Cambodian stock exchange 2009 launching: is it really the right time?

In A road to establish a Stock Market on May 30, 2009 by viCheth By Ros Dina and Laurent Le Gouanvic, 28-10-2008

Kampot (Cambodia), 24/10/2008. A Sokimex petrol station. The Cambodian firm might be listed among other companies on the Cambodian stock exchange
© John Vink / Magnum

Tokyo, Hong Kong, Shanghai, Manila, Bombay… The financial crisis, which set off in the United States and is still shaking countries all over the world, did not spare a single Asian stock market. But Cambodia, right in the middle of this financial crisis situation, is about to launch its own stock exchange, and plans it for 2009. According to a few economists, like Kang Chandararoth, this delay is far too short. Kang Chandararoth is mainly worried about the future of the newly-created exchange if it happens to fail winning the trust of the public and the institutions. The authorities and the Securities and Exchange Commission of Cambodia (SECC) both agree that, on the contrary, it is just the right moment to create a new financial market which, so they hope, will play a leading part in the kingdom’s economy. 

Quick but clean
“We must hurry, but slowly.” The catchphrase, coined by Keat Chhon, the Cambodian minister of Economy and Finance on the occasion of the Conference on Initial Public Offering and Securities Exchange Establishment, which took place on October 16th and 17th  in Phnom Penh, sums up the authorities’ viewpoint quite well. The government did not intend to drift away from its initial objective, i.e. launching a stock market in Cambodia in 2009, but given the current amplified frailty of the financial environment, it somehow had to acknowledge reality and prove twice as cautious.

“Cambodia’s stock market will not be delayed because of the world financial crisis and will be brought forward as planned: little by little, starting with the laying of solid bases”, the minister said when questioned in private after having given his speech. “Cambodia must be very careful in the process of establishing its securities market, and must continue to set up the necessary infrastructures. What we are doing right now is meant to last long”, he insisted, before giving the detail of the progress made since the very beginning of the project of a stock market, in 2005.
A significant progression
First, legally speaking: the Law on Government Securities was promulgated in January 2007, quickly followed by the Law on Issuance and Trading of Non-Government Securities. The rules and regulations for approval and licensing should be complete by the end of the first quarter of 2009.

Then, technically speaking: the architectural design of the building set to host the Cambodia securities market is in progress, and computing as well as general equipment has already been bought.
Finally, on the human resources level: the Securities and Exchange Commission of Cambodia (SECC) is now operational and a contact with the Ministry of Justice has been established. The training of “employees and future collaborators, both coming from the public and private sectors” is being carried out, the minister indicated.
“What matters most is that the companies who are willing to be listed on the stock market are all set for the process, just like a bride-to-be should appear: all tidy and dolled-up. These companies must show transparency and purity in their financial statements, prove their accountability and the respect to tax obligation toward the state”, Keat Chhon stated. Furthermore, he explained that “If companies need financing from the bank, they have to come with collateral warranty – like title deeds, jewellery or property in general. But before they do so, they have to have good credit. Gaining people’s trust takes time and requires experience.”
Putting the cart before the horse?
Gaining the trust of the public is indeed the point at issue, according to economist Kang Chandararoth, head of the Institute for Study and Development of Cambodia. To him, “launching the stock market in 2009 is a little premature, precisely because the public’s trust is still a missing element”, he asserted straightforwardly. “Before taking any action, we must gradually inspire confidence among the public. Then, and only then, we will be able to create the stock market. The contrary would be wrong: creating the market and then gaining people’s trust…”

The economist deplored the fact that the creation of the stock market had started without a prior study  of the public’s overall feeling. “Keat Chhon will need that trust if he wants shareholders to show interest in the market. Therefore, the public needs to be efficiently informed. But even so, I am not sure whether such an initiative will be enough to gain people’s trust”, he revealed, adding that there was “very little hope for the market to be actually launched in 2009”.

