Shares Rally at Water Authority in First Day of Trading

With a dozen metallic rings of a ceremonial bell, Finance Minister Keat Chhon brought to a close the first ever trading session of the Cambodian Securities Exchange (CSX) yesterday morning as shares in the only stock on offer settled nearly 50 percent above their starting price.

As the first of three state firms planning to make an initial public offering on the exchange, the Phnom Penh Water Supply Authority raised more than $20 million when it issued 13 million shares-equal to a 15 percent stake in the firm-last month.

Starting out at 6,300 riel ($1.57) a share in the morning, the share price initially closed at 9,400 riel ($2.35) after its first round of morning trading. The price then dipped slightly to 9,300 riel ($2.33) by the end of the second session at noon.

It marked the culmination of years of work and delays in setting up a bourse the government now hopes will attract foreign capital and wean the country off donor aid, which is equal to about half of the country’s annual budget. For the firms themselves, the stock exchange offers them an alternative investment.

“It is something we have been awaiting for so long,” Mr. Chhon said at a ceremony marking the occasion on the 27th floor of Canadia Tower. “This is the day that we take a very important step forward in the Cambodian securities sector. Today is a historical day.”

Two floors down, a half-dozen staff were executing the first trades in a sleek, glass-paneled room equipped with new computer terminals courtesy of Korea Exchange Inc., the government’s minority partner in the bourse.

“We understand clearly the importance of the securities market, which is a crucial element for national development. It is a symbol of the entire economy,” Mr. Chhon said. “It will give a choice to state-run companies and other private companies in raising capital for expanding production capacity and enhance the competitiveness in the international market and the local market.

“At the same time, the securities market will improve the corporate governance and risk management of enterprises and will encourage enterprises to have efficient management and transparency,” he added.

A perennial laggard on global rankings of corruption and transparency, Cambodia still attracts only the most steely of investors. But combined with robust GDP growth expected to top 6 percent this year, it is the government’s hope that the new stock exchange will help change that.

The bourse experienced years of delays due to everything from the global financial crisis to technical difficulties and challenges in preparing IPOs.

Mr. Chhon yesterday sought to paint those delays as an advantage.

“Establishing a market is rather easy, but to develop a market that is transparent and efficient and safe and just and protects the public investor…is very important, and needs to be considered thoroughly,” he said. “Therefore, the time we spent so far was not useless.”

Hong Sok Hour, CEO of the CSX, said the day’s jump in share price was typical of any new market and was also a sign of the public’s confidence in the regulators.

“This is a sign proving that the general public is confident with us and they want to join the market,” he said on the sidelines of the opening.

He said the bourse’s decision to break each day of trading into two morning sessions would also help to deter speculative investors.

Even so, the Water Authority’s share price is expected to rise for at least the next few weeks before settling down, as they did when stock markets launched in neighboring Vietnam and Laos.

Observers also expect interest in the CSX to come mostly from individual, small-scale investors as larger investment funds will only come in once the market matures.

The bigger, more cautious institutional investors, the mutual funds and pension funds, will wait until the initial euphoria dies down, said Ghanty Sam, a former professor of banking and finance in the US now serving on the Cambodian Securities and Exchange Commission’s board of directors.

“They’re wait-and-see types,” he said after the first session had come to a close.

“The offer is only 15 percent, which means the company keeps 85 percent,” he said. “The institutional [investors] may say that’s not a whole lot…. The institutional investors, they like to have a say on the board of directors. I’m talking seriously. They like to step in and say, ‘Hey, we don’t want you to do this, to do that.’ But there’s no way for them to do it in a state enterprise.”

They also prefer markets with more than one stock.

“It is no fun to fish with only one fish in the pond,” he said.

Still, Mr. Chhon urged the two other state firms preparing to list, Telecom Cambodia and the Sihanoukville Autonomous Port, to push ahead with their plans.

Kuy Vat, chairman of Phnom Penh Securities, one of seven firms approved as underwriters for the bourse, said his staff were preparing listings for two garment factories but declined to give names, citing client confidentiality.

Last week, Korea Exchange CEO Kim Bong-soo told Bloomberg that he expected to see “dozens” of firms listed on the CSX in just five years time.

For now investors will have to content themselves with the Phnom Penh Water Supply Authority.

The firm’s book-building exercise last month, to set the number and the price of shares at the company, was 17 times oversubscribed.

“[Phnom Penh Water] is a good company,” said Leopard Capital CEO Douglas Clayton, whose equity fund has bought into the company and is considering buying more shares.

At the Water Authority, meanwhile, it was business as usual yesterday.

From its lofty perch just across Monivong Boulevard, the CSX peers down into the authority’s compound of whitewashed office buildings and treatment tanks.

More technocrat than financier, the authority’s General Director Ek Sonn Chan has been dutifully showing prospective investors around the facilities recently.

As for the $20 million-plus the float was injecting into the authority’s coffers, he said, “this money is just another additional benefit, so it’s not a life or death issue. We will us it to build more plants and expand our water distribution network.”

According to its prospectus, the firm is planning an ambitious 79 percent expansion by 2015. Officials involved in preparing the firm’s listing say the money will also go toward paying down its $45 million debt, about 40 percent of the authority’s total capital value.

“The product is stable, a very stable product: water consumption. It is a necessity of life,” said Mr. Sam, of the Exchange Commission’s board of directors. “So you have a stable product, you have a good company, you look at the debt over total capital, it is very manageable…It’s very, very small risk.”

The CSX’s immediate challenges, he said, lay elsewhere in issues such as accounting standards, corporate governance and insider trading.

“The main, critical thing for the next few years is whether there’s enforcement in cases of manipulation,” he said. “That needs to be seen.”

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