In response to the public’s request, the Colombo Stock Exchange (CSE) has revisited its rules of listing governing the basis of allotment of shares in an Initial Public Offering (IPO).
At present, rule 2.1.1 (g) of the Listing Rules of the Colombo Stock Exchange sets out how the shares are allocated to certain categories of investors. The revision of the rules, which aims to ensure greater transparency and fairness, resulted in the CSE formulating a revised regulatory framework to be adopted by prospective IPO issuers.
Through the revision, the CSE hoped to address the following aspects;
-Where the value of the IPO is less than Rs. 3 billion, expanding the definition of ‘retail individual investors’ to accommodate investors applying for a value of Rs. Two Hundred and Fifty Thousand (Rs. 250,000/-). This would increase the number of applicant subscribers, who would be classified as ‘retail individual investors’ and thereby be eligible for the mandatory allotment of 40% of the shares of the IPO under the said category.
-Where the value of the IPO is above Rs. 3 billion, specifying a minimum percentage of shares that could be made available to the retail individual investors and to define ‘retail individual investors’ as those investors who would apply shares in the IPO for a value of Rs. Five Hundred Thousand (Rs. 500,000/).
-Requiring the Issuer to identify the categories/types of investors who would be considered by the Issuer as ‘strategic investors’ and receiving shares of the IPO on a preferential basis.
-Where the value of the IPO is less than Rs. 3 billion, specifying a maximum percentage of shares that could be made available to such ‘strategic investors’.
-Specifying a maximum percentage (%) of shares that could be made available to employees in any IPO. This would ensure that no undue advantage is offered to such ‘strategic investors’ or employees of the Issuer over and above the investing public at large.
-To introduce a requirement to lock-in of the shares allotted to all persons on a preferential basis.
-Mandating the disclosure of shares allotted to persons on preferential allotments.
-The allocation of shares to the unit trust category to be expanded to include any unit trust approved by the SEC. – Where the value of the IPO is above Rs. 3 billion, specifying a minimum percentage (%) of shares that must be made available to the unit trust investor category.
(Extract – CSE Press Release: 3rd Feb, 2022)
The press release also notes that the proposed regulatory framework will be available on the official website of the Colombo Stock Exchange (www.cse.lk) and the general public is welcome to submit their opinions before the 11th of February 2022.
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