29 May 2024 - {{hitsCtrl.values.hits}}
Colombo Stock Exchange (CSE) Commercial Division Senior Vice President Punyamali Saparamadu provided a detailed overview on the strategies adopted by the CSE to stimulate growth and broaden its revenue sources.
Her insights also highlight the new product portfolio as well as issuer relations initiatives of the CSE.
Can you talk about the role your division plays in the CSE?
The establishment of a dedicated Commercial Division within the CSE underscores the organisation’s commitment to enhancing issuer relations, marketing new products and diversifying revenue streams while leveraging on its advocacy efforts. These key functions are aimed at strengthening the CSE’s market position among the potential issuers across its product suite and fostering growth opportunities.
The issuer relations function is pivotal in engaging with unlisted companies, promoting the benefits of listing with potential issuers, dispelling misconceptions, nurturing relationships with unlisted as well as listed entities and positioning the CSE as a preferred solution for capital mobilisation.
‘‘Sustainable bonds include green bonds and blue bonds. While the market readiness for these bonds is still evolving, the CSE is aggressively focusing on garnering support, capacity building, engaging stakeholders and arranging funding support for transition-related efforts and as well as green bond issuances
New product commercialisation focuses on promoting new capital market products by designing appropriate products, assessing market feasibility, creating an enabling environment for such potential products as well as marketing and promoting new products to issuers investors and other users.
Advocacy serves as a crucial link between the CSE and various stakeholders, including the regulators, government agencies and financial institutions, partners/agencies such as USAID, IFC, ADB, UNDP, EU Green Recovery Facility, as well as the Colombo and regional business councils, in securing support for product commercialisation initiatives, fostering collaboration and resource mobilisation.
Moreover, the Commercial Division prioritises diversifying revenue streams beyond the trading income, enhancing the CSE’s financial resilience and mitigating market volatility risks.
With interest rates decreasing, would you say there is a demand for capital raising through the market? Do you think raising equity through market is beneficial when compared with raising private equity?
A public listing offers companies a unique opportunity to unlock the value of their companies and create wealth for their shareholders, which cannot be achieved through private equity. We believe that there will be a strong appetite among the issuers and investors for capital raising through the stock market for both debt and equity capital.
Let’s consider the factors that weigh upon a listing. When considering whether to raise capital through debt or equity, companies weigh several factors, including funding requirements, cost, speed of raising funds, risk tolerance and funding duration.
In environments where the interest rates are declining, the companies often find bank or corporate debt appealing to meet the funding needs. Listed corporate debt, particularly for companies with an investment-grade rating, offers access to public funding pools without the need for collateral. Strong investor interest was drawn for corporate debt initial public offerings (IPOs) on the CSE.
Considering the COVID-19 pandemic and economic crisis that followed in Sri Lanka in 2022, the market interest rates can undergo significant fluctuations, imposing liquidity constraints and hurdles for businesses, particularly SMEs and those heavily reliant on debt, notably in sectors like tourism. Even with moratorium facilities in place, excessive debt can endanger collateral ownership, worsening financial pressures. Under such conditions, equity financing presents an attractive alternative.
Unlike debt financing, equity does not entail mandatory dividend payments, thereby offering greater flexibility for companies in cash flow management, particularly during uncertain or volatile earnings periods.
An equity infusion can bolster a company’s financial standing by reducing reliance on debt while achieving an optimal debt-to-equity ratio.
‘‘Advocacy serves as a crucial link between the CSE and various stakeholders, including the regulators, government agencies and financial institutions, partners/agencies such as USAID, IFC, ADB, UNDP, EU Green Recovery Facility, as well as the Colombo and regional business councils, in securing support for product commercialisation initiatives, fostering collaboration and resource mobilisation
Going public offers companies the opportunity to be seen in an entirely new perspective with enhanced brand recognition, access to a broad pool of local and international investors who could offer strategic partnerships and value addition, increased business value and improved talent retention and attraction while uplifting the overall company stature being part of the listed entity fraternity.
Another key aspect that companies would consider is that a listing would enable them to be categorised as a better governed company under the corporate governance rules of the CSE, which make them more transparent and accountable entities.
Given the above, the CSE’s value proposition for prospective issuers seeking equity listings revolves around unlocking the value of their companies and fostering wealth generation for their shareholders.
The government is focusing a lot on SMEs. What are your plans to engage SMEs and raise capital at the CSE?
Engaging SMEs and facilitating their capital raising efforts at the CSE involve several strategic initiatives and partnerships. Some of the key initiatives that we have undertaken are listed below:
There were numerous delistings that happened during this year. Do you think that this has an impact on businesses towards their decisions to list in the CSE?
We believe that the recent delistings are not a disincentive for new listings and such delistings have been prompted by unique needs of those relevant companies, making them independent events.
What we must remember is that the CSE serves as both an entry point for potential issuers to become listed entities as well as an exit mechanism through delisting procedures outlined by the Securities and Exchange Commission (SEC) regulations. Global economic conditions have also prompted delistings across stock exchanges and this is not unique to Sri Lanka.
‘‘In environments where the interest rates are declining, the companies often find bank or corporate debt appealing to meet the funding needs. Listed corporate debt, particularly for companies with an investment-grade rating, offers access to public funding pools without the need for collateral. Strong investor interest was drawn for corporate debt initial public offerings (IPOs) on the CSE
Recent voluntary delistings on the CSE have all been due to companies or their groups realigning their strategies at a global level, while some of the past delistings have also stemmed from insolvency or bankruptcy-related concerns.
What are the new products the CSE has introduced during the last couple of years and do you see traction towards them?
The CSE has introduced several new products in recent years, catering to diverse investment needs and fostering market development. The framework for a series of new debt products has been enabled and one equity product has been launched.
While these new products represent significant advancements in the CSE’s product offering, their success depends on several factors, including issuer readiness, regulatory and policy support as well as investor demand.
The CSE is aggressively focusing on addressing market readiness challenges and fostering stakeholder engagement to drive traction for these new capital market products amidst the anticipated capital market growth, in line with the country’s economic growth expected in the coming years.
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