New rule to make rating mandatory for private debt issuances

The private debt issuances in Sri Lanka, which have thus far been spared from the regulatory purview, will soon come under the Securities and Exchange Commission (SEC) oversight, as they will be required to obtain a credit rating before they raise any kind of debt, even if such instruments are not listed on the Colombo bourse.

Mirror Business learns that a new Listing Rule will soon lift the immunity so far enjoyed by the private debt issuers in bypassing the SEC and the requirement of a credit rating before they sell debt instruments to the public. 

In Sri Lanka, only the listed debt issuers are mandated to obtain credit ratings but with the new rule, all issuers expecting to raise moneys from the public, will need to have credit ratings and will be required to comply with the disclosure requirements stipulated by the SEC. 

Once the new Listing Rule comes into play, there would be virtually no difference between the listed debt issuance and an unlisted debt issuance as both will come under the SEC’s purview. 

According to the SEC, the minimum credit rating required by a listed debt issuer is BBB, one notch above the minimum investment grade of BBB-.  

In what could be considered as a progressive development in Sri Lanka’s capital market, the new provision requiring a credit rating for all issuances, irrespective of them being listed or unlisted, would safeguard the investors, as the issuers will have to become more transparent of their financial positions.

“It’s not the revenue we get from selling cigarettes. When a customer usually comes to our shops for tea or to have a meal, they prefer to have a cigarette as well. If we can’t sell cigarettes, these customers would stop frequenting such eateries or shops and we can’t sell our other products,” Costa said.

He claimed that of the 7,500 eateries, tea shops, supermarkets and grocery stores of varying sizes, which are members of the association, over 95 percent are situated within 100 metres from schools and places of religious worship. Nationally, tobacco retailers total 125,000 he said.

Costa guaranteed that the members of the Tobacco Retailers’ Association do not sell cigarettes to minors or allow cigarettes to be smoked within a shop, as prohibited by law.

“We would know if we are inducing the minors to smoke because then the public health inspectors would catch us and close down our shops. We also have children so we wouldn’t sell to other children. If schoolchildren want to buy cigarettes, they won’t come to our shops. They will go to shops farther away, which would sell to them,” Costa said.

He said that if the government wants to drive down the consumption of tobacco among minors, they would go after such errant retailers and those selling smuggled cigarettes and beedi.

Meanwhile, Tobacco Retailers’ Association Deputy Secretary Jagath Hennayake added that the government also aims to limit cigarette sales to purchase of an entire packet, instead of the current practice, where most smokers purchase one or two cigarettes for immediate consumption.

“How many customers would actually spend Rs.600 for an entire packet?” he questioned.

The government has been attempting to collect higher revenue and curtail tobacco use in Sri Lanka by raising taxes and introducing other policies, which also include the depiction of picture warnings on cigarette packets and ban of tobacco farming in Sri Lanka by 2020.

Analysts have criticized the move to raise taxes, saying that the residents would move towards the unregulated, cheap beedi products or smuggled cigarettes, which pay no duty and the sales of these substitutes have skyrocketed since 2016.

Tobacco farmers have also accused politicians of corruption, saying that the politicians are eyeing hefty commissions through allowing more imported tobacco leaves and weakening the local leaf supply.

However, the government’s other aim of generating revenue for the Treasury was a success, with the country’s only cigarette manufacturer, Ceylon Tobacco Company PLC, contributing Rs.117.4 billion in excise taxes, levies and income tax in 2017, up from Rs.98.4 billion in 2016. 

(CW)