Raising capital on Colombo Stock Exchange – Insights by listed corporates
The Colombo Stock Exchange (CSE) currently showcases a diverse portfolio of over 295 listed companies across 20 GICS industry groups.
This powerful source of capital raising is attracting more attention among Sri Lankan corporates of all scales, as an opportunity to benefit from financial flexibility, improved access to capital, increased global profile and access to liquidity. The ability to tap into global capital without the restrictions inherent in traditional lending terms is a powerful tool and attractive proposition.
The shares of Expolanka Holdings PLC (Ticker: EXPO.N0000) commenced trading on the Colombo Stock Exchange (CSE) in 2011 on the Main Board of the CSE under the ‘Transportation’ sector. Hanif Yusoof, Executive Director and Group CEO of Expolanka Holdings PLC, shared the company’s experience of listing on the CSE.
Q: Raising funds via the exchange is an effective alternative to traditional funding means. What were your reasons for accessing funds for growth via the public market?
A: Our objective for listing was multifold, whilst primarily accessing capital, it also ensured that Expolanka’s profile as a leading conglomerate in Sri Lanka is maintained in a sustainable manner, broad basing our shareholder base and enhancing our governance structures to name a few. The results and position that Expolanka is in today are a reflection of this.
Q: At what point of the growth curve do you think a company in a similar market as yours should consider listing?
A: I believe it would greatly depend on each company’s vision and what their respective plans for the business would be. Ideally, prior to listing, the company should have demonstrated its capabilities, built its infrastructure to meet the listing requirements and put in place a strong growth plan. In my view, the above would be the minimum aspects the company should have in place for a potential listing process.
Q: In the local context, there is a hesitancy to access funds via the exchange. What do you think those reasons are and how would you address them for those on the fence?
A: Broadly speaking, a hesitancy for listing could be attributed to two possible factors. On the one end, obtaining optimum valuations and subsequently meeting the perceived post-listing challenges on a continuous basis. The most important strategy to address the above would be to have in place a strong team and foundation who would be able to guide the board and management through any teething issues they may have.
Q: How should companies view organizational structure pre-IPO in order to ensure success post-IPO?
A: I look at organization structure from a wider perspective, encompassing the physical structure, business profile, portfolio, infrastructure and model of the organization as well. The structure, therefore, is a very important tool, as it relates to the core fundamental value offering of a listed entity. Having the optimum structure that has the capability to generate long-term sustainable returns and provides value for all shareholders is critical. Therefore, a review of the above is important as it would provide confidence to all investors.
Q: Has the transformation into a public entity reinforced or strengthened any practices at your company?
A: I would say definitely yes. Firstly, being a listed entity provides that much more credibility to the organization’s brand, particularly relating to its market presence. Furthermore, a listing brings with it improved corporate governance practices and access to a broad base of shareholders who would add value to the company plans. From a financial perspective, the company is always focused on generating returns and therefore improves its internal processes to enhance the quality of earnings thereby creating more value for all its shareholders.
Q: Can you share your thoughts on the importance of effective communication regarding your future plans with your shareholders post-listing and how that reinforces the success of the share price?
A: I believe you used the correct term in “Effective Communication”. Being transparent and clear with your shareholders enhances the integrity of your company and brings credibility to your stock. Once shareholders and potential investors are aware of the company’s plans, they can make informed decisions. It brings with it loyalty and stability to the stock price. An important point I would like to highlight is that communication should not only be when the company is doing well, it should be carried out with even more transparency when the company is going through certain challenges as well.
Q: CSE provides access to raise funds globally. Do you have any thoughts or experience on how foreign investors add value to your company?
A: Through our listing process, the majority of our investors have been foreign funds. This was true even during the Pre-Sagawa period when the majority ofpublic holding was held by foreign investors. Today over 76% of the company is held by foreign investors. Foreign investors are generally long term and furthermore, they bring with them international expertise and experiences that will greatly benefit the company, adding value to all stakeholders. Our engagement even with our minority foreign funds was very encouraging and helpful to help positioning Expolanka to where it is today.
Q:The CSE has relaxed the regulatory framework to facilitate more listings. Would you like to comment on it?
A: An active capital market is important for the upliftment of the economy and to ensure that investors have a more diversified investment portfolio to choose from. I personally welcome the move to increase listing on the exchange
Q: How vital is it for an organization to manage its debt-to-equity ratio?
A: Capital structure is a very important yardstick and tool to manage returns for stakeholders. Having an effective debt-to-equity ratio will not only bring about optimum returns, but it would also facilitate the organization in raising more capital to pursue its investment and expansion initiatives.
Q: How has your company adjusted to the current global environment?
A: Expolanka is effectively a dollar based company with over 95% of our earnings generated from international markets. The DNA of our company is such that we have always been agile and flexible allowing us to adjust to market conditions effectively. Furthermore, we have followed a consistent strategy, leaving room to manage changes in global market conditions. Supporting all of this is the infrastructure and processes that we have built helping us to mitigate challenges effectively.
Q: How do you foresee the growth of your company going forward?
A: As a company, our aim is to build long-term sustainable value for our shareholders. We have demonstrated our capability in the past through the implementation of the strategies we have adopted. We will continue to focus on our strategies and the plans we have put in place and we are confident that we have the capability and resources to continue, implementing these plans over time.
(Compiled by Colombo Stock Exchange)