Foreign currency-denominated shares soon for investors
Local companies, exporters who seek foreign currency capital to benefit
Implementation pending SEC approval
By Shenal FernandoThe Colombo Stock Exchange (CSE), which saw a number of Initial Public Offerings (IPOs) this year that were oversubscribed on the opening day itself, is now planning to introduce a new form of stock market listing: Dollar or multi-currency listing.CSE Chairman Dumith Fernando, speaking to The Morning Business, stated that the new form of listing is part of their roadmap and added that CSE is hoping to allow local companies, particularly exporters who are seeking overseas currency capital, to utilise multi-currency listing for listing in the multi-currency board.Dollar listing or multi-currency listing permits local companies to access a diversified pool of investors where shares of foreign companies can be listed and traded in Sri Lanka in a foreign currency approved by the Central Bank of Sri Lanka (CBSL).Fernando specified that these foreign currency-denominated shares will be primarily available for foreign and local investors who possess foreign currency.Commenting on the timeline for the implementation of this facility, he claimed: “The necessary rules have been established and we are waiting for approval by the SEC (Securities and Exchange Commission of Sri Lanka), whereupon we should be able to introduce the facility.”Explaining further, he provided that this multi-currency listing can serve as the primary listing and the company can, if it wishes, have another class of rupee-denominated shares.During his presentation at the “Invest Sri Lanka” forum held in Dubai last week, Fernando further claimed: “Next year, we will be able to introduce some very exciting new products including primarily stock borrowed lending and short selling.”He further stated that CSE is hoping to introduce a gold-based product to the market as well.The Multi-Currency Board was launched three years ago. However, it only allowed for foreign companies to be listed and traded in Sri Lanka in a CBSL-approved foreign currency. Such a foreign company was required to be listed in the country of its incorporation and shall only be cross-listed in the Multi-Currency Board as a secondary listing. Moreover, investing in multi-currency stocks is limited to investors whose permanent residence is outside Sri Lanka or corporate bodies incorporated outside of Sri Lanka.Fernando justified the viability of CSE as an investment option to Dubai-based Sri Lankans attending the forum, claiming: “Despite the market having risen so much, our valuations are still very low. Actually, it is below the averages – at least 10-12% below the 10-year averages. But more interestingly, it is about 30% lower than previous terms of low-interest rates. So I’m looking at the price to earnings and price to book value ratios. I know that many of you have other options to invest in, but if you look at emerging markets, or frontier markets, the Sri Lankan stock market is undervalued in relative terms by 20-25%. So, we do believe that there is still a reasonable upside for anyone who wants to participate.”The new SEC Act, which has been routinely referred to as an Act for the future to prepare Sri Lanka’s capital markets for the needs of the future, is expected to facilitate the adoption of these new products to be implemented by the CSE.Accordingly, SEC Chairman Viraj Dayaratne claimed: “The new law was brought in, and I must tell you that not only does it help better regulation, but it (also) provides a lot of opportunities for the development of the market; it will be possible for us to introduce new products, (because) then it will be possible to facilitate the setting up of new funds – that means creating more opportunities for you all to invest.”Commenting on the increasing demand for the implementation of a free-float market cap mechanism in the calculation of the All Share Price Index (ASPI), Fernando told us that while the CSE is in agreement with the issue raised by traders, such a transition cannot be done overnight and must be done properly and methodically.He further stated that over the past few months, the CSE has been collecting the necessary data and backtesting to facilitate the transition of the ASPI to a free-float-based index. As of now, the findings have been presented by the CSE Secretariat to the CSE Board and are currently pending approval.He claimed that this transition of the index will be implemented as soon as possible, within 2022.