Non-resident investors are permitted to invest in shares and debentures issued by Sri Lankan corporates and units in Unit Trusts operating at the Colombo Stock Exchange. Movement of funds in relation to the investments in above securities shall be through a scheme of account titled, “Securities Investment Account” (SIA) opened in the name of such non-resident investor at any licensed commercial bank.
Foreign Investment In Shares
Issuance of shares by resident companies to foreign inves¬tors (non residents) is permitted without prior approval of the Exchange Control Department (ECD) in terms of general permission granted in Gazette Notifications No.1232/14 of 19/04/2002, 1248/19 of 08/08/2002, 1685/2 of 21/12/2010 and 1737/9 of 20/12/2011 subject to certain exclusions, limitations and conditions.
Permission has been granted for the issue and transfer of shares in a company up to 100% of the issued capital of such company, to approved country funds, approved regional funds, corporate bodies incorporated outside Sri Lanka and individu¬als resident outside Sri Lanka (inclusive of Sri Lankans resi¬dent outside Sri Lanka) subject to the exclusions, limitations and conditions hereinafter set out.
Exclusions:
The permission granted shall not apply in respect of shares of a company proposing to carry on or carrying on any of the following businesses:
- Money lending other than the business of providing of credits to investors to purchase securities of a listed company by a company registered as a margin provider in terms of Section 19(A) of the Securities and Exchange Commission of Sri Lanka Act No. 36 of 1981 as amended,
- Pawn broking,
- Retail trade with a capital of less than One Million US Dollars,
- Coastal fishing,
- Provision of Security services including security management, assessment and consulting to individuals or private organizations.
(a) The permission granted shall apply in respect of shares in a company carrying on or proposing to carry on any of the following businesses only up to 40% of the issued capital of such company, or if approval has been granted by the Board of Investment of Sri Lanka for a higher per¬centage of foreign investment in any company, only up to such higher percentage.
- Production of goods where Sri Lanka’s exports are subject to internationally determined quota restrictions;
- Growing and primary processing of tea, rubber, coconut, cocoa, rice, sugar and spices;
- Mining and primary processing of non renewable national resources;
- Timber based industries using local timber;
- Fishing (deep sea fishing);
- Mass communications;
- Education;
- Freight forwarding;
- Travel agencies;
- Shipping agencies.
- Air transportation;
- Coastal shipping;
- Industrial undertaking in the Second Sched¬ule of the Industrial Promotion Act, No.46 of 1990, namely- any industry manufacturing arms, ammunitions, explosives, military vehi¬cles and equipment aircraft and other military hardware;any industry manufacturing poi¬sons, narcotics, alcohols, dangerous drugs and toxic, hazardous or carcinogenic materials; any industry producing currency, coins or security documents;
- Large scale mechanized mining of gems;
- Lotteries.
- A person resident outside Sri Lanka who is a party to a transaction permitted hereunder must make a declaration to the effect that such person is resident outside Sri Lanka on the share trans¬fer form or share application form as applicable.
- The payment for shares in any issue or transaction permitted hereunder should be made only out of or into a SIA opened in a commercial bank of Sri Lanka in accordance with directions given by the Controller of Exchange in that behalf to commercial banks.
- A commercial bank, a licensed stock broker or any other person entrusted with the payment of capital monies such as sale proceeds of shares, dividends and commissions in respect of any transaction per¬mitted hereunder shall make such payment only into or out of a SIA referred to in sub paragraph (b) above.
- The Secretary/ Registrar to a company in which the issue or transfer of shares to persons resident out¬side Sri Lanka are limited under ‘limitations’ shall not register the name of any person resident outside Sri Lanka or a citizen of a foreign State or their nom¬inee as a share holder in such company if by such registration the limits specified shall be exceeded.
Issue and transfer of debentures of companies incorporated in Sri Lanka to foreign investors are permitted in terms of a gen¬eral permission granted in Gazette Notification No. 1681/11 of 22/11/2010 and 1733/19 of 22/11/2011 subject to certain terms and conditions.
