Compliance with public float rule a problem for many companies

About 70 companies of 220 listed on the main board of the Colombo Stock Exchange (CSE) have been unable to comply with the 20% minimum flat requirement that has been long pushed by both the CSE and the Securities and Exchange Commission.

The position is much better on the second or Diri Savi board where 17 of 74 listings have been able to comply with the less stringent requirement.

Stock analysts said that a few companies, including some old established firms like John Keells PLC (not JKH), the commodity broking and warehousing subsidiary of JKH, have overcome the problem by migrating to the second board. Others are considering a similar move.

In recent weeks the CSE website has been publishing dozens of disclosures from listed companies stating that they are non-compliant and saying what they are trying to do about it.

These range from a filing by Sri Lanka Telecom PLC, one of the biggest market capitalized companies quoted on the CSE, which despite having as many as 12,248 public shareholders on their share register is non-compliant with a public float of just 5.52%.

SLT has said that they are in the process of evaluating options that are available to them to comply with the requirement and would communicate steps to be adopted “in due course.”

Commercial Bank of Ceylon PLC whose subsidiary Commercial Development PLC is non-compliant with the public float rule has attempted to sell down its over 90% stake in the subsidiary. But it had only succeeded in disposing just 183,483 shares in July, reducing its stake in Commercial Development from 94.55% to 93.01% due adverse market conditions.

Commercial Development said in a recent filing that their parent will continue to try to sell down to comply with the rules.

The holding company of Singer Sri Lanka recently reduced its controlling stake while retaining comfortable control in order to help make the Singer share more liquid. There was also a sub-division of shares dramatically increasing the number of shares in issue.

Lankem Ceylon PLC with 2,003 public shareholders owning 17.3 percent of the company said in a recent filing that they hoped the rights issue they had recently announced would help overcome the minimum float difficulty.

Gestetner PLC, where 701 public shareholders own 15.57% has said it was exploring “the best course of action” to rectify the current position while the management of Aitken Spence Plantation Management PLC with 103 public shareholders owning 11.78% of the company is working on a rectification plan to present to its board.

“While there is an effort to get the public float issue sorted out as best as possible, neither the SEC nor the CSE is waving a big stick threatening penalties for non-compliance,” an analyst said.

“Given that both the CSE as well as the regulator are keen to increase the number of listing, and they are slow in coming, they wouldn’t want already quoted entities to be forced de-list over this matter. That is why several extensions or the original deadline have been granted.”

CSE CEO Rajeeva Bandaranaike said that the position improved considerably from where they were some time ago. But there was yet more distance to cover.