1975 and abolished Cambodia's money, markets and financial system. Now
the 21-year- old college student can't wait to embrace capitalism.
One of thousands of Cambodians who have attended more than 200
stock-trading seminars in Phnom Penh, Min said she plans to invest as
much as one-third of the $300 monthly salary she expects to earn next
year in the country's stock exchange, which is scheduled to begin
trading its first shares April 18.
"I'm very excited," Min said in an interview. "I'm happy to have this
market because it's a chance for me to make money from buying stocks
instead of putting it in the bank."
Enthusiasm about the start of trading at the exchange, which opened
last July without a single listed company, extends beyond the borders
of the Southeast Asian country. Investors including Templeton Emerging
Markets Group Chairman Mark Mobius said they plan to participate in
Cambodia's stock market after state-owned Phnom Penh Water Supply
Authority has its initial public offering next month.
"The potential for investors in Cambodia is excellent," Mobius, who
oversees about $50 billion, wrote in an e-mail. "The listing of
publicly traded stocks will drive up interest and demand. If a country
can list its state-owned enterprises and list enough stocks so that
foreign investors can get involved, then it can be very, very good."
Phnom Penh Roadshow
Demand for Phnom Penh Water's shares is more than 10 times the amount
available, according to a person with knowledge of the matter who
declined to be named because he wasn't authorized to speak about the
IPO. The company, which plans to raise as much as 82.8 billion riel
($20.7 million), held a two-week roadshow in the nation's capital
starting Feb. 29 with about 400 potential investors crammed into a
conference hall with seating capacity for half that number.
Two more state-owned companies are expected to list in the coming
year: Telecom Cambodia and Sihanoukville Autonomous Port.
With two dozen computers in an air-conditioned room on the 25th floor
of Phnom Penh's tallest office building, Cambodia Securities Exchange
Co. is a joint venture with Korea Exchange Inc. (KOSPI), the operator
of the Seoul bourse.
"I have met more than 100 foreign investors who came to Cambodia
because of the stock exchange," said Han Kyung Tae, managing director
of Tong Yang Securities (Cambodia) Plc, which is managing the Phnom
Penh Water IPO. "They are very serious. They see the potential, and
they're very, very positive about Cambodia's economy."
Spurring Development
Economic growth in Cambodia, sandwiched between Thailand, Vietnam and
Laos with a population of 14.3 million, may reach 6.5 percent this
year, according to the Asian Development Bank. That's less than the
average of 8 percent it experienced from 2001 to 2010 and compares
with the development bank's estimate of 8.8 percent expansion for
China and 6.3 percent for Vietnam.
The Cambodian government has said it wants to spur economic
development by privatizing its state-owned companies and encouraging
private enterprises to expand with new funding. The three share
offerings, with the possibility of two more after that, are expected
to encourage private companies to list.
Within five years, the market value of traded shares could constitute
a quarter of the country's gross domestic product, or more than $3
billion, said Kao Thach, 39, deputy director general of the Securities
and Exchange Commission of Cambodia. Banks, telecommunications
companies, rice millers, garment firms and mining companies could seek
public listings, he said in a February interview in Phnom Penh.
"If we have a complete financial system, the economy can grow very
fast and be stable," he said. "Small or big, at least we have a
complete financial system."
Abolishing Money
That system was fractured in 1975 when the Khmer Rouge captured Phnom
Penh during the final stages of the Vietnam War. Its Communist
guerrillas blew up the central bank, declared currency worthless and
outlawed private property and trading.
During leader Pol Pot's reign, Cambodia's fertile countryside became
the killing fields where 1.7 million people, or 20 percent of the
population, perished. The currency, the riel, was reintroduced in 1980
following a Vietnamese invasion to rout the Khmer Rouge.
Almost four decades after Pol Pot exterminated the country's educated
classes and emptied its cities, distrust of the currency and financial
system has remained high among Cambodians, who have one of the lowest
savings rates in Asia.
Savings Rate
As a percentage of economic output, Cambodia's savings rate was 14.4
percent in 2010 compared with 27 percent in neighboring Vietnam and 53
percent in China, according to the Asian Development Bank. The U.S.
dollar is still widely used, though the government is trying to
encourage acceptance of the riel. Shares of PPWSA and the other
companies will trade in riel.
The bourse itself has been delayed several times since 2009, derailed
by the global financial crisis, technical issues and lack of readiness
among Cambodia's companies.
"I feel like I'm constructing a highway with a couple of shovels, with
no experienced co-workers," said Han of Tong Yang Securities about the
difficulties of managing the country's first IPO. "But we tell each
other, we are a part of the history of capital markets. We encourage
one another like that. Otherwise it will be very, very frustrating."
Administrative 'Hoops'
Tokyo-based Asset Design Co. and Frontaura Capital LLC of Chicago said
that while they're interested in investing in Cambodia there are
hurdles. A high valuation for the PPWSA offering and administrative
hassles like having to turn up in person to transfer money are among
the drawbacks, said Nick Padgett, managing director of Frontaura,
which invests more than $90 million in countries such as Tanzania,
Serbia and Pakistan.
"Everyone is enthusiastic and eager, but this is a first- time
experience for the country and its institutions, and they have a lot
of learning to do," Padgett said. "There are a lot of hoops to jump
through for foreign investors and at the end of the day, some
investors will decide it is not worth it."
