Wednesday, 16 September 2009

* How to apply for an IPO and listing on the CSE

The Colombo Stock Exchange offers a market for trading in Securities. Listing Rules govern the listing of Securities on the Exchange and continuing listing in order to ensure the creation and maintenance of a market in which Securities can be issued and traded in an orderly and fair manner and which secures efficiency and confidence of all stakeholders in the operation and conduct of the market.

Methods of Listing:

A company may obtain a listing by one of the two methods described below.

1. Initial Public Offering (IPO)

An IPO can be conducted in either of the two ways given below.

* Offer for Subscription

An Offer for Subscription is an invitation to the public by or on behalf of a company to subscribe for its un-issued equity or debt securities.

* Offer for Sale

An offer for sale is an invitation to the public by, or on behalf of, holder(s) or allottees (s) of debt or equity securities already in issue.

2. Introduction

An Introduction is the listing of the Securities of an Entity on the Exchange without the requirement of an initial public offering. A company is entitled to be admitted to the official list of the Exchange through an introduction.

What is an Initial Public Offering (IPO)?

This is the first sale of securities by a company to the public. Colloquially, it is said that a company is going public. A company can raise money by issuing either debt (debentures) or equity. It can be through an Offer For Subscription or Offer For Sale. In the latter, existing shares are sold and the money collected will be directed to the existing shareholders while in the former new shares are crated and money collected is channelled towards the business of the company.

Public companies have a larger number of shareholders and are subject to rules and regulations. In Sri Lanka, listed public companies have to abide by the rules and regulations of the CSE in addition to complying with the provisions of the Companies Act. Additionally, they are subject to the regulation of the Securities and Exchange Commission of Sri Lanka (SEC). From an investor’s standpoint, the most exciting thing about a public company is that the stock is traded in the open market, like any other commodity.

Why go public?

By going public, companies can raise large amounts of capital. Being listed also has many other benefits.

* Because of the increased regulation and scrutiny, public companies can usually get better rates when they issue debt.

* As long as there is market demand, a public company can always issue more shares. Rights Issues and further IPO’s are conducted for this purpose.

* Trading in the open markets means liquidity. This makes it possible to implement things like employee stock ownership plans, which help to attract top talent, to the company.

* Most companies discover a value for their shares through a listing on a stock exchange.

* Access to a widespread shareholder base. The stock exchange puts forward companies a right of entry to a wide-ranging and mounting investor base, which contains both entity investors and plentiful local and international institutional investors.

* Low cost capital. The primary gain of raising capital from the market is that it eschews a number of the intermediation expenses apparent in the other forms of capital raising. Consequently, the market endows companies with capital at a cheaper cost.

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