Punyamali Saparamadu, Senior Vice President – Commercial of the Colombo Stock Exchange (CSE), discusses strategies for capital market growth, focusing on new listings, attracting SMEs, green bonds, financial innovations, and leveraging the Colombo Port City for international investments.
She begins by explaining how the commercial division attracts new listings and supports business growth under her purview:
The CSE attracts new listings through a combination of equity and debt offerings. Currently, the exchange has 284 equity listings worth Rs5.9 trillion and over Rs270 billion in debt listings. We target approximately 100,000 companies from a pool of 250,000 businesses registered in Sri Lanka, excluding dormant and bankrupt entities. Our proactive approach involves engaging over 300 potential issuers through one-on-one meetings, workshops, forums, awareness sessions, and collaborations with business chambers and trade associations, clarifying listing processes and emphasizing corporate governance benefits. We also cross-sell between equity and debt listings, suggesting alternatives for companies not yet ready for equity listings.
Key initiatives include the Catalyst Board, supporting state-owned enterprises (SOEs) with equity listings and eventual transitions to higher boards. We advocate for policy changes, such as a tax incentive that led to 14 new listings in 2021. Additionally, we focus on underrepresented sectors, like IT, where we could explore creating a separate board to accommodate asset-light businesses. Collaborations with the SEC and other stakeholders help raise awareness, reduce listing costs, and provide support, as seen with certain successful listings recently.
Encouraging new listings, particularly SMEs and startups:
The CSE facilitates SME and startup listings through targeted initiatives. The Empower Board, with a low entry requirement of Rs25 million in stated capital, helps SMEs raise funds through IPOs. Startups must have two years of operating history and meet the minimum capital requirement. Simplified governance requirements, such as only one committee, the Audit Committee, and performing duties of other mandatory committees, make listing more accessible.
We emphasize good governance practices, including having independent directors and board diversity. SMEs, which contribute 52% of GDP and 75% of businesses, are crucial for economic growth and financial inclusion. Regional forums and partnerships help generate a pipeline of potential listings. Additionally, we are exploring an accelerator, initially as a pilot programme, to guide SMEs toward sourcing private equity funding and listings in 3-5 years.
The Green Wave – Driving Sustainability:
Green bonds have gained strong traction since their introduction in April 2023, with the first issuance in September 2024. Several companies, including one in the real estate sector, plan to issue green bonds. To support issuers, the CSE has held workshops and received technical assistance from the Asian Development Bank (ADB), the Securities and Exchange Commission of Sri Lanka (SEC) and the International Finance Corporation (IFC).
A key challenge for companies is the cost of establishing frameworks, though SEC/ADB’s support has alleviated this. The first green bond received a secondary listing on the Luxembourg Green Exchange, increasing the visibility of both the issuer and the CSE and attracting global investors. Despite exceeding expectations, challenges remain, particularly in impact reporting, and the CSE is exploring ways to assist issuers. The mandatory adoption of IFRS S1 and S2 standards for the top 100 market-cap companies, effective 1st January 2025, strengthens the CSE’s sustainable financing efforts.
Social Bonds, ETFs, and Derivatives:
We are constantly introducing new solutions to the Sri Lankan capital market. Regulatory frameworks for social bonds and GSS+ bonds are already in place, with approvals expected soon. In collaboration with the SEC, the CSE also plans to introduce ETF frameworks within the year, with commercialization expected by 2026. Additionally, derivatives will be introduced as part of our ongoing efforts to expand and enhance market offerings. We have already established a strategic partnership with the National Commodities and Derivatives Exchange (NCDEX) in India, which will provide valuable technical assistance to implement and integrate derivatives into our market infrastructure effectively.
Challenges include market readiness, as Sri Lanka’s financial market is still developing, the need for further liquidity of the underlying assets, and greater investor understanding. To address these, the CSE is engaging external consultants and other exchanges. Market maker rules are a prerequisite for ETFs.
Foreign Listings, Unlocking Colombo Port City Prospects:
The CSE’s strategy to attract foreign entities includes dual listings through the Multi-Currency Board, allowing foreign companies to list on the CSE and raise equity and/or potentially debt in foreign currencies. An MOU between the SEC and the Maldives Capital Market Development Authority supports cross-border transactions for dual listings. The platform also enables local companies to raise funds in foreign currencies with repatriation restrictions. We are working with the Central Bank to revise these rules, including a potential increase in the repatriation limit to 90% and enabling local banks to raise listed foreign currency debt.
The Colombo Port City (CPC) offers a favourable regulatory environment, including exemptions from foreign exchange and tax regulations. The CSE is working on establishing a presence there to enable the commercialization of foreign currency-denominated products. This initiative, alongside the potential listing of new products like derivatives, could position Sri Lanka as an attractive destination for international investors.