By Chandeepa Wettasinghe
The Colombo Stock Exchange (CSE) will focus on quality over quantity for future Initial Public Offerings, unlike the past, according to a top official.
“We will always discourage bad companies from coming. What we’re trying to do is bring some companies to the market when they’re ready,” CSE Chairman Vajira Kulatilaka said at the presentation of the CSE Annual Report 2014.

The CSE had faced criticism for its past strategy of attracting and allowing many companies which were not ready for public trading to be listed. Leading private equity experts, including Hemas Holdings PLC Managing Director Steven Enderby have been outspoken about the issue, saying that the current conditions have led to exploitation, with companies listing only to get a one-time boost in capital, or to cover their debts, and not to actively participate in market trading or corporate governance.
Further, experts have also said that companies which list prematurely may crumble under intense public scrutiny that listing brings, or with their inability to manage the funds that are attracted.
While the Rs. 100 million minimum stated capital for listing on the secondary Diri Savi Board is relatively low compared to listing requirements in developing countries, Kulatilaka said that the 10 percent public shareholding would ensure greater responsibility for the companies.
 He accepted CSE’s past shortcomings, but noted that bad companies could be made good through education, regulation and corporate governance.
 “I fully agree with you, but we were going through a bad period of 30 years and our companies could not grow as much as the other countries would have. So we have to start small and encourage them to come to the market,” he said.
 He further added that since Sri Lanka’s investment environment is now starting to develop, the situation would get much better.
 “The ecosystem has to be there. In the US, the venture capital comes and educates and ensures the company is a well-cut diamond. Then the private equity comes in to make them good on the governance side and make them bigger,” Kulatilaka said.
He noted positively that angel investors and private equity firms are becoming more active in Sri Lanka.
He further added that the listing rules will be revised in the near future to help eliminate unwanted companies.
CSE is also planning to revamp and rebrand its Main Board and Diri Savi Board in the future, while introducing two new boards for Small and Medium Enterprises, as well as Board of Investment companies.