CSE to revise debt market rules

The Colombo Stock Exchange (CSE) is currently in the process of amending regulations pertaining to the listing of debt securities, according to CSE’s Assistant General Manager of Regulatory Affairs, Renuke Wijayawardhane.

“We are currently in the process of revising some of the Listing Rules. However, nothing has been finalised at the moment and we are still at the discussion stage,” Wijayawardhane said.

Amendments to the current regulatory framework follows a spate of new listings of corporate debt, mainly debentures, on the CSE by listed and unlisted companies, seeking to capitalise on generous concessions granted in Budget 2013.

Proposals in question include the exemption of the withholding tax on interest income earned by investing in bonds and debentures listed with the CSE.

Speaking to Mirror Business about potential barriers to the establishment of a vibrant corporate debt market in Sri Lanka, Wealth Lanka Management (Pvt.) Ltd Chairman Mangala Boyagoda highlighted lack of information and regulation on unlisted companies as a potential challenge.

“Recent steps taken to promote the creation of a corporate debt market are very positive. However, statistics on unlisted companies are lacking. So, it’s very difficult to get a clear understanding of the depth of the Sri Lankan corporate debt market,” he said.

Boyagoda also called for more stringent regulation of unlisted companies, which expect to list debt securities.

“Unlisted companies issuing listed debentures must be regulated, so there is control over who is allowed to list debentures and at what amount. Investors have had their fingers burned in similar situations before, so proper regulation will be important to establish confidence,” he noted.

Policy consistency with regards to tax concessions was highlighted as a further area of concern. “Removal of the withholding tax and other tax concessions will help grow the corporate debt market. However, there are concerns about their impact on government revenue.”

“Now that they’ve implemented it, there has to be some consistency to allow the market to adjust but with current revenue levels, I have concerns about the sustainability of tax concessions,” Boyagoda said. Meanwhile, Heraymila Securities Limited CEO Ravi Abeysuriya called for streamlining of listing procedure and a greater focus on educating investors about the corporate debt market.

“There is a lot of change that will be required if the corporate debt market is to grow. Even now people are only buying debentures and then holding on to them so they’re not really being traded.” “More will have to be done to educate investors the approvals process, which is geared only towards equity, needs to be simplified,” Abeysuriya stated.