Wait-and-see approach by new companies on launching IPOs

By Hiran H.Senewiratne

The new government came in with numerous concessions to encourage new companies to go for Initial Public Offerings (IPO) but most companies have not been attracted to them due to conditions, such as, low value expectations.

The government came up with new economic reforms/polices to avert the current volatile situation in the capital market, deriving from the last budget. But several financial, manufacturing and exporting companies are waiting till conditions become stable to go for IPOs, market sources said.

"At present the new government’s massive concessions, including tax concessions, have not attracted new companies to be listed in the CSE because current market conditions are not inducing them to go for IPOs due to valuation issues, chairman, Sri Lanka Stock Brokers Association Ravi Abeysuriya told the Island Financial Review.

He said that current expectations depend on the rupee value against the US dollar and call on companies to go for IPOs that give value to the shareholders who invest in stocks rather than depend on government concessions.

Head of Marketing Softogic Stock Brokers Eardley Kern told the Island Financial Review that several importers and manufacturing companies are waiting for clear directions from the government to go for IPOs.

He said several IPOs that came up in the recent past were not successful and now everything would depend on the forthcoming budget.

In this scenario several companies are waiting till the right time to go for an IPO. Therefore, the new government should come out with proper economic reforms in the budget on the Colombo Stock Exchange, he said.

Sri Lanka’s credit worthiness will be decided on economic development that the new government would be able to maintain in the future and on its ability to manage debts, says prominent international rating agency Moody’s.

The International Monetary Fund has continued to warn that the Sri Lankan government’s tax revenue is woefully inadequate to cover its debts.

The international rating agency says that Sri Lanka’s new government has taken over a fast-growing economy, but one with a large government debt burden.

Sri Lanka’s government debt is 78 per cent when compared to its Gross National Product (GNP) and 40 per cent of its revenue is spent as interests on loans obtained. Analysts said investors were cautious ahead of Prime Minister Ranil Wickremesinghe's policy statement next month outlining his government's economic priorities ahead of the 2016 budget proposals scheduled to be announced in the third week of November.

Analysts said the government's move to implement a budget proposal relating to a retrospective tax targeting corporates is the main concern for investors.

Turnover stood at 1.2 billion rupees ($8.5 million), compared with this year's daily average of 1.1 billion rupees in the CSE.

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