The Securities and Exchange Commission (SEC) has given its approval for the regulatory framework for Infrastructure Bonds, paving the way for the issuance and listing of these bonds on the Colombo Stock Exchange (CSE). The SEC’s decision aims to attract both domestic and foreign investments in infrastructure projects, which are crucial for the economic development of Sri Lanka.
Infrastructure Bonds play a vital role in raising capital for various infrastructure projects, such as roads, rail networks, water management systems, waste management systems, airports, seaports, mixed development projects, natural disaster protection systems, deep water ports, gas supply systems, utility projects, and telecommunications infrastructure. These projects are essential for sustaining economic growth and ensuring long-term sustainability.
According to SEC Chairman Faizal Salieh, this regulatory framework is designed to address the misallocation of capital, which has been a root cause of Sri Lanka’s economic crisis. The aim is to enable instruments that can raise long-term capital for development projects and provide investors with the assurance that their capital will be allocated transparently and accounted for.
The approved framework not only allows government bodies such as Municipal Councils, Urban Councils, Local Government Councils, and the Urban Development Authority to finance infrastructure projects through these bonds but also provides an opportunity for large private sector companies to participate in the financing.
Developing a market for Infrastructure Bonds in Sri Lanka is crucial as it will help raise the much-needed long-term capital for infrastructure development. The scope of infrastructure development in emerging economies has greatly evolved, encompassing not only traditional projects like power, oil and gas, and water but also low-carbon and climate-resilient projects such as renewable energy.
To develop this regulatory framework, the SEC conducted a study of comparable jurisdictions that had successfully utilized Infrastructure Bonds listed in their capital markets to finance major development projects. This ensures that Sri Lanka can learn from international best practices and tailor its framework accordingly.
As part of its Capital Market Reforms Agenda, the SEC has set out 12 key areas for action to foster development, transparency, and investor confidence. The introduction of infrastructure financing products is a key element of this agenda, aimed at propelling the capital market to new heights and contributing significantly to its growth and sustainability. The CSE is expected to actively promote this product to potential issuers.
The regulatory framework for Infrastructure Bonds includes provisions to protect investors, ensuring stringent due diligence, disclosure, and reporting requirements for issuers. Investors will be kept informed about the performance of infrastructure projects, the utilization of proceeds, and the associated risk factors. There are also enforcement procedures in place to address non-compliance with the regulatory framework.
Disclosure requirements include extensive details on the projects in which the raised capital is deployed, progress updates on how the projects fulfill their objectives, and the benefits they bring to the public. Any deviations in the use or allocation of capital proceeds will also be disclosed.
With the approval of the regulatory framework for Infrastructure Bonds, Sri Lanka is poised to attract significant investments in infrastructure projects. This move not only bolsters economic growth but also ensures transparency and accountability in the allocation of capital. As the capital market reforms continue, Sri Lanka is taking concrete steps towards realizing its infrastructure development goals and securing a sustainable future.