Fighting bribery and settling disputes
Kang Chandararoth did not hesitate to make a list of the loopholes undermining the current system: “We still do not have any anti-bribery law. We still do not have a Court of Commerce. Generally speaking, implementing the law is still difficult, and the legal settlement of disputes has not yet reached a decent level”.

“What matters for a stock market is the trust that people put into it, which is even more important than the flow of money itself. It is also about the trust people will put into the company and into the competences of the state and financial system, as well as in the National Bank and the Ministry of Economy and Finance. We must therefore wonder whether we will be able to stay strong in the event of a crisis. […] If we fail to gather up all these factors, then the newborn may not live long”, he declared.
A stock market in the vanguard?
“We follow one rule: looking beyond”, Huot Pum retorted. Deputy Director General of the Securities and Exchange Commission of Cambodia (SECC) and in charge of the establishment of the stock market, Huot Pum considered these concerns to be “legitimate” but also reckoned that, on the contrary, the future stock exchange would play a key part in getting rid of the evils of Cambodian economy.
As for the absence of a law against bribery and corruption, Huot Pum reckoned that the establishment of a stock market could well be the first step to an efficient fight against corruption. “In order to be listed, companies will have to meet strict criteria and show transparency. And before being listed on the market, they will have to get rid of corruption and come clean. Thanks to these mechanisms, we will be able to ensure better control of the situation, or at least of these companies. Even if all the issues are not solved, I am convinced that being listed will allow companies to take part more efficiently in campaigning against bribery. Once the law is adopted, the situation can only improve. However, this does not mean that we cannot launch the market without the law.”
But how about the non-existence of a Court of Commerce? “No decision has been settled yet”, he admitted. “But even though it does not exist yet, an authority or a commission could organise and gather the required abilities and thus try and settle the conflicts.”
Last but not least, what is the SECC deputy Director General’s opinion on the lack of competences in the current crisis situation? He intimated that Cambodia was no less ready for the crisis than developed countries were: “Developed countries are also faced with problems and their political decision-makers are trying to find solutions to them. In the event of a crisis, measures can always be taken… Saying that we will be spared by all the financial crises would be wrong. Once the stock market will be created, we too, will be faced with such problems. We therefore have to organise things step by step in order to avoid such a situation, and when it does happen, we must be able to lessen its impact and limit the effects on the economy of Cambodia.”
Optimism and realism
“We must be optimistic but also keep in mind the limits in the scope of our actions”, the economist pointed out. Economy in Cambodia has now been enjoying important growth for several years and “people hold liquid assets in banks as well as at home”, the economist stressed, and insisted that the market would be launched for sure one day. The project of a Cambodian stock market emerges as part of a regional trend, since most of the country-members of the ASEAN already have their own. Finally, Cambodia can count on the expert help of its South-Korean partners, namely the Korean government and the organisation Korea Exchange(KRX) whose stock market “holds a place among the ‘world top 10’” stock and securities markets. “It is the right moment to launch our own market in Cambodia and the government must show its determination in the process.”

Keat Chhon certainly shares the vision of a stock exchange playing a key part in the economy of Cambodia as well as in the legal structures and, more generally speaking, in the Cambodian society.

Cash under the mats
“The good point is that Cambodia will be able to collect all the money that has been hidden under the mats [mattresses] until now and put it back in the stock market flow for companies to have more money available for their investments”, the minister of Economy and Finance stressed. “For instance, this money can help a company develop a rubber plantation here, or the Phnom Penh Autonomous Water Supply Authority extend its drinking water network there. It can also contribute to improve public services, through private enterprises as well as through the state. This is not just about taking money out of the bank but it is also about getting some, thanks to the trust the public and shareholders will put into us. These new financial resources, will allow us to invest and in the meantime broaden the market’s horizons.”
Kang Chandararoth, for his part, also agreed with this: “the creation of a stock exchange is a good thing. It will allow money to circulate within the economic branches, whereas at the moment, the financial system only depends on banks. It can also attract foreign investors who do not necessarily want to invest directly in Cambodia, but