The Colombo Stock Exchange (CSE) is finalising plans to launch a dollar trading board, part of a broader strategy to develop Sri Lanka’s bourse into a regional capital markets centre and boost the inflow of foreign funds.
In mid-July Ray Abeywardena, chairman of the CSE, announced that the exchange had received regulatory approval to launch a dollar trading board for foreign investors by the end of the year. This would allow shares of listed firms to be quoted and traded in US currency rather than rupee.
According to the initial plans, only foreigners will be allowed to buy and sell shares on the new board, meaning non-resident and resident foreign currency account holders will be excluded.
The new board should create opportunities for regional companies to trade on the CSE, with the platform to be opened up to domestic firms at a later unspecified date, Abeywardena told local media. While some trade and listing restrictions are in place, officials have said that multinational companies operating in Sri Lanka may list on the dollar board.
The CSE currently has 295 companies listed on its main and secondary boards, covering 20 separate business sectors.
CSE aims to attract international companies to list
The introduction of the dollar platform is part of wider efforts by the CSE to increase the number of foreign listings on the bourse, with the aim of enhancing the visibility of Sri Lanka’s capital markets and strengthening the country’s position as a regional player, a move that would, in turn, boost the inflow of foreign funds.
One such potential market for new listing opportunities is the Maldives, according to Vajira Kulatilaka, CEO of NDB Capital. “Various companies within the region, but particularly companies based in the Maldives, have shown increased interest in getting listed on the CSE,” he told OBG.
This interest was first seen at a CSE road show in the Maldives last year, after the dollar trading board was first floated, with representatives from 20 companies in attendance.
Ooredoo Maldives – a subsidiary of the Qatari telecoms firm – is in line to be the first overseas company to list on the new board when trading begins, CSE officials have said.
Other markets to be targeted in the CSE’s expansion push include Bangladesh, Bhutan and Pakistan, offering companies from those countries the opportunity for greater exposure on international financial markets.
“Foreign investors have shown confidence in the Sri Lankan economy, as they are determined to access local investment houses,” Dilshan Wirasekara, CEO of First Capital, told OBG.
New trading tools part of blueprint for development
The move to launch the dollar trading board and boost foreign participation on the exchange is in line with the objectives of the Capital Market Strategy 2020 set out by the sector regulator, the Securities and Exchange Commission.
Released in late March, the roadmap aims to establish a robust and facilitative regulatory environment and foster capital market development.
The strategy sets out a series of reforms, including reviews of the rules applicable to the capital market as well as measures to enhance investor protection, improve fairness and market efficiency, and reduce systemic risk and global regulatory arbitrage.
These measures are intended to lay a solid foundation for Sri Lanka’s capital markets and improve its ability to garner the interest of domestic and foreign institutional portfolio investors, the strategy paper said.
Foreign investors already have a high profile on the CSE, accounting for 47% of market turnover in the first six months of this year, up from the 42% for all of 2016, and a sharp increase on the 34% posted in 2015.
The strong interest in the market from overseas investors is indicative of their confidence in the future potential and growth capacity of the exchange, according to Rajeeva Bandaranaike, CEO of the CSE. “Growth in foreign activity is certainly encouraging and goes on to indicate that foreign investors have identified an opportunity in the Sri Lankan stock market,” he told local media in July.
Looking ahead, one of the bourse’s main strategic aims is to increase market capitalisation. Sri Lanka lags behind many regional markets in terms of market capitalisation as a share of GDP, at 25.3%. By contrast, the ratios in Malaysia and India stand at 129% and 72%, respectively.
Rajeeva Bandaranaike, CEO of the CSE, told OBG, “The Exchange is looking at diversifying its product portfolio so that investors would have a greater range of capital market instruments.”
Among the measures being used to attract more local and foreign investment is the introduction of real estate investment trusts, Bandaranaike announced at an industry event at the end of August.