replace the current listing criteria applicable at initial listing both on the Main Board and on the Diri Savi Board. The revised Rules recognise the contribution made to liquidity from both the free float market capitalisation of a company and its public holding.”

The SEC said the main reason for non compliance with the original rule was attributed to the limited options afforded in the rules for companies to comply with the public float requirements.

“A Minimum Public Float is generally prescribed for the purpose of increasing capital market liquidity and to ensure that the general public gets an opportunity to invest in Listed Companies and share in the wealth produced by such entities,” the SEC said.

“Furthermore, it has been observed that the greater and more divested the public holding, the lesser is the potential for market abuse and greater will be the opportunity to attract investors to the market.”

The full SEC statement follows:

A Minimum Public Float is generally prescribed for the purpose of increasing capital market liquidity and to ensure that the general public gets an opportunity to invest in Listed Companies and share in the wealth produced by such entities. Furthermore, it has been observed that greater and more divested the public holding lesser is the potential for market abuse and greater will be the opportunity to attract investors to the market.

In 2013, the Securities and Exchange Commission (SEC) subsequent to a number of public consultations, directed all Listed Public Companies to comply with the Rules on Minimum Public Float on a continuous basis. Prior to this Directive, even though Listed Companies had to comply with Public Float requirements at the point of listing, there was no mandate for companies to continue maintaining a threshold Public Float requirement. This requirement to maintain a Minimum Public Float was introduced with a view to improving the low liquidity levels prevalent in the market. Listed Companies were granted a period of 3 years to comply with the Minimum Public Float requirements specified both for the Main Board and Diri Savi Board.

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Subsequent to a follow up workshop organised by the SEC to discuss issues faced by Listed Entities to meet the Public Float requirements on a continuing basis, a review of the status of compliance was conducted by the Colombo Stock Exchange (CSE). The study by the CSE found a high incidence of non-compliance among Listed Entities. The main reason for non compliance was attributed to the limited options afforded in the Rules for companies to comply with the Public Float requirements.

Taking the views of the market into consideration, the SEC in consultation with the CSE decided to review the Rules. Subsequent to such review the SEC decided to revise the Minimum Public Float requirements to provide Listed Public Companies with a wider range of options to comply with the Rules without compromising the objective of the Rule.

Accordingly, the following revised Public Holding thresholds were adopted and will be effective from 1 January 2017. A grace period of 6 months extending up to 30 June 2017 will be granted for Listed Companies to comply with any one of the revised thresholds as detailed in the tables below.

Further, the revised minimum requirements will replace the current listing criteria applicable at initial listing both on the Main Board and on the Diri Savi Board. The revised Rules recognise the contribution made to liquidity from both the free float market capitalisation of a company and its public holding.

The free float market capitalisation or the float adjusted market capitalisation is computed by multiplying the Public Holding percentage of a company by the market capitalisation of such company.

Revised Thresholds for Compliance – Main Board of the CSE
OPTION                        MINIMUM THRESHOLDS FOR COMPLIANCE
                    Float-adjusted Market                                                
                    Capitalisation              Public Holding Percentage  Number of Public Shareholders

1                        Rs 10 bn                                    –                                              500
2                        Rs 7.5 bn                                  5%                                           500
3                        Rs 5.0 bn                                  7.5%                                        500
4                        Rs 2.5 bn                                  10%                                         500
5                               –                                          20%                                         500

Revised Thresholds for Compliance – Diri Savi Board of the CSE

OPTION                        MINIMUM THRESHOLDS FOR COMPLIANCE
                   Float-adjusted Market
                   Capitalisation              Public Holding Percentage  Number of Public Shareholders

1                          Rs 1 bn                                    7.5%                                          200
2                                –                                          10%                                           200
 
(COLOMBO, Nov 17, 2016)
 

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