As in Vietnam, Local Bourse May Be Slow to Ignite

With 15 companies chosen by the government this week to trade on Cambodia’s stock market, securities companies and experts say that for years operators will compete fiercely for small profits from a handful of listed companies.

To date, only three state-run firms have been confirmed as entities willing to be listed. Consequent­ly, liquidity is likely to be limited in the opening years of the bourse’s operations. There are also still doubts over whether market regulators will enforce rules on corporate governance and accounting.

“It’s going to be very tough and competitive,” said Han Kyung-tae, managing director at Tong Yang Se­curities Plc, one of seven selected underwriters that will organize initial public offerings. “It’s not be­cause of the number of licenses, but because of the size of the market.”

Like many observers, Mr Han looks to how Vietnam’s stock market fared after it opened in 2000 and waited over three years to have more than 10 companies pluck up the courage to list publicly.

“I think it will take at least three to four years to have more than 10 companies on the stock market” in Cambodia, Mr Han said.

What’s more, it is still unclear if the three companies preparing to list—Telecom Cambodia, Phnom Penh Water Supply Authority and Sihanoukville Autonomous Port —will be ready to list before Ju­ly’s tentative start date.

“I would say it is going to be difficult but I would not say it is impossible,” Mr Han said.

Tong Yang Securities is organizing the initial public offering for two of those companies though he declined to say which ones.

Indeed, when Vietnam launched its stock market, GDP in the country stood at $30.3 billion, according to the International Monetary Fund. In Cambodia, it is currently less than half that amount. Domestically there is only a hand full of companies in the telecommunications, banking and financial services sectors that are anywhere near ready to list publicly.

Suzuki Hiroshi, chief economist at the Business Research Institute of Cambodia, said that in the opening stages of the bourse’s activities those firms with underwriting licenses would have the most potential to make a profit as they organize initial public offerings.

Firms with brokerage and dealer licenses may have to wait until liquidity within the market starts to increase before they notice any capital gains.

By law, licensed underwriters must pay a reserve requirement of $10 million to the central bank, a sum that could take years to earn back after the bourse opens.

In Vietnam, “the boom came after five years in 2005. That is the history,” Mr Hiroshi said. “I suppose Cambodia is going to follow the history as Vietnam.”

For others, the number of companies that has been chosen is simply too many.

“This is more than I expected,” said In-pyo Lee, project director for the Korea Exchange, which has a 45 percent stake in the stock market with the government.

While there is an argument that more firms will increase competition and, thus, improve the service for companies hoping to list, there is also a chance that the bourse will see little in the way of trading for years after it is launched, leaving the market’s operators sitting idle.

“We have seven underwriters. But the reality is only two companies or three companies will be ready to list next year,” said Mr Lee. “We have to have at least more than 15 companies.”

“We need liquidity. We need to trade,” he added.

Mr Lee also questioned the way in which investors here will use the stock market once liquidity increases.

As they experienced in Vietnam after its stock market crashed in 2008, Asian investors are likely to buy stock using large piles of cash and on the back of a wildly speculative decisions, he said.

He also expressed concerns over whether or not the Securities and Exchange Commission of Cambodia will implement all the necessary regulations and noted that many of the stock market’s operators had had very limited experience in operating stock markets.

“My main concern is how the SECC enforces the rules,” Mr Lee said. “Normally the Asian investors they risk a lot. They don’t care too much what the risk is. They just see the potential.”

Sok Hour Hong, CEO of the Cambodia Securities Exchange, said that although 15 companies had been chosen to run the bourse, not all of them would start operations at once.

“Only some of them will start” straight away, he said, adding that it would take “some years” before firms start to make any significant profit.

“For the opening I think it will be a little bit slow,” said Chhay Soeun, chairman of Acleda Securities Plc, whose firm was awarded a brokerage license this week.

Acleda Securities is yet to determine a fee for clients who wish to use the firm to purchase and sell securities on the market. However, for internal transactions a commission fee of 0.3 percent of the total trade will be charged.

To determine a fee for the public, Mr Soeun said the firm would have to “look into [its] business plan.”


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