COLOMBO STOCK EXCHANGE
INSIDE THE COLOMBO STOCK EXCHANGE PROCESS: LISTING STAGES DISCLOSURES AND IPO APPROVALS EXPLAINED
Q: What are some compelling reasons for a company to consider listing on the Colombo Stock Exchange (CSE) rather than relying on traditional financing avenues?
A: Listing allows companies, both in the state and private sectors, to raise capital by issuing shares to the public through an initial public offering or further share issues. This offers benefits not typically seen in traditional methods of financing and helps companies diversify their funding avenues for various purposes.
Capital raised through IPOs can be used for purposes such as debt settlement – helping companies manage their gearing and debt exposure, strengthening balance sheets, and funding expansion and new business opportunities. And capital raised through an initial public offering can be used for any purpose without restrictions, provided such use operates within regulatory and legal parameters.
A listing exposes a company to a corporate governance regime that improves its stature, elevates its standing among stakeholders, and helps attract strategic investors seeking companies with strong profiles and sound governance practices.
Furthermore, a listing provides companies with greater opportunities for value creation and price discovery through secondary market trading. It also enhances corporate visibility and recognition while improving the company’s overall profile in terms of business, systems, processes and employment.
If companies feel an initial public offering is not opportune, they may instead consider an introduction. This involves listing their shares without an IPO, thereby giving existing shareholders the opportunity to raise capital when needed while allowing the entity to enjoy the associated credibility and visibility.
Q: Could you walk us through the listing process on the CSE and highlight the key stages companies should be aware of…
A: There are three key stages in the listing process.
Firstly, a company must consult an investment bank. The investment bank, known as a corporate finance advisor (CFA), must be an entity registered by the Securities and Exchange Commission of Sri Lanka (SEC).
The CFA will prepare the company for listing and arrange a valuation. It will work with the company on matters such as the timing and pricing of the IPO while also assisting in looking for potential investors and managing the issue for them.
And the CFA will also ensure that the company meets all eligibility criteria for listing on the relevant board and complies with continuous listing requirements by advising it on the necessary operational and governance structures in accordance with CSE listing rules.
Secondly, the company must submit the initial listing application to the CSE along with the other relevant documents such as the prospectus, valuation and research reports, audited financial statements and other documents.
And finally, the prospectus should be prepared in accordance with the disclosure requirements specified in the listing rules of the CSE, containing all relevant and accurate information for investors to make an informed decision. These disclosure requirements must be fulfilled up to the point of listing.
The listing division of the CSE remains committed to guiding potential issuers in presenting the prospectus to the public in a detailed manner.
Q: From your experience, at what stage of growth should a company begin to consider listing?
A: The best stage of growth would be when the public sees potential for value creation in a company – especially through its financial performance – the benefits of which can be enjoyed by public investors at large while the company establishes its internal controls and governance structures.
Q: How would you respond to business owners who fear that going public may dilute their decision making power or alter the company’s culture?
A: First, a listing decision should be done with the consensus of the existing shareholders. However, company owners need not fear loss of control or dilution as the requirement is to divest only up 20 percent – they can continue to hold up to 80 percent of control.
Therefore, companies have the freedom to determine the level at which the dilution of ownership would take place, based on the stake the company intends to issue to the public while meeting the minimum public holding requirements specified in the CSE listing rules.
Q: In practical terms, how does listing enhance a company’s credibility, visibility and long-term sustainability?
A: Listing enables a company to maintain an operating and business culture rich in strong financial practices and governance standards. Making accurate, timely disclosures to the market builds the company’s credibility, which in turn enhances visibility. Such practices contribute to achieving long-term sustainability.
Q: What are the common misconceptions and challenges companies face during the listing process and how can they better navigate them?
A: A common misconception is the belief that companies are required to disclose future business and competition strategies to the market during listing and thereafter. However, the CSE only requires disclosures that may materially impact the company’s share price.
Another misconception concerns the length of the approval process. The CSE has recently concluded equity IPOs within a span of one month. The timeline largely depends on the comprehensiveness of the prospectus and the research reports or valuations submitted.
Companies can avoid delays by ensuring documents conform with the disclosure requirements set out in the CSE listing rules from the outset.
Q: Given that CSE has introduced several changes to its listing rules over time, could you outline some recent developments aimed at making the listing process more accessible and efficient?
A: The CSE has introduced rules enabling companies listing on its Main Board and Diri Savi Board though introduction, which do not meet the applicable minimum public holding requirements, to benefit from phased compliance.
In addition, to encourage shariah compliant debt securities, the required minimum number of accredited shariah scholars has been reduced to two. Several other developments are also expected to be introduced shortly.
Q: And finally, what is your message to Sri Lankan businesses that are still on the fence about listing – especially in the current economic climate?
A: Listing on the CSE has contributed to the success stories of many corporates in Sri Lanka while also providing companies with opportunities for capital raising at a comparatively lower cost of capital.
With the recent introduction of listing platforms – including the multi-currency board for foreign entities, and facilities on the main and Diri Savi boards for local firms – to raise foreign currency, combined with relaxation of rules, listing on the CSE can be considered the preferred choice for capital raising in Sri Lanka.
– Compiled by Prashanthi Cooray
INTERVIEWEE DETAILS
Kanishka Munasinghe
Vice President – Listing
CONTACT DETAILS
Telephone: 2356456
Email: info@cse.lk
Website: www.cse.lk
