Saturday, November 27, 2010

Sri Lanka aims to double share market cap by 2012

By Shihar Aneez and Ranga Sirilal

Nov 26 (Reuters) - Sri Lanka plans to double the Colombo Stock Exchange's .CSE market capitalisation from the present $19.8 billion over the next two years by listing companies partly owned by the state, the central bank governor said on Friday.

Speaking at a Reuters forum in the capital Colombo, Governor Ajith Nivard Cabraal said that will ensure there is enough liquidity for foreign investors to take part in the Indian Ocean island nation's post-war economic revival via equities.

Many institutional investors and funds trying to catch a piece of the growth in Sri Lanka's $42 billion economy since the end of a civil war in May 2009 have shied away from the share market, because of its small size and lack of free float.

"We are targeting a few billion rupees through listing companies which have a government stake," Cabraal said. "Some big companies partially owned by the government may be listed."

He also said that one or two privately-held conglomerates and other large family businesses are headed toward listing.

"This will probably double the capitalisation," Cabraal said.

Sri Lanka's share market capitalisation is at 2.2 trillion Sri Lanka rupees ($19.8 billion), having doubled in the first 10 months of 2010, with local investors and state-owned funds surging into shares.

Foreign investors have sold a net 27.3 billion rupees in shares this year, with most offshore interest having been focused on government treasury securities which still offer an attractive yield in the wake of the global financial crisis.

But the limit on foreign holding has been reached, leaving investors searching for other ways to get exposure.

Sri Lanka is also aiming to double its per-capita gross domestic product to $4,000 by 2016, and that means the banking sector's lending capacity has to be more than doubled to achieve that, Cabraal said.

"Banks' lending should be more than double to around 4 trillion rupees from the current 1,800 billion rupees in the next five years to double GDP per capita," he said.

Though the government is not considering relaxing a 100 percent tax on foreign property ownership, it has planned to release prime property in the capital Colombo for large outside investors, and to raise money through long-term leases.

Colombo has some of Asia's most valuable and underdeveloped seafront land, owing to a quarter-century civil war that made tourism investment a risky prospect.

"We've agreed to release valuable land where army and defence establishments are located and release them on long-term lease," Defence Secretary Gotabaya Rajapaksa, who is also overseeing post-war urban development, told the forum.

Part of the process involves moving about 75,000 families from slums and shanties in Colombo which are located on valuable state property or road and railway reserves. The plan is to build homes outside the capital for relocation, he said.

"We have to find a way to finance this because it is expensive for relocation, but it is feasible. International, local companies partnering with govt to build 30,000 homes over next three years for slumdwellers' relocation," he said. (Writing by Shihar Aneez; Editing by Bryson Hull)

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