Sri Lankan companies will be allowed to raise debt and equity in foreign currencies on the Colombo Stock Exchange. A new benchmark is also being launched.
The CSE (Colombo Stock Exchange) is trying to increase the liquidity of the stock market by introducing new instruments and a new calculation standard for its main benchmark.
During this year, domestic companies will be able to raise foreign currency denominated debt and equity on the CSE and a market-weighted, float-adjusted index will be launched, said Rajeeva Bandaranaike, CEO of CSE. Asia regulations Tuesday (September 14).
The CSE launched its multi-currency council more than three years ago, allowing foreign companies to trade securities denominated in foreign currencies, including Chinese yuan.
“Allowing domestic companies to raise capital in foreign currencies is an extension of this advice,” Bandaranaike said. “Rules for raising foreign currency denominated equity are in place and we have sought regulatory approval from the SEC [Securities and Exchange Commission] and the CBSL [Central Bank off Sri Lanka] in this regard.”
A July 30 circular from CBSL’s Foreign Exchange Department already authorizes Sri Lankan and listed companies to open special foreign currency accounts, which will allow investments denominated in foreign currencies on the multi-currency board.
Bandaranaike added that there have been requests from large Sri Lankan companies transacting in USD to raise capital in foreign currencies in order to facilitate their regional expansion plans.
He also noted that the CSE has observed manipulations of illiquid stocks in recent months. “The free float-adjusted market index will eliminate the distorting effect of illiquid stocks on the index and stop this situation. It takes a lot of backtesting, and we’ve done five years of backtesting so far. Sector indices also need to be updated, which we are currently doing.
According to local reports, the banking sector is expected to soon create gold-backed trading products on the market, which will also be traded on the multi-currency board of the CSE.
The CSE also plans to introduce a CCP to allow the creation of more complex financial products, allow primary dealers to create repurchase agreements on corporate bonds and introduce REITs to the market this year. In the longer term, mortgage backed securities will also be introduced.