What it takes to become a name on the big board

Sri Lankan companies are emerging out of a relatively inactive period into one that that has been predicted to show economic growth and political stability and with it a resultant increase of more investment and business opportunities. However securing capital for expansion, research and development, advertising, packaging, etc. for most companies is an issue. Thus the opportunity to raise public funds is one option which is increasingly being taken advantage of by progressive Sri Lankan companies hoping to make an impact in their respective marketplaces.

More companies are taking to listing with the Colombo Stock Exchange (CSE) as suggested by the recent surge of high profile Initial Public Offerings (IPOs) such as the Sri Lanka Telecom IPO -the largest in Sri Lanka's history to date. There have also been other listings such as the IPO of Lanka Hospitals Corporation IPO (Apollo), the listing of Hayleys -MGT Knitting Mills Limited and Land and Building Limited, the IPO of Tess Agro Limited, The Preference share issue and the debenture issue of Commercial bank, the debenture issue of Hatton National bank and most recently the Seylan Bank IPO of non-voting shares. An IPO of Hemas is due to open shortly. The increasing popularity of listings whether they are big or small can be attributed to certain key benefits that companies can access once they conquer today's essential issues of transparency and due diligence which criteria have to be continuously adhered to become and remain a listed company.

Advantages are considered to easily outweigh the perceived minor inconveniences such as the continuing listing obligations such as furnishing quarterly statements and other shareholder related activity. Advantages such as access to a potentially large pool of capital available through both individual and institutional investors both foreign and domestic which also continues beyond the initial listing to all later stages, even with companies who have already been listed. Companies can issue equity and debt securities as well as other securities continuously throughout their tenure on the CSE. This ability to continue raising capital is of great benefit as long as a company has the shareholder goodwill required to issue different types of securities. A further benefit from raising capital from the stock market is the lower cost of capital that companies could access.

Then there are also the indirect benefits of becoming a listed company such as the tax reduction in the Corporate Tax that has to be paid annually. Being a listed company also allows for enhanced brand awareness and a level of prestige that few unlisted companies share as most listed companies get their listing amidst a media blitz which is partly due to the significant news distribution with local and foreign media on the stock market. An added advantage derived from the need for listed companies to maintain strict transparency protocols -usually perceived as a downside of listing -is that the added prestige in conjunction with greater transparency enhances the listed company's ability to borrow from other sources as well. The stock market also offers an opportunity for companies to obtain a valuation for their shares. Given the growth and momentum in the market many companies are now considering a listing for this reason.