Taking into account therole played by capital markets in the growth of the corporate sector and the importance of offering multiple avenues through which companies aspiring for growth can access capital markets, the Colombo Stock Exchange (CSE) adopted progressive changes to the CSE’s listing framework for new listings, offering a wider choice of listing options for companies wanting to list shares on the Main and Diri Savi Boards.
An analysis of recent listings on the CSE indicates that these amendments in particular have paved the way for two companies to list on the CSE and access capital market-based funding valued at Rs. 4.7 billion. Both IPOs were oversubscribed on the opening day and by 16+ times collectively drawing considerable investor interest at the time.
Interestingly, the listing framework prior to the amendments made by the CSE may not have attracted these two corporates – indicating that the amendments have been successful in making a stock market listing a possibility for a broader array of aspiring issuers.
These recent issuers representing two different industries have benefited from the CSE’s initiative in broad basing the profit-oriented eligibility requirement applicable to the Main Board. Prior to the amendments, the CSE Listing Rules required that all companies aiming to list on the Main Board demonstrate net profit after tax for three consecutive financial years. Three alternatives to this requirement were introduced by the CSE as part of the amendments.
The CSE’s Main Board listing criteria now accepts companies that can demonstrate an aggregate net profit after tax for three consecutive financial years, meaning that companies aiming to list on the exchange are no longer required to be profitable in each of the three financial years immediately preceding the date of the initial listing application.
Further, companies that cannot meet the profit-based criteria for the Main Board can demonstrate eligibility through revenue or positive operating cashflow (one of either), if the company’s market capitalization is valued at Rs. 5 billion or above at the point of listing.
The revenue-based option would require the company to demonstrate an aggregate revenue of Rs. 3 billion for three financial years immediately preceding the date of the initial listing application. Alternatively, the positive operating cash flow option would require the company to demonstrate positive operating cash flows (after adjustment for working capital) for two consecutive financial years immediately preceding the date of the initial listing application.
Commenting on the development, Chief Regulatory Officer at the CSE Renuke Wijayawardhane stated “It is quite important that capital market regulation evolves to cater to the growing and dynamic needs of our stakeholders, and the amendments to CSE Listing Rules were put in place to broaden the rules to complement Sri Lanka’s rapidly developing commercial landscape comprising of multiple new business models and segments. We at the CSE are pleased to see that these new options are being actively utilized and explored by potential issuers.”
The amended Listing Rules also offer flexibility for companies aiming to list on the Diri Savi Board, where companies that cannot meet the Positive Net Assets requirements have a revenue-based alternative. If the company’s market capitalization is valued at Rs. 2 billion or above at the point of listing, demonstrating revenue of Rs. 350 million for the financial year immediately preceding the date of the initial listing application will be an acceptable alternative to the Positive Net Assets requirement.
CSE CEO Rajeeva Bandaranaike called on Sri Lankan corporates interested in listing to actively engage the exchange and the investment banking community to understand the wide-ranging choice of listing options available.
He stated “Corporates will most likely prioritize drawing sustainable capital inflowsand achieving financial flexibility as they look to recover from theimpact of COVID-19 and meet the demands of present macro-economic challenges. The capital market and in particular, a listing on the stock exchange, is a means through which this could be achieved. The CSE has taken progressive measures tofacilitate the listing of more Sri Lankan corporates such as the expanded listing criteria,measures taken to streamline the CSE listing process and also offer new options of capital raising such as foreign currency denominated equity listings for local corporates. We stronglybelieve that the capital market offers considerable potential for Sri Lankan corporates to unlock value and we invite corporates to actively pursue these avenues.”