SEC gets tough on PLCs!

Long wait for new rules; likely to pose problems for select big cap firms

The long-awaited new rules are likely to impact firms with high market capitalisation.

For example, whilst a new rule requires Main Board firms to have 20% held by minimum of 750 shareholders, third largest with market capitalisation Nestlé’s public float is only 9.18% but has 5,649 shareholders.

Second largest stock Ceylon Tobacco is also below the 20% threshold with a public float of 15.87% but has 3,742 resident shareholders though holding a 3.7% stake.

The popular Dialog Axiata’s public float is 14.73% but has a high shareholder base of 22,194. Conversely, SLT has 12,807 resident shareholders but overall public float is only 5.5% AIA Insurance’s public float is mere 2.85 but has 2,300 shareholders (2,175 individual local shareholders with 4.58% stake as at end 2012). Some companies such as Finlays are clearly noncompliant. Finlays has only 645 shareholders and its public float is a mere 2.89%. The new definition of public will also require all firms to review their respective shareholding and more firms could fall below the minimum requirement. The biggest problem for SEC and CSE will be to activate companies which have a higher public float but hadn’t traded for months or years.

The specification of Rs. 5 billion of market capitalisation in the hands of 500 shareholders, one of the two requirements for minimum float for main board firms will be contentious as well.

The final directive from the SEC comes after multiple consultations starting from 2010.

“Selected stocks: Top firms
Company    Public float
CTC     15.87%
Nestle     9.18%
Dialog     14.73%
SLT     5.52%
Finlays     2.89%
Union Assurance    4.34%”

Originally the SEC had a Consultation Paper No. 6 dated 24 September 2010 and thereafter a ‘Draft Rules on Minimum Public Float as a Continuous Listing Requirement’ (Consultation Paper No. 8 dated 8 July 2011).

In September 2013, the SEC further revised for the third time and developed the set of draft rules on a minimum public float as a continuous listing requirement and public consultation was ended in mid-October 2013.

Based on inputs, there were few changes from the final draft. For example, what was proposed for Main
Board firms is 20% held by 1,000 public shareholders whereas last week’s directive had reduced the latter to 750.
http://www.ft.lk/2013/12/23/long-wait-for-new-rules-likely-to-pose-problems-for-select-big-cap-firms/

* Issues directive for strict compliance with minimum public float
* Offers two year transitional provisions by requiring credible plan for public listed companies to meet criteria
* Permanent failure to comply could lead to suspension of trading or a mandatory delisting
* Over 70 main board firms below 20% threshold


The Securities and Exchange Commission (SEC) is getting tough on listed companies, requiring them to be truly public from the New Year onwards, whilst offering transitional provisions to comply via credible plans.
As a continuous listing requirement, from 1 January 2014, all main board listed companies are mandated to have a minimum public float of 20% in the hands of a minimum of 750 public shareholders or a market capitalisation of Rs. 5 billion of firm’s public holding in the hands of minimum of 500 public shareholders whilst maintaining a public holding of 10%.

The Colombo Stock Exchange (CSE) has 288 companies representing 20 business sectors as at 01st December 2013, with a market capitalization of Rs. 2.4 trillion. Of the main board firms, over 70 don’t have a public float of above 20% as of end September 2013 shareholding.

For firms which don’t meet this requirement, a transitional arrangement has been proposed giving them a year in which to comply. These firms will have to ensure by 31 December 2015 a minimum public holding of 15% of its total listed ordinary voting shares in the hands of 500 public shareholders.

For the popular and less stringent Diri Savi Board listed firms, the minimum public float from 1 January 2014 is 10% in the hands of a minimum of 200 public shareholders. For Diri Savi Board firms not qualifying at present, within one year’s time they will have to ensure a minimum public holding of 7.5% in the hands of 100 public shareholders.

All listed firms will have to comply with minimum public float rules on or before 31 December 2016 though the SEC has made available the facility to seek extensions subject to more stringent requirements.

All firms not qualifying with minimum float as of 1 January 2014 will be required the correct the shortfall within 30 market days. If unable, they have to by 31 March 2014 make an immediate noncompliance announcement to the market giving the following information: that the entity’s public holding requirement has fallen below the specified requirement; the existing percentage of the public holding; and the number of shares in the hands of the public shareholders.

Upon the making of such ‘non-compliance announcement’ to the market, the listed entity shall be entitled to a period of 12 months from the date of the ‘non compliance announcement’ to correct the shortfall.

Immediately upon making the above mentioned ‘non-compliance announcement’ to the market, the listed entity will have to submit to the SEC the following additional information: the proposed rectification plan and the means to achieve the specified percentage and the time plan to achieve the same; and if the listed entity has chosen to adopt a method specified in Rule 5 the details and justification for the adopted method.

During the 12 months transition period, the PLC will have to make a ‘status announcement’ on the first working day of every quarter to the market which shall include the following: the existing percentage and the number of shares in the hands of the public; and as to whether steps have been taken to rectify the shortfall. Simultaneously the PLC needs to submit to the SEC a report on the progress of the rectification plan.

In the event, a PLC fails to increase public holding to the minimum requirement by at the end of the 12 months, it can seek a maximum number of two extensions but subject to conditions set by the SEC.
Conditions for first extension include proposed rectification plan and the means to achieve the specified percentage and the time plan to achieve the same; and details of the method to be adopted and justification for same. In wanting a second extension PLC needs to give reasons to the SEC as to why it could not reach the required threshold within the time period granted.

When considering such application, the SEC will take into consideration amongst other things, whether such a lower percentage is sufficient for a liquid market, including whether there are reasonable grounds to expect the public holding to reach the required threshold at the end of the second extension of time period if granted.

