“A separate board called the BoI Board will be introduced in addition to the existing Main Board and the Diri Savi Board to facilitate this process,” he told the Business Times. He said that this will allow the BoI companies to list on a separate board without having to wait three years to list on the CSE’s Main Board as is required now.
Following a policy paper prepared by both the Securities and Exchange Commission (SEC) and CSE, the two institutions have extensively discussed with the BoI on the rules and regulations pertaining to this exercise, he added. Deputy Director General and Officer-in-Charge-SEC Dhammika Perera told the Business Times that firms will list by way of introduction where they will go public without an Initial Public Offer (IPO).
Firms with a BoI (Board of Investment) status and a capital of US$10 million are eligible to be on this board, according to the draft rules.
“We already spoke to 10 firms who are intending to set up projects in Sri Lanka and these are large scale ventures in infrastructure, manufacturing and tourism,” Dr Jayaweera said.
He said that 50 per cent of their capital should be held by the main promoters/owners for a minimum of two years. “They are (however) allowed to sell it to a foreign party (not a local party) before the two-year period ends.” Dr. Jayaweera also said that trading on these shares is limited to banks, finance companies, High Networth Individuals (those with $100,000 initial investments).
“We’re now in the process of signing Memorandums of Understanding with these companies for the intended projects and once they are signed, they will be issued with a certificate saying that they will be on the BoI Board. This in turn will help them to raise money through a private placement from all the investors,” he said, adding that they will admit about five firms initially to this board.
He said that these companies may well be able to access bank debt at favourable terms; “however, the question remains whether they should. While bank debt is a low-cost option suitable for working capital purposes, for projects where the pay-back period is long, it is best to have a mix of equity and long-term debt capital to ease the strain on a balance sheet. Raising equity trough a listing provides a company the ideal option of partnering with a set of capital providers willing to share in both the risk and reward of the project.”
By listing shares on the CSE, a BoI company can gain access to a deep pool of equity from institutional investors, both domestic and international, Rajeeva Bandaranaike, CEO, CSE said.
He added that international and local financial publications usually cover each stage of the listing process (announcing intention to float, publishing the prospectus, local/international roads shows, etc). “This heightened awareness of a company’s activities, together with the profiling of key shareholders/managers, provides what is effectively below-the-line advertising, and it enhances a company’s visibility, brand image, and prestige.”
Profits and income from investment made on or after January 1, 2013 in listed firms are exempt from income tax, but both BoI and CSE officials said that more clarity on tax concessions will be discussed.