The President of the Colombo Stock Brokers Association (CSBA), Ravi Abeysuriya last week welcomed the proposal in Budget 2018 to allow the two state banks, Bank of Ceylon (BoC) and People’s Bank (PB) to raise both equity and debt capital. Abeysuriya says the proposal, if implemented will allow the two banks to evaluate options of tapping international capital markets without diluting the controlling ownership of the Government as successfully done by state banks in several countries, including India and China.
“This is a very positive move from both the capital market and the country’s perspective because then we will be going with the norms of the rest of the world moving away from an inward looking country. If you look at the Bank of China or State Bank of India, everywhere it has happened,” Abeysuriya said.
Presenting the 2018 Budget Speech, Finance Minister, Mangala Samaraweera announced that in raising equity capital, the State will not relinquish the controlling ownership, but is willing to allow the divestitures, provided that the depositors and the employees are given the option of becoming shareholders.
The CSBA Chief said the Bank of Ceylon and the People’s Bank could enter the local bourse by offering even a small stake of either 5% or 10% which will create a huge impact in the market given the size of the two institutions. However, he noted that it is important that the listing enables ‘price discovery’ through the two market forces – demand and supply, a norm in properly established markets which will then provide the much needed confidence. Further, the stock should also be actively traded so that there will be sufficient liquidity created.
“The Central Bank rule states that one entity should not own more than 10% but this will not happen in this case. What usually happens is there will be a plethora of investors coming in through the International Book Building method or the simpler All or Nothing (AON) method which can be done on a collective basis as well,” Abeysuriya pointed out.
Once listed on the local bourse, Abeysuriya noted that the two banks should then market their stocks on the American Stock Exchanges like the Nasdaq Stock Market or the New York Stock Exchange. This can be achieved through either the American Depository Receipts (ADR) or Global Depository Receipts (GDR), he explained.
“Our market is still not on the radar screen. If we really want to go out there, we should take our companies to the global capital market which matters. First list in Sri Lanka and then put in the US market by doing a dual listing,” Abeysuriya said, noting that the stock will then attract greater interest if it is traded in the US Stock exchange.
He highlighted that the listing will also handsomely benefit the employees of the institutions since they would also be offered to purchase a part of the stake of the bank.
The CSBA Chairman said the Sri Lankan public must fully understand that the proposal to list on the Stock Exchange does not mean ‘privatization’. This is only listing of a small stake of the institution which will have a lot of other benefits like the culture of transparency, governance and accountability being brought in to the two banks, Abeysuriya said.
“There has to be a certain level of education or awareness that this listing does not mean privatisation. They are two different things. Privatization is where a government-owned entity goes into the hands of private sector ownership usually benefiting one or two people. However, here a very small stake is being offered to the public,” Abeysuriya said.