COLOMBO'S EMBRYO EXCHANGE

Eric Ellis, Colombo

01/16/1988

THE COLOMBO stockmarket just had its best-ever year, but no-one in Sri Lanka seems to know how good, least of all the management of the emerging stock exchange.

That's because the tiny market, capitalised at about $A800 million, does not yet have a share price indicator.

 "We are working on that one, sir, but I'm afraid it is taking time,"apologises Mr Ravi Peiris, general manager of the Colombo Securities Exchange

"We have just bought our first computer to help us in our calculations. It's a personal computer, sir, very expensive at 20,000 rupees ($A1,000) and we are presently trying to work out how to use it," he says. Indeed, it was only in December 1985, that the Colombo exchange got its first "real" trading floor. Since 1894, members of various "share broking societies" have sat around a mahogany table in a Colombo club, drinking tea and gin slings, swapping colonial yarns and making an occasional trade through an intimate bidding system.

But what the Colombo exchange may lack in sophistication is more than made up in charm.

Visitors to the exchange first run the gauntlet of beggars, hawkers, political protesters and ancient Morris Minor taxis before entering a rambling old building on York Street, in Colombo's CBD.

Two floors up (a lift was installed to celebrate the exchange's inauguration), the trading floor is easily missed. The usual international hubbub of chattering telexes, urgent telephones and screaming floor traders gives way in Colombo to a more genteel style of business that lends itself to the days when Sri Lanka was Ceylon and the sun never set on the British Empire.

The eight member firms (a ninth pulled out in November for lack of market share) boasting solid British foundations, with names like Bartleet and Co, John Keells Ltd, Forbes and Walker, and Somerville and Co, each occupy a modest desk in an airy, concrete room, refreshed by the ubiquitous overhead fans and a jungle of potted tropical plants.

Like Australia, trading nowadays is via the post outcry method, before a dozing floor governor and a board boasting 171 companies, only about 20 of which are deemed tradable, the blue chips or "gilt edged", as Mr Peiris called them. Each table has a telephone, linked not to the outside world, but to the public gallery where 40 to 50 people congregate each day to watch capitalism at work or, more likely, just for something to do.

"I know of no other exchange in the world that has this style of client-broker communication, it's unique," said Mr Peiris.

Trading, tea and tobacco companies prevail, but the honour of the biggest listed company goes to Property Development Ltd, 60 per cent owned by the State-run Bank of Ceylon and boasting a capitalisation of just under a billion rupees.

Another big group is Ceylon Tobacco, 80 per cent owned by the giant British American Tobacco group and a sister firm to Australia's Amatil Ltd. Other recognisable names include Reckitt and Colman, Barter Shoes and Glaxo. Boom times prevail on the Colombo market, insulated by its xenophobia. Daily trading is measured at an average of 1.8 million rupees, about half the 1987 peak, but double the levels of a year ago and four times the figure of 1985. Share prices of prominent stocks have risen by about 80 per cent to 100 per cent since early 1986.

It comes as cold comfort to learn that the Colombo market's most buoyant period in history was in late October and early November as the rest of the world recovered from Black Monday. Daily turnover reached 3.6 million rupees in the week of Black Monday. "We have a famous saying here in Colombo now. Wall Street might collapse but York Street stands up well. That's because there was nothing to collapse," said Mr Peiris.

Corporate raiding and takeovers are not in the Colombo market glossary and nor are financial scandals. Mr Peiris says the market is too small for any of"this sort of exotic paraphernalia".

Indeed, the conversation between The Sydney Morning Herald and the equities manager of Bartleet and Co, one of Sri Lanka's biggest tea and rubber brokers and a CSE member, went something like this:

SMH: "Do you have any prominent sharemarket speculators, entrepreneurs that exploit and manipulate the market for one-off profits?"

Bartleet: "I am sorry sir, I do not catch your meaning."

SMH: "You know, corporate raiders, people who take large positions in companies and talk the market up."

Bartleet: "We do not have these type of people in Sri Lanka."

SMH: "What about takeovers. Is there much of this activity?'

Bartleet: "Takeovers, Sir? What is takeovers (sic)?"

SMH: "Takeover. When a company recognises another listed company as undervalued and makes a market bid for all or part of its capital."

Bartleet (after a long pause): "I am not familiar with this kind of activity in Sri Lanka, but it sounds very interesting."

Power lunches are also out in Colombo. The local equivalent to Chez Oz is probably the Gillos Grill across York Street in the Cargill's Building, while the establishment class might take a very civilised long lunch on the verandah at the 123-year-old Galle Face, Asia's oldest grand hotel. With just two hours' trading a day, and that's in the morning, they can afford to.

Less than 1 per cent of Sri Lanka's 19 million people own shares and less than 2 per cent of all shares issued by the country's public companies are traded in any one year.

A recent innovation to the market was the formation of a Securities Council by the Sri Lankan Government, in response to what it calls the "increasing sophistication" of the market.

There is a push from the foreign business community to deregulate the market and open it to international activities.

But foreigners are discouraged from buying shares by a bureaucratic system which requires permission to deal with foreign currency.

Foreign transactions are also subject to a 100 per cent capital tax, effectively doubling the price of shares sought. A 20 per cent withholding tax is also made on dividend income adding to the fixed 1.5 per cent broking commission and 1 per cent stamp duty.

Mr Peiris said: "We have to restrict foreigners because it would take only one deal and we would be all gone, lock, stock and barrel."