Creating a partnership for the future: London Stock Exchange Group and Colombo Stock Exchange

By: Dee Liyanwela, Global Head of Shared Service Centres and Head, LSEG Technology Sri Lanka Jun 2019

London Stock Exchange Group (LSEG or the Group) has a long-standing connection with Sri Lanka. With more than 1,100 highly trained personnel in three state-of-the-art facilities in Colombo and Malabe, it is one of the Group's largest operating centres.

Over the last few years, LSEG and Colombo Stock Exchange (CSE) have sought to establish a long-term relationship to enhance the level of cooperation between the two Groups. This includes deepening relationships with key stakeholders in the UK and in Sri Lanka, promoting a framework for dual-listings and for the trading of bonds on both exchanges.

Earlier this year, the collaboration between the LSEG and CSE culminated in the signing of a landmark Memorandum of Understanding (MoU), which will target four key areas: LSEG to support the CSE in the development of the domestic debt market including the market for offshore Sri Lankan rupee bonds or green bonds; LSEG Technology to support in upgrading capital market infrastructure and delivering technology solutions to the CSE; FTSE Russell guidance in capital market classification and index inclusion; and improving links to international Central Securities Depositaries (iCSD).

The MoU follows the Democratic Socialist Republic of Sri Lanka’s $2.4 billion bond issuance in February 2019, one of its largest ever offshore dollar bond offerings. Listed on our International Securities Market (ISM), London Stock Exchange provided Sri Lanka with greater access to UK and European investors, resulting in greater diversity of investors by geography compared to the country’s previous dollar issuance in 2017. The success of this issuance reflects not only the international investor community’s continued support for Sri Lanka, but also confidence in the country’s ongoing economic reform programme. Proceeds of the issuance will be utilised towards servicing Sri Lanka’s debt obligations and improving its foreign reserves.

As many Emerging Markets look to develop their own local capital markets, gaining access to international capital markets and to regulated financial markets is key for funding projects, and to a lower exposure to risk. London remains well positioned to provide an ecosystem that promotes innovation and product development, such as green and sustainable bonds, through dedicated funding channels, such as the green and local currency segments. We are seeing increasing levels of capital being raised to finance such projects. This includes the landmark bond issued by Fiji in 2018, the first international sovereign green offering from an emerging economy, and the debut green bond issued by Hong Kong this year, which raised a total of $1 billion.

The financing needs of emerging markets are vast. Sectors such as infrastructure and real estate are vital to a nation’s sustainable development but require substantial long-term financing support. These sectors primarily generate revenues in local currency, hence foreign currency financing may incur a mismatch that can expose emerging market borrowers to exchange risk in periods of high volatility. Local currency bond issuance is a significant potential option that avoids such risks and can support private sector investment in productive sectors of emerging markets.

London is a key centre for international offshore local currency listings and is home to 112 RMB denominated “Dim Sum” bonds, 27 INR denominated “Masala” bonds and 20 IDR denominated “Komodo” bonds. London Stock Exchange is also home to the first Indonesian Rupiah-denominated green bond with proceeds invested in projects onshore. We also welcomed the first local currency corporate bond from Ghana and West Africa, which not only provides local currency financing for local infrastructure projects, but also strengthens the local capital market in Ghana. More recently, Kerala Infrastructure Investment Fund Board issued its $312 million debut Masala bond on the London Stock Exchange, the first sub-sovereign entity in India to tap the offshore rupee international bond market.

Understanding the value of growth and collaboration, LSEG’s Open Access, customer partnership approach is at the heart of everything we do. In capital markets, regular and collective dialogue between business leaders, policymakers and investors has been key to offering practical advice and constructive solutions to supporting the development of local markets. This means that the effectiveness and competitiveness of the UK primary markets is expanding and providing greater choice for a variety of issuers.

Our Technology business supports over 40 financial market infrastructure and financial services firms around the world, in both developed and emerging markets, including a dual listing agreement with the Nigerian Stock Exchange.

Sri Lanka is home to LSEG Technology and we are delighted to have expanded our presence with the establishment of our new business services technology division in Colombo. We are honoured to support employment and investment in Sri Lanka, and we look forward to working with Sri Lanka to achieve these shared objectives.

Partnership is a key value of London Stock Exchange Group, and we are recognised as a global leader in our partnership with emerging markets. We look forward to advancing the strong and successful bilateral relationship between Sri Lanka and the UK, and our role in supporting it.