SEC said a sizeable public holding is a necessity for a transparent and liquid market. It is perceived that greater the public holding, less is the potential for market abuse.

“Therefore, a minimum public holding as a continuous listing requirement is introduced with the aim of promoting a liquid and transparent market with a better price discovery mechanism. Further, the maintenance of a minimum public holding is expected to provide a greater opportunity for the citizens of Sri Lanka to share the wealth produced by the public listed entities in Sri Lanka,” the SEC said.

Listed firms failing to comply with minimum float will have to as soon as practicable adopt methods to raise the public holding via issuance of new shares to the public through prospectus; or offer for sale of shares held by the non public shareholders to public through prospectus; or any other lawful modality determined by the public listed entity.

Any entity that fails to comply will be transferred to the Default Board of the CSE and in permanent failure it will be liable to any one or more of the following sanctions imposed by the SEC: publication of a notice of malfeasance; or suspension of trading; or a mandatory delisting.
http://www.ft.lk/2013/12/23/sec-gets-tough-on-plcs/

To view the complete list of Public Holding follow the below link.
http://sharemarket-srilanka.blogspot.co.uk/2013/12/cse-listed-companies-public-holding.html

damn, the last thing needed, wtf

meka aulak naa.Hiks.danna kattiyata crossings tikakin deela danna thiyenne 20% wenakal.

A mighty roar from the toothless tiger..    

its good to hear that tiger has no teeth... and how does this rule will impact on cse... will it drag the market down

Redbulls wrote:Long wait for new rules; likely to pose problems for select big cap firms

For example, whilst a new rule requires Main Board firms to have 20% held by minimum of 750 shareholders, third largest with market capitalisation Nestlé’s public float is only 9.18% but has 5,649 shareholders.

Second largest stock Ceylon Tobacco is also below the 20% threshold with a public float of 15.87% but has 3,742 resident shareholders though holding a 3.7% stake.

Topic and the content is very misleading, don't you think?
NEST only need to increase the public holing by 0.80% and
CTC don't have to do anything.
What is this joke  

Dileepa wrote:

Redbulls wrote:Long wait for new rules; likely to pose problems for select big cap firms

For example, whilst a new rule requires Main Board firms to have 20% held by minimum of 750 shareholders, third largest with market capitalisation Nestlé’s public float is only 9.18% but has 5,649 shareholders.

Second largest stock Ceylon Tobacco is also below the 20% threshold with a public float of 15.87% but has 3,742 resident shareholders though holding a 3.7% stake.

Topic and the content is very misleading, don't you think?
NEST only need to increase the public holing by 0.80% and
CTC don't have to do anything.
What is this joke  

Time to time ft gets ambitious on bullish or bearish side.

Any-ho me thinks the NEST and the palm oil firms will delist !

In the event of a company is unable to comply, such company may request further extension of time...   

Dileepa wrote:

Redbulls wrote:Long wait for new rules; likely to pose problems for select big cap firms

For example, whilst a new rule requires Main Board firms to have 20% held by minimum of 750 shareholders, third largest with market capitalisation Nestlé’s public float is only 9.18% but has 5,649 shareholders.

Second largest stock Ceylon Tobacco is also below the 20% threshold with a public float of 15.87% but has 3,742 resident shareholders though holding a 3.7% stake.

Topic and the content is very misleading, don't you think?
NEST only need to increase the public holing by 0.80% and
CTC don't have to do anything.
What is this joke  

This could be the latest policy shift of the SEC after Godahewa was appointed. Be appear to be strict on paper but leave loop-holes for soft peddling where necessary. 

K.Haputantri wrote:

Dileepa wrote:

Redbulls wrote:Long wait for new rules; likely to pose problems for select big cap firms

For example, whilst a new rule requires Main Board firms to have 20% held by minimum of 750 shareholders, third largest with market capitalisation Nestlé’s public float is only 9.18% but has 5,649 shareholders.

Second largest stock Ceylon Tobacco is also below the 20% threshold with a public float of 15.87% but has 3,742 resident shareholders though holding a 3.7% stake.

Topic and the content is very misleading, don't you think?
NEST only need to increase the public holing by 0.80% and
CTC don't have to do anything.
What is this joke  

This could be the latest policy shift of the SEC after Godahewa was appointed. Be appear to be strict on paper but leave loop-holes for soft peddling where necessary. 

Agreed.

Market will drag down if forign buyers are not arrived to market....

I can't see what the fuss is about? This is a good move, if the SEC follows it through to the end. This market suffers from serious lack of liquidity.

Why are stocks manipulated?... lack of liquidity
Why don't more foreign investors come to CSE...lack of liquidity
Why aren't local funds (eg. EPF) more invested in the CSE?...lack of liquidity.
Why is SL not on the Morgon Stanley Emerging Market index?... lack of liquidity

The only people who like lack of liquidity are the manipulators , who then find suckers to unload these stocks to. Since the manipulators have a strong grip on the SEC they might stall this. Sure there might be a temporary slump in the market due to some sell offs. But in the long term this is good for our market. But then Sri Lankan investors don't have a long term view.

Until and Unless....way to stop inside information leaking...
Average persons /investors always late a bit at least.... to pick the trend early and get the benefit....

hmm.... that what in my mind!
But any step to stop WRONG DOINGS....APPRECIATED....coz it is good for normal investors....

Has anybody compiled a list of the number of shareholders for the 70 companies that are below 20% public float?

If my understanding is correct, even though some firms fall below 20%, if their market cap is > 5bn Rs. and they have more than 500 public shareholding (i.e. CTC) then they do not have to do anything as they are already compliant?