‘CSE has to consolidate’

Sanjeevi JAYASURIYA

The Colombo Stock Market has to consolidate and continue consistent performance as its trading stocks reach more realistic values. The stock market is the secondary market for listed equity. It offers guidance to raising fresh capital in the primary market. Raising fresh capital has all but run dry.

The real value reflection will augur well for the market to improve its level of performance moving out from its negative territory, Fitch Ratings Country Head Maninda Wickramasinghe told Daily News Business.

The market had to come down as it was unable to sustain the yoy high value. The stock market should reflect a company’s performance against the growth prospect of the country. Some sectors in the economy will grow at a faster pace than others. Foreign investors are more likely to return to invest then, he said.

The stability of the economy depends on a good banking system, bond market and an equity market. There is a need for a long-term capital and both debt and equity markets can serve that need. There is now a conscious requirement for a formal institutionalized mechanism such as an investment bank.

Sri Lanka’s corporate debt market needs to be strong and an effective mechanism should be in place to overcome the present transparency issues. The draft Securities and Exchange Commission Act has recognized non- listed company debt and this is a progressive step to make debt market accessible to international capital markets, along with the liberalization of capital inflows and outflows into them, he said.

Foreign direct investment will play an important role in capital funding and the country should look at monetizing to generate definite cash flows to sustain development projects. This can be done through the securitization mechanism to take it to the market for investment. Securitization is a credit enhancement and requires a legal framework. The next phase of inflows should be from these projected cash flows be it from road, port, airport or other infrastructure projects.

The PPPs could be customized as there is no specific model and this could form an integral part of financing long-term mega projects. The banking system requires larger pools of capital to help finance the next stage of growth. Internal resources alone will be constrained.

As mega development projects need international funding, the secondary market for debt is important. It provides an exit mechanism and a low risk profile. The country needs to have international capital framework and should embrace international standards, Wickramasinghe said.