Permission has been granted for the issue and transfer of con¬vertible or non-convertible, redeemable or non-redeemable debentures denominated in Sri Lankan Rupees in a company classified as a specified business enterprise in terms of the Sri Lanka Accounting and Auditing Standards Act, No. 15 of 1995, to foreign institutional investors, corporate bodies in¬corporated outside Sri Lanka, individuals resident outside Sri Lanka and Sri Lankans resident outside Sri Lanka, subject to the following terms and conditions.
1. Terms and Conditions Applicable to Debentures:
- All debentures issued under this Notice shall be listed in the Colombo Stock Exchange, while such issue may be made either by private placement or initial public offer.
- The period of redemption or conversion to ordinary shares, of the debentures issued under this Notice shall not be less than two years and such conversion should be subject to the exclusions and limitations stipulated in the Government Gazette Notification No. 1232/14 of 19/04/2002.
- The debentures issued shall have a current credit rating from a local rating agency or international rating agency acceptable to the Securities and Exchange Commission of Sri Lanka.
- The Board of Directors of the debenture-issuing company (hereinafter referred to as the ‘company’) shall ensure that cash in¬flows of its business operations are adequate to service the repayment of interest pay¬ments on the debentures, so as to prevent any material liquidity risk to the company.
- The Board of Directors of the company shall establish a risk management process that ensures the company addresses the possible risks arising from the foreign investment in the debentures of the company and/or the conta¬gion risk of any default and the other risks to the company in the case of such an eventuality.
- Funds for the investment in debentures and the payment for debentures by the non-resident investor shall be made only out of funds received as inward remittances through a SIA, or funds available to the credit of a SIA of the foreign investor, opened and maintained in a licensed commercial bank in Sri Lanka in accordance with directions given by the Controller of Exchange to commercial banks.
- A commercial bank or any other person entrusted with the payment of the capital amount, coupon, interests and commissions in respect of any transaction permitted here¬under shall make such payments only into or out of a SIA referred to in paragraph 2.4 above.
- The company shall furnish a report to the Exchange Control Department within 30 days of
receipt of remittances for investment in debentures providing the following details:-
- The total amount received through SIAs.
- The names and addresses of the Authorized Dealers through whom the remittances were received.
- A certificate from the Company Secretary confirming that the provisions of the Ex¬change Control Act and the directions issued under the Act with regard to the issuance of debentures have been duly complied with.
Foreign Investment In Units In A Unit Trust
Issuance of units in a Unit Trust to foreign inves¬tors (non residents) is permitted without prior approval of the Exchange Control Department (ECD) in terms of general permission granted in Gazette Notification No.1719/22 of 18/08/2011, subject to certain terms and conditions.
Permission has been granted for the issue and transfer of units in a Unit Trust operated on a license issued under the Securities and Exchange Commission of Sri Lanka Act, No 36 of 1987, as amended, to foreign institutional investors, corporate bodies incorporated outside Sri Lanka and individuals resident outside Sri Lanka (inclusive of Sri Lankans resident outside Sri Lanka) subject to the conditions hereinafter set out.
Conditions:
- A person resident outside Sri Lanka who is a party to a transaction permitted hereunder must make a declaration to the effect that such person is resident outside Sri Lanka on the application form for the purchase of units.
- The payment for the purchase of units in any issue or transaction permitted hereunder should be made only out of or into a SIA opened in any licensed commercial bank in Sri Lanka in accordance with directions given by the Controller of Exchange in that behalf to such commercial banks.
- A managing company, trustee, licensed commercial bank, a licensed broker or any other person entrusted with the payment of monies such as redemption proceeds, sale proceeds, monies of commissions in respect of any transaction permitted hereunder should be made such payments only into or out of a SIA opened in a commercial bank of Sri Lanka.
- A managing company or any other person who is entrusted with maintaining a register of unit holders or of the issue or transfer of units by any Unit Trust should not register the names of foreign institutional investors, corporate bodies incorporated outside Sri Lanka or individuals resident outside Sri Lanka (inclusive of Sri Lankans resident outside Sri Lanka) or their nominee as a holder of units of such Unit Trust unless evidence to the satisfaction of such person is furnished that the terms and conditions applicable to such issue or transfer in terms of this notice have been complied with.
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Posted By Sameera Chathuranga
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