Sri Lanka has ambitious plans to develop its capital markets, the country’s finance minister told FinanceAsia on Thursday. This includes a handful of IPOs from state-owned companies — and a bold idea to securitise billions of dollars of government debt.
The South Asian country is in the midst of a furious reform drive in its capital markets, considering ideas ranging from separate boards on its stock exchange for small- and medium-sized enterprises to the all-important introduction of a central counterparty system. But the government appears keenly aware that, in the capital markets, it is deals that count. It is now plotting a series of headline-grabbing transactions that will hit the market before the end of the year.
This will include several privatisations including the mooted IPO of a government-owned Hyatt Regency hotel, Ravi Karunanayake, Sri Lanka’s finance minister, told FinanceAsia. He was speaking at FinanceAsia’s 2nd Sri Lanka Investment Summit at the Ritz-Carlton in Hong Kong, an event attended by more than 200 executives, investors and other market participants.
The IPOs will happen “no later than three months” from now, Karunanayake said while sitting in the audience watching a panel on Sri Lanka’s equity market that included presentations from Kanishka Perera, head of research at Asia Securities, and Naveen Gunawardane, managing director of Lynear Wealth Management.
The listings will help give a jolt to a market that shows great potential but that suffers from a lack of secondary liquidity. Attempts to improve liquidity have not been helped by a tepid stock market performance over the last few years. Sri Lanka’s Colombo All-Share Index index surged to over 7,600 by the end of 2014, but is now hovering just above 6,000.
Yes to ABS
The government is also hoping to securitise between $3 billion and $4 billion of assets in the coming months, helping continue its push to reduce government debt and rein in the budget deficit.
Karunanayake said the government wanted to monetise some of its assets by creating a special purpose vehicle, transferring ownership of certain assets to the SPV, and then using the SPV to issue bonds to foreign investors. It is not clear what assets the government would include in the asset pool.
The first securitisation deal could also be launched “in the next three months”, said Karunanayake. Sri Lanka’s government has already had discussions with some foreign institutional investors about potential deals, he said.
These moves are only part of a wider capital reform effort. Among other things, the government is also preparing the demutualisation of the stock exchange and the creation of a central counterparty system which would remove credit risk for equity investors, who now have to wait three days for their trades to settle.
Perhaps more eye-catching is the attempt to build a financial hub around the capital city, Colombo. The Megapolis project has started with ambitious aims. Nayana Mawilmada, head of investors at the Ministry of Megapolis, previously told FinanceAsia that “if we end up looking like Singapore we’ll have failed”.
