The other emerging trend has been the frequency of regulatory changes issued by the Securities and Exchange Commission,the body that oversees the capital markets and the insurance companies. This time, rather out of the blues, the body relaxed some of the rules of trading and investing.
Many of them related to the controversial price band. The way the price band was imposed on many stocks and not imposed on some others, while the formula itself was kept secret, was seen as being arbitrary and not scientific. Stocks that moved up splits and takeovers saw the band being imposed on them while other shares that gained over 25% for a day for more than five (5) continuous days went scot free. Thus the move was seen by many as a way of assuaging investors who have been very vocal in their opinion of the SEC. The new directives reduced the banned number of days to ten (10) from fifteen (15). The other was to have cash up front of 50% of the value of the purchase consideration paid to the stockbroker, before the purchase was made in shares that were in the band. The other was imposing the “lock in” period of shares obtained through a private placement for a period of one year after listing. This rule will now apply only to stocks that had private placements after February 07, when the rule was brought in.
The third emerging trend is private placements and over subscriptions. Many private firms have private placements which they make preferential allotment to a few selected investors and then the company goes for a public issue which is over subscribed many times over. The recently closed IPO of Union Bank of Colombo is a good example of this.
Applications for 3.8 shares
The share issue closed on the opening day having received 225 times the shares on offer. The company offered 15 million shares at Rs.15.00 wanting to raise Rs.375 million, but received applications for 3.8 shares valued at Rs.84.4 billion. The other trend is banks fuelling the bubble in shares by giving multiples of cash put down by the investors in the form of bank guarantees for the subscription. Some banks gave Rs.350 million in guarantees to investors with just Rs.10 million in deposits. Union Bank, which is flush with cash, got into an aggressive mode, by purchasing 5.1 million shares of fund manager NAMAL for a consideration of Rs.331.5 million as it had indicated earlier. The pioneer fund manager was started by DFCC Bank with many other stakeholders including the Employees Trust Fund amongst others. Ennid Capital, owned by B.P. De Silva’s had earlier intimated that it was bidding for a 19% stake in the company and 20% was to be retained by DFCC Bank.
Other corporate actions saw Carson’s and Bukit Darah, which is the majority shareholder of Carson’s make a joint and voluntary offer to buy the public shares of Good Hope, Shalimar (Malay), Selingsing and Indo-Malay, all companies that have oil palm plantations in Malaysia. The offeree companies jointly control Good Hope Asia Holdings company of Singapore which was set up as a special purpose vehicle for the holding of the offeree companies’ holdings in the oil palm plantation companies.
The black list saw Lanka Aluminium and Alufab leave and welcome Malwatte Valley non voting shares, Ceylon Tea Services, and e-Channelling. Malwatte Valley announced a ten for one split and and e-Channelling announced a seven for one, which saw massive trading resulting in a slap on the wrist.
- Stock Market Correspondent