Punyamali Saparamadu, Senior Vice President of the CSE Commercial Division, providing a detailed overview on the strategies adopted by CSE to stimulate growth and broaden its revenue sources. Her insights also highlight the new product portfolio as well as issuer relations initiatives of the Colombo Stock Exchange.

Can you talk about the role your division plays in the Colombo Stock

Exchange (CSE)?

The establishment of a dedicated Commercial Division within the CSE underscores the organization’s commitment to enhancing issuer relations, marketing new products, and diversifying revenue streams while leveraging on its advocacy efforts. These key functions are aimed at strengthening the CSE’s market position among potential issuers across its product suite and fostering growth opportunities.

The Issuer Relations function is pivotal in engaging with unlisted companies, promoting the benefits of listing with potential issuers, dispelling misconceptions, nurturing relationships with unlisted as well as listed entities and positioning the CSE as a preferred solution for capital mobilization.

New product commercialization focuses on promoting new capital market products, by designing appropriate products, assessing market feasibility, creating an enabling environment for such potential products as well as marketing and promoting new products to issuers investors and other users.

Advocacy serves as a crucial link between the CSE and various stakeholders, including regulators, government agencies, and financial institutions, partners/agencies such as USAID, IFC, ADB, UNDP, EU Green Recovery Facility, as well as the Colombo and regional business councils, in securing support for product commercialization initiatives, fostering collaboration and resource mobilization.

Moreover, the Commercial Division prioritizes diversifying revenue streams beyond trading income, enhancing the CSE’s financial resilience and mitigating market volatility risks.

With interest rates decreasing, would you say there is a demand for capital raising through the market? Do you think raising equity through market is beneficial when compared with raising private equity?

A public listing offers companies a unique opportunity to unlock the value of their companies and create wealth for their shareholders which cannot be achieved through private equity. We believe that there will be strong appetite among issuers and investors for capital raising through the stock market for both debt and equity capital.

Let’s consider the factors that weigh upon a listing. When considering whether to raise capital through debt or equity, companies weigh several factors, including funding requirements, cost, speed of raising funds, risk tolerance, and funding duration.

In environments where interest rates are declining, companies often find bank or corporate debt appealing to meet funding needs. Listed corporate debt, particularly for companies with an investment-grade rating, offers access to public funding pools without the need for collateral. Strong investor interest was drawn for corporate debt initial public offerings (IPOs) on the Colombo Stock Exchange (CSE).

Considering the COVID-19 pandemic and the economic crisis that followed in Sri Lanka in 2022, market interest rates can undergo significant fluctuations, imposing liquidity constraints and hurdles for businesses, particularly SMEs and those heavily reliant on debt, notably in sectors like tourism. Even with moratorium facilities in place, excessive debt can endanger collateral ownership, worsening financial pressures. Under such conditions, equity financing presents an attractive alternative.

Unlike debt financing, equity does not entail mandatory dividend payments, thereby offering greater flexibility for companies in cash flow management, particularly during uncertain or volatile earnings periods.

An equity infusion can bolster a company’s financial standing by reducing reliance on debt while achieving an optimal debt-to-equity ratio.

Going public offers companies the opportunity to be seen in an entirely new perspective with enhanced brand recognition, access to a broad pool of local and international investors who could offer strategic partnerships and value addition, increased business value, and improved talent retention and attraction while uplifting the overall company stature being part of the listed entity fraternity.

Another key aspect that companies would consider is that a listing would enable them to be categorized as a better governed company under the corporate governance rules of the CSE which make them more transparent and accountable entities.

Given the above, the CSE’s value proposition for prospective issuers seeking equity listings revolves around unlocking the value of their companies and fostering wealth generation for their shareholders.