Approval of Draft Law Paves the Way for Stock Market

The Council of Ministers has approved a draft law allowing private companies to sell bonds, laying the groundwork for the long-anticipated stock market—a step for which many observers think Cam­bodia remains unprepared.

The draft law, approved Feb 16, aims to “provide fair competition, transparency, justice and reliability in the bond market,” the cabinet said in a statement, adding that it looks to establish a bond market in the next three years.

Bonds are loans investors make to companies, from which the in­vestors then receive a fixed rate of return. Bonds are different from stocks, with which investors be­come part owners of a company and then share in company profits.

After establishing a bond market, the next step toward creating a stock market would be for firms to be­gin issuing stocks. Stocks, unlike bonds, have no guaranteed rate of re­turn, though there are bigger potential gains.

The Asian Development Bank helped draft the bond law, but Vanndy Hem, ADB economics and financial sector officer, declined to say when he thought a bond market would debut.

“It’s not about which date and what year,” he said. “It’s about the capacity of the government to implement the steps necessary to have a functioning bond market.”

These steps are intricate and include a wide variety of factors related to transparency, good governance, capacity-building and accounting procedures, according to Vanndy Hem.

There is risk involved with purchasing bonds, according to Vann­dy Hem, depending on the reliability of the individual companies. If a company were to go bankrupt, for instance, an investor would not get repaid. But all in all, a bond market is more stable than a stock market, which is extremely volatile and fluctuates daily depending on market forces. “Bonds are more secure,” Vann­dy Hem said. The establishment of a bond market will build confidence among investors and set a benchmark for transparent company procedures, which will pave the way for a stock market in years to come, he said.

Hang Chuon Naron, secretary-general for the Finance Ministry, said he is optimistic a bond market is within reach, based on the total 2006 savings in commercial banks, which stood at more than $950 million, up 50 percent from $633 million in 2005. But he said the government needs to first establish a security commission that can regulate companies’ financial reports.

“To guard against cheating, the security commission must ensure everything is transparent,” he said, adding that South Korea’s stock market, the Korea Exchange, has been providing technical support as Cambodia eases into the first steps of a stock market infrastructure.

Several major local companies said they would welcome the eventual prospect of a stock market.

“We would certainly look into it,” said David Spriggs, MobiTel general manager. Motivations for possibly joining would include the desire to increase company capital, as well as broadening the ownership of the company, he said. “As a long-term investor, we see the value in having a proportion of the company owned by Cambodian.”

Sok Kong, president of Cam­bodian petroleum giant Sokimex, said his company will need to be listed on the stock market once the government has raised public trust and passed the necessary laws to make a stock market functioning and reliable.

Rather than wait for laws and regulations to be passed, Huot Pum, a lecturer at Royal Uni­versity of Law and Economics, said companies should take the initiative and make themselves transparent. “As long as we have competition, an accounting standard and transparency in financial statements, then we can [establish a stock market],” he said.

But SRP lawmaker Yim Sovann said that without an anti-corruption law, a stock market will be impossible. A commercial court is also needed that specializes in business and treats companies fairly, he said.

“If the court only gives justice to powerful and rich people, the public won’t consider a stock market an important business,” he said.

Private companies that refuse to pay taxes are helping sustain an environment of corruption that would likely deter people from trusting a stock market, he said.

“Compared to other developed countries, the public trust in Cam­bodia is so little,” he said. “A stock market is far away.”


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