The SECC plans to hire 10 to 15 people a year to add to the more than
80 currently employed, Kao said. The regulator, established four years
ago, has already approved seven securities underwriters.
"When it's crowded with companies queuing for IPOs, you will see that
this number is not enough," said Kao. His goal is for the regulator to
implement adequate enforcement and education. "Market confidence will
be very crucial. If it fails one time, we'll need at least 20 years to
restore the confidence. We cannot afford it."
Stock Seminars
More than 5,000 Cambodians attended 200 trading seminars organized by
Phnom Penh Securities since June, said Chief Executive Officer Stephen
Hsu, a Taiwanese who moved to Cambodia and has hired 45 brokers,
underwriters, auditors, advisers and managers. He plans to add 50
staff by the end of the year and set up brokerage branches in Phnom
Penh and Siem Reap, close to the 12th century Angkor Wat temple
complex.
"Almost all the clients do not know how to trade and what a stock is,"
said Hsu, who moved to Phnom Penh two years ago. "The human character
is to make money, and the stock market is one of the key methods."
Ly Bora, 27, a broker for Phnom Penh Securities who has taught more
than 30 of the seminars, including one at a local business college
attended by Min Sovannry, said that government officials, foreign
investors and local businessmen as well as students were among the
attendees. His biggest presentation was to an audience of 300 in one
of the capital's hotels.
"This is the new era for Cambodia," said Ly, whose parents kept their
savings under the mattress and in cupboards. "Cambodians did not trust
the financial system before. They put their money at home. Now they
have options and can put it in the bank or invest."
'On the Move'
Ly said he has signed almost 300 customers since he started working at
the company last April and wants to open 1,000 accounts in three
years.
At Acleda Securities, a unit of the country's biggest bank with more
than $1 billion in deposits, managing director Svay Hay said he
expects 5 percent of its 700,000 depositors to be potential investors
in the stock market. The company's new six- story building in Phnom
Penh will attract more clients and contribute to the nascent sector,
Hay said.
"This is a country on the move," said Bretton Sciaroni, chairman of
the American Cambodian Business Council, whose Phnom Penh law firm,
Sciaroni & Associates, advises on investments. "They come from a very
tragic history, but what they've seen in the last 20 years is all
kinds of progress going on."
Booms, Busts, Boredom
Investor interest in Cambodia's new capital market may cool after the
initial euphoria, as evidenced by the experiences of exchanges in
neighboring Vietnam and Laos.
"A new emerging-markets stock exchange takes a decade to mature at
best, with booms, busts and boredom along the way," said Douglas
Clayton, founder and CEO of Phnom Penh-based Leopard Capital, whose
$34 million Leopard Cambodia Fund invests in closely held companies.
"The Cambodia stock exchange will explore all of these phases at
different times, but even so will help mobilize capital for
private-sector development."
Vietnam's stock exchange, started in 2000, now lists more than 300
companies with a market value of about 500 trillion dong ($24
billion). The Ho Chi Minh Index surged four-fold from 2006 to 2008 to
touch a high of more than 1,100 before tumbling during the 2008
financial crisis. It now trades at about 430.
Laos, Southeast Asia's smallest economy, opened its stock exchange in
January 2011. The two-stock Composite Index soared 86 percent in the
first three weeks of operation. It has since fallen 50 percent.
Lack of Trust
At the Cambodian exchange, a glass pane looking into the empty room is
printed with a graph of the stock-market index shooting to 15,000 over
the next 10 years.
"My parents say they don't trust this market," said Min, who is
studying business and finance. "Sometimes I try to explain, but they
still don't understand. I trust this because our government is trying
so hard to push this trend."
Investors in Cambodia's market face risks because of ineffective
financial and legal systems, Sam Rainsy, 62, a former fund manager
with Banque Paribas and onetime Cambodian finance minister, said in a
February interview in Paris. Cambodia was ranked by Transparency
International last year as 164th in the world by perception of
corruption, ahead of only North Korea, Myanmar and Afghanistan in
Asia.
Fleeing Cambodia
Hong Sok Hour, 37, head of the stock exchange, said his two biggest
challenges are to build public confidence in the bourse and to ensure
listed companies comply with all the requirements of transparency and
corporate governance.
"If I speak purely as the CEO of a stock exchange, I will say I'll try
to develop the market as fast as possible," he said. "But as a civil
servant of the government, I need to take into account government
priorities. I need to make sure that everything will operate
smoothly."
At one of the stock-trading seminars in Phnom Penh, Paul Quach was
taking notes and mulling whether to seek a public listing for his
seven-year-old company, which operates seven school campuses in the
capital. Quach, chief financial officer and vice chairman of the firm,
Mengly J. Quach Group, majority- owned by his brother, ran through
Cambodia's jungles to Thailand when he was 17 to flee the turmoil in
his country. Now 48 and a U.S. citizen, he returned to Cambodia five
months ago to help build the company.
"After I understand more, we can think about an IPO," said Quach, who
added that he is amazed that the ravages of war have been replaced by
progress and that the country is drawing people from all parts of the
world.
"Cambodia is growing very rapidly, very fast," said Quach. "The same
jungle where I escaped from has become a casino, a playground where
tourists go."
Cambodia Embracing Capitalism With First IPO
businessweek.com
Joyce Koh
http://www.businessweek.com/news/2012-03-18/cambodia-embracing-capitalism-with-first-ipo-since-khmer-rouge
