Sri Lanka studies Hong Kong Exchange’s demutualisation process

Sri Lankan officials have held discussions with the officials of the Hong Kong Exchanges and Clearing Limited (HKEx) to study the Demutualisation process of ‘HKEx’.

The meeting between the two parties have taken place in Hong Kong during last week, when Sri Lankan officials were in the city to hold an investor forum.

Senior executives of the Securities and Exchange Commission of Sri Lanka and the Colombo Stock Exchange took part in the discussion, with the HKEx Officials.

Chairman of the SEC, Dr. Nalaka Godahewa and Krishan Balendra, Chairman of the CSE have been among the local officials, who took part in the discussion.

Sri Lanka is looking to demutalise its Colombo Stock Exchange by next year.

Demutualisation is the process of converting exchanges from non profit, member-owned organisations to for-profit, share holder owned corporate entities.

Hong Kong Exchanges and Clearing Limited, or HKEx, operates a securities market and a derivatives market in Hong Kong and the clearing houses for those markets.

HKEx was listed in Hong Kong in 2000 and is now one of the world’s largest exchange owners based on the market capitalization of its shares.
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Those who willing to know more about Demutualisation, read the following.

http://articles.economictimes.indiatimes.com/2002-01-21/news/27334241_1_demutualisation-trading-rights-brokers

By Ravi Ladduwahetty

The Demutualization Act which is currently being finalized by the Securities and Exchange Commission (SEC) of Sri Lanka will allow the Colombo Bourse to be demutualized within a year, says Colombo Stock Exchange Chairman Krishan Balendra.

“Together with the SEC, we are also looking at other aspects of the process in order to expedite it in a manner that would be acceptable to all stakeholders. We are looking at completing this process in the next 12 months or so,” said a confident Balendra.

Earlier, in an exclusive interview with Ceylon FT, SEC Chairman Dr. Nalaka Godahewa, said that demutualization of the CSE is a norm across the world. (See http://www.ceylontoday.lk/22-27272-news-detail-new-sec-act-to-boost-colombo-bourse.html ).

"Securities and Exchange Commission (SEC) is looking at the process of demutualizing the Colombo Stock Exchange (CSE). Our current Act does not provide for a demutualization of the CSE, which is a norm across the world. Amendments to the Act are needed before demutualizing the CSE. We also want to bring in some new products that are popular in other markets. They also require certain changes in the regulatory framework, which has to be addressed in the amendment," Dr. Godahewa said.

Colombo Stock Exchange Chairman Krishan Balendra believes that although Sri Lanka is a small market with a market capitalization of just US$ 18 billion, 288 listed companies representing 20 sectors, valuations of local listed corporates were more attractive compared to regional emerging markets.

“We have seen increased participation. It is a small market, but participation is increasing. Market has been strong, performing in the last four years. The big event was in May 2009, the end of the conflict. Since then we saw almost a four-fold increase in the main All Share Index,” he said.

However, market capitalization of just 19 billion dollars was low, but it is also low relative to the economy, just 30% of GDP, significantly lower than other markets in the region, he added.
CSE was still attractive to foreign investors, Balendra insisted despite the illiquidity of the CSE.
“Foreign investors have seen the opportunity in post-war Sri Lanka. There are very few countries that are coming out of over two decades of conflict and there is a real potential for growth. This is why we have seen substantial net foreign inflow into the market in 2012 and over Rs 20 billion so far in 2013.”

He was confident that CSE would be able to be upgraded in the event few State-owned Enterprises (SOEs) were listed. “In order to be upgraded from a frontier market status and to get on the MSCI emerging markets index, an exchange must have at least three companies with a market cap over US$ 1 billion and a free float in excess of US$ 500 million. If some of the large SOEs were listed, we may be able to achieve this. Today only one company on the CSE meets this criteria.”
http://ceylontoday.lk/22-44334-news-detail-demutualization-soon.html