Sri Lanka Sees Emerging Market Entry in 2015 on IPO Outlook

Sri Lanka’s chief securities regulator said he aims to get the country’s stocks into the MSCI Emerging Markets Index as soon as next year.

Nalaka Godahewa, chairman of the Securities and Exchange Commission, said the island nation needs a company to list $500 million of equity to become eligible for promotion to the emerging-market index from the frontier-market gauge.

“If one or two large existing companies increase their current public float to 20 percent, we are easily there,” Godahewa said in an interview in London on May 30. “I am hopeful that this will happen in 2015.”

Sri Lanka is seeking foreign investment to fuel an economy that has been growing at around 8 percent a year as the country recovers from a three-decade civil war. MSCI indexes are tracked by investors managing about $8 trillion in assets.

In order for a market to be classified as emerging by MSCI Inc., it must have, among other requirements, at least three firms with a full market capitalization of $1.03 billion and $516 million of listed stock, according to the New York-based firm.

Companies raised about $20 million in three initial public offerings in Sri Lanka this year, an increase from $3.8 million in one IPO last year, according to data provided by the bourse. Godahewa said he aims to double the exchange’s $20 billion market capitalization in the next three to four years.

Any changes to market classifications will be announced on June 10, Sebastien Lieblich, executive director of MSCI Index Research, said in response to a request for comment on Sri Lanka’s status.

‘Serious Discussion’

The Sri Lanka Colombo Stock Exchange All Share Index has climbed 6.4 percent this year and trades at 14.3 times reported earnings. The index gained 0.5 percent by the close in Colombo today. The MSCI Emerging Markets Index has advanced 2.7 percent in the period and is valued at 12.9 times.

The exchange is in “serious discussion” with as many as 45 companies seeking to list over the next three years and is targeting adding up to five more offerings this year, Godahewa said.

“There are many large, very successful companies in the country, which are currently privately held,” Godahewa said. “If some of these companies list shares, it will change the formula completely.”

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