"Timing is absolutely crucial and there has to be some space for the market to settle down after the successful debenture issue of Bank of Ceylon (BOC)," Janaka Ratnayake told the Island Financial Review.

Merchant Bank of Sri Lanka successfully managed BOC’s debenture issue and Janashakthi Insurance Company’s IPO during the year with both issues being oversubscribed.

Ratnayake believes that despite the global financial crisis, Sri Lanka’s capital market was still very much more resilient than markets in most other countries.

Ratnayake said that over the next few months, several IPOs and debenture issues will be announced.

"Several IPOs and debenture issues have been lined up after the BOC issue and we are waiting for the right time to announce these issues," he said.

Director General of the Securities and Exchange Commission said the commission was lobbying for the inclusion of Treasury bills and bonds for trading at the Colombo Stock Exchange so as to develop the capital market of the country.

Reining in the public sector

Channa De Silva told the Island Financial Review that this would serve several purposes two of which are to disseminate the opportunities of investing in government securities to ordinary investors and help build confidence in the mechanisms of investing in the capital markets.

"Bank of Ceylon’s successful maiden debenture issue is an indication that there is enough funds in the market and that investors are looking for opportunities to make good investments," De Silva said.

"This is an encouraging sign and will help not only the private sector, but also the public sector consider coming to the market to raise long term capital," he said.

The Securities and Exchange Commission (SEC) has for long lobbied to have government institutions raise funds for development activities in the market which would perhaps relax the dependence on foreign commercial borrowing.

"BOC, being the largest state-owned bank, could perhaps be an example to others to try and look at raising capital from the public," De Silva said.

In a recent study of the corporate debt market in Sri Lanka, the SEC highlighted the fact that one of the reasons the debt market had not really taken off was the absence of the public sector.

However, another impediment the SEC found out was that investors held on to listed debentures and little trade ever takes place, if no trades happen at all.

De Silva said the SEC believed that by introducing Treasury instruments to be traded in the stock exchange investors would be able to be more comfortable in learning how to make investments and, most importantly, how to trade.

The Securities and Exchange Commission recommends government to explore and realise the potential in allowing state owned enterprises (SOE) and public-private partnership (PPP) development projects raise long term funding through the bond market.

According to a report compiled by the SEC, the corporate bond market is significantly lagging behind the government bond market and the stock market.

"It accounts for 0.5 of GDP and 1.4 percent of total outstanding government bonds and 2.2 percent of the stock market capitalization," it says.

"In Sri Lanka, the economy is over dependent in raising funds through bank credit and often long term credit is hard to come by, so, as is done in developed and emerging economies, the government could look at developing the bond market for long term financial needs of SOEs and PPPs," Toshihisa Iida, a consultant at the SEC told the Island Financial Review last month.

The bond market will need a reliable benchmark yield curve with which facilitate accurate pricing of bonds.

"The benchmark yield curve is the long term yield curve for government Treasury bills. However, the volatile nature of Treasure bill issues has made it difficult to create a long term yield curve.

"The Central Bank realizes the need to develop this as bonds have to be priced over and above Treasury bill rates and without a benchmark yield curve bond issuing will be costly and less attractive to many potential issuers," Iida said.

The report says that Rs. 15 billion of corporate bonds had been listed at the Colombo Stock Exchange between 2003 and 2007 while commercial banks increased their lending to about Rs. 600 billion during the same period.

"It is important, not only for SOEs and PPPs, that the corporate sector raise long term funds by issuing bonds because it takes the strain away from commercial banks and in difficult times insulate the entire economy, a lesson learned in the East Asian economic crisis," Iida said.