Markets
Sri Lanka: the CSE's eleven routes to a further issue
A Colombo-listed company can issue convertible debt securities, and the CSE rulebook sets no conversion-pricing formula. What it does not provide is a route for a price that refixes at each conversion: Rule 5.1.1 bars any further share issue until the Exchange has approved it, and Rule 5.1.2's eleven permitted instances include no facility an investor can draw down.
Key takeaways
- Eleven routes, and that is the list. Rule 5.1.2 enumerates every instance of a further issue, from a rights issue to shares arising from convertible debt securities. None of the eleven is a facility.
- Capped at 20%, then locked out for two years. Rule 5.4(b) caps a placement at 20% of the shares in issue immediately after it; Rule 5.4(c) bars another for the 24 months that follow. The SEC may waive either.
- A special resolution every time, not a standing mandate. Rule 5.4(d) sends each placement to a general meeting, and Rule 5.4(e) requires the price, or a minimum price, as soon as the board decides. There is no annual mandate of the SGX or ASX kind.
- The only VWAP in Section 5 belongs to employees. Rule 5.6.7 caps the discount under an employee share purchase scheme at 20% of volume weighted average price over the 30 market days before the grant date.
Why the rulebook answers by enumeration
Most markets here answer the floating-price question with a price: a par floor, a formula, a capped discount. Sri Lanka does not. Across Section 5 the phrases conversion price and market price do not appear once.
The discipline sits one level up. Rule 5.1.1(a) provides that where shares of a class have been listed, further shares of that class may not be issued until the Exchange approves the issue and listing. Rule 5.1.2 then lists the instances in which a further issue may be made at all. A convertible debenture and a warrant both appear, so equity-linked paper is available. A facility drawn on demand does not.
What Rule 5.4 does to a placement
The private placement is the closest Sri Lankan analogue, and Rule 5.4 shapes it four ways at once: capped at 20% of the shares in issue immediately after, unrepeatable for 24 months, subject to a special resolution, and priced in public from the moment the board decides.
That last one is what bites. A discount-to-VWAP conversion price is deliberately unknowable at signing; the point is that it is measured later. Rule 5.4(e) asks for the number at the start, and Rule 5.4(f) makes the directors certify it as fair and reasonable. A stated minimum price satisfies the rule, and that is the modification Sri Lanka demands: a disclosed floor, not a floating reference.
| Element | What the structure needs | What Section 5 requires |
|---|---|---|
| Price | Set at each conversion, against a VWAP window | Price or minimum price announced on the board decision (5.4(e)) |
| Share count | Unknown until conversion | Maximum announced up front; conversion shares applied for when the convertible lists (5.9) |
| Frequency | Repeated drawdowns on demand | No further private placement for 24 months (5.4(c)) |
| Size | Sized to the facility | 20% of shares in issue immediately after (5.4(b)) |
| Authorisation | A standing mandate | Special resolution at a general meeting, each time (5.4(d)) |
| Pre-emption | Disapplied for the investor | An article allowing a non-pro-rata issue, per Section 53(1) Companies Act (5.4(f)) |
| CSE Listing Rules as amended to 10 April 2025. Not an offer, a quote, or a rate card. | ||
Convertible debt, warrants and the share count problem
Rule 5.9 governs the listing of shares arising on conversion of debt securities, through a pairing the rulebook calls primary and secondary securities. The application to list the shares goes in at the time the convertible is listed: a share count fixed at the front of the transaction, not discovered at the back.
The warrant rule points the same way. Rule 5.10 defines a warrant as the right to buy the underlying at a pre-determined price, caps its tenure at two years and requires a special resolution. Sri Lanka's own equity-linked instrument is built around a strike settled before issue. See how convertible debentures are structured and what an equity facility actually is.
Getting in, and getting out
A non-resident subscription is a capital transaction under the Foreign Exchange Act No. 12 of 2017, and the rulebook points to the Foreign Exchange (Classes of Capital Transactions Undertaken in Sri Lanka by a Person Resident Outside Sri Lanka) Regulations No. 2 of 2021, amended by Gazette Extraordinary 2235/22 of 6 July 2021. Exchange control has moved a great deal since 2022, so settle the account mechanism early.
Resale is the pleasant surprise. Section 5 attaches no lock-in to placement shares; its only lock-in runs against employees. Sri Lanka sits opposite most constrained markets here, where issuance is easy and the stock is then immobilised. Compare what makes shares freely tradable.
One trap sits outside Section 5. The rulebook's definition of Public Holding excludes, broadly, a holder of 10% or more of a Main Board entity or 5% or more of a Diri Savi Board entity. Convert into size and the stake stops counting toward the float the issuer must maintain, so dilution and listing compliance arrive together.
This verdict is provisional. Whether a floating conversion price is permitted in Colombo was not established either way for this note, and the constrained tier reflects the absence of evidence rather than a located permission. The twenty-per-cent cap on a placement is confirmed; the sub-rule numbers and the repeat-issue bar cited above are taken from secondary summaries because the CSE Section 5 text would not parse.
General information, not legal advice. Written from the CSE Listing Rules as amended to 10 April 2025, which sit under the Securities and Exchange Commission of Sri Lanka Act No. 19 of 2021. Rule numbers, the SEC's waiver practice under Rules 5.4(b) and 5.4(c), directives outside the Listing Rules and Sri Lanka's exchange-control position all change. Take advice from Sri Lankan securities counsel.
What a Colombo board should settle first
Four things, in order, and none is price: which of the eleven instances the raise fits; the date of the last private placement, since Rule 5.4(c) may already have closed that route; whether the articles carry the non-pro-rata power Rule 5.4(f) demands; and only then the defensible minimum price. Send those four and we will say which route is open.
Primary sources
- CSE — Listing Rules Section 5, Further Issue of Securities of a Listed Entity
- CSE — Listing Rules, amendments to 10 April 2025
Sri Lankan listed issuers: frequently asked questions
Can a CSE-listed company issue a convertible whose conversion price is set against the market?
Nothing in Section 5 of the CSE Listing Rules fixes a conversion price, caps a discount or forbids a market reference. The answer comes from process. Rule 5.1.1 bars a further issue until the Exchange approves it, and Rule 5.9 requires the listing application for the conversion shares when the convertible itself is listed. A share count unknown until conversion has nothing to apply for.
Can an investor fund a Sri Lankan issuer in tranches, drawing down over time?
No. Rule 5.1.2 sets out the instances in which a listed entity may make a further issue, and a drawdown facility is not one of them. Rule 5.4 then caps a private placement at 20% of the shares in issue immediately after it and bars another for 24 months, though the SEC may waive either.
Are shares issued in a Sri Lankan private placement locked up?
Section 5 imposes no lock-in on placement shares. Its one lock-in falls on an employee share purchase scheme, where Rule 5.6.7 requires a minimum of one year from allotment. The Sri Lankan constraint sits on getting shares issued, not on selling them. Requirements can sit outside the Listing Rules, so confirm with Sri Lankan counsel.
What has to be in the articles before a placement can be done?
Rule 5.4(f) requires the listing application to include an extract of the article that specifically permits the entity to issue new shares without offering them pro rata to existing holders. The rule ties that to Section 53(1) of the Companies Act. If the articles do not carry it, the placement does not start.
If this is about a live situation
The CSE rulebook enumerates eleven ways to make a further issue and none of them is a facility an investor can draw on, so a Colombo issuer is choosing a single placement rather than a programme. The instrument comparison sets out which single structures survive a 20% cap and a twenty-four-month lockout.