Fair Share

Mar 13, 2011 (LBO) – Sri Lanka’s Central Bank is expected to order commercial banks to limit use of bank guarantees to apply for shares in initial public offers to ensure small investors a fairer share, a report said. A minimum of 10 percent of an issue will be made available for allotment to Unit Trust Funds. “The Central Bank is expected to issue a prudential direction to the commercial banks following last week’s SEC directive,” The Sunday Island newspaper said, quoting an un-named official source.

Last week’s order by the Securities and Exchange Commission, the capital markets watchdog, gave retail investors and unit trusts preference in allocation of shares in initial public issues.

“The Central Bank directive is likely to place a cap limiting bank guarantees on IPOs,” the newspaper said.

“Banks will thus not be allowed to issue large numbers of guarantees, many covering the entirety of an issue or a very large proportion of the shares on offer, relieving applicants of the need for placing cash upfront to cover their applications,” The Sunday Island.

“Some banks have done very nicely on bank guarantee fees while investors who grabbed unequal proportions of such issues made a quic