PP Post: Written by Chun Sophal and Nathan Green
A stock index at the Korea Exchange (KRX) in Seoul.
The Korea Exchange (KRX) and the Cambodian government will sign an official joint venture agreement on Cambodia’s proposed stock exchange Thursday next week, KRX project director Inpyo Lee told the Post, but there remained caution given the current economic climate.
The agreement, to be signed by KRX chairman and CEO Lee Jung-hwan and Finance Minister Keat Chhon, sets out requirements for both parties and contains penalty clauses, although Inpyo Lee declined to say what they were. He also refused to list the requirements, but said that the capital contribution was a key one.
He added that the exchange was on track for a December launch, provided the three state companies slated to be listed prior to opening complete preparations on time.
Some observers have warned that the timing of the initiative could create problems as Cambodia faces reduced economic growth, increased unemployment and the threat of increased nonperforming loans.
We won’t abandon our plans to establish an exchange due to the crisis.
"I think that currently, the environment is not good enough to proceed with the stock market in Cambodia," said economist Kang Chandararot, president of the Cambodia Institute for Development Study.
He said that to rush prematurely into establishing an exchange risked losing investor confidence "because the risks will be higher for participants".
Nguon Meng Tech, director general of the Cambodia Chamber of Commerce, urged the government to postpone launching the exchange until 2012, saying that not enough Cambodian investors understood how a bourse works.
"Most Cambodian business old hands have little knowledge about a stock exchange. So, how can they throw money at it?" he said.
Keat Chhon acknowledged Thursday that while the government "cannot set an official date for the establishment of the stock market. We will put our efforts into achieving a [December] target".
"The global financial crisis, of course, impacts the stock market," he said. "But we won’t abandon our plans to establish an exchange due to the crisis."
Lee said he expected institutional investors and foreigners to be the main source of liquidity in the early stages of the exchange. Investment and retail banks had expressed interest as institutional investors ,he said, although there had been no formal agreements signed.
He confirmed the exchange would initially use the US dollar but could also introduce riels at a later date depending on demand.
Foreigners would be able to invest in the exchange and foreign companies would be able to list, he said.
Lee also said the launch would not be affected by the global downturn, as he anticipated it would be "three or four years" until the exchange was operating at full capacity, by which stage the financial crisis would likely be over.
He anticipated that about 30 companies would be listed by the time the exchange was operating "normally".
KRX, the world’s No 3 derivatives exchange, became the sole bourse operator in South Korea in 2005 after it absorbed the Korea Futures Exchange and the junior Kosdaq market.
ADDITIONAL REPORTING BY NGUON SOVAN