Colombo bourse on course to demutualise in 2017

The move, expected early next year, is a key first step to improve governance and prepare for a listing as the bourse looks to introduce Reits and ETFs and become a regional hub.

Sri Lanka is on target to demutualise its national stock exchange by early next year to help improve transparency and corporate governance and facilitate a listing, the bourse's head said on Wednesday. 

In an exclusive interview with FinanceAsia, Vajira Kulatilaka, chairman of the Colombo Stock Exchange, outlined his vision to develop the exchange with new products and a change of structure.

“We would like to eventually follow the paths of the Australia, Hong Kong, and Singapore exchanges to make ourselves a public company,” he told FinanceAsia at the Sri Lanka Investment Summit.

At present the Colombo Stock Exchange is jointly owned by 15 domestic brokers whose interests the exchange mainly supports. Demutualisation, which entails shifting an organisation from from member ownership to shareholder ownership, would help to alter that balance by bringing in new investors and improving governance.

Sri Lanka’s Securities and Exchange Commission is in the process of finalising an act that will lay out the legal framework, share ownership, and governance structure of the exchange after demutualisation, according to Kulatilaka.

The Colombo Stock Exchange, Sri Lanka’s only marketplace for secondary trading of stocks and bonds, currently has 295 companies covering 20 sectors with a combined market capitalisation of about $18 billion -- roughly one quarter of the nation’s GDP.

That places Sri Lanka at the forefront of Asia's so-called frontier markets, Kulatilaka believes.

Although investment rival Bangladesh’s Dhaka Stock Exchange is more than twice the size in terms of market capitalisation and number of listed companies, the total value of companies listed on the Colombo Stock Exchange is more than eight times that of the Mongolia Stock Exchange. The Colombo bourse is also well ahead of the Myanmar's Yangon Stock Exchange, which is yet to bring in its first listed company.

New Products

To improve its competitiveness, the Colombo Stock Exchange is in the process of drafting new regulations that will facilitate the listing of real estate investment trusts, Kulatilaka said. The measure is in line with the Sri Lankan government’s plan to privatise some of the country's state-owned assets since about 80% of land reserves are held by the government.

The exchange is also contemplating the introduction of exchange-traded funds, structured warrants, and equity-linked derivative products to broaden its product offering.

Furthermore, to develop itself as a regional hub for stock trading the Colombo Stock Exchange is in talks with the Maldives government to bring in some of its state-owned entities for initial public offerings, Kulatilaka told FinanceAsia.

Click here for more of FinanceAsia’s reporting on Sri Lanka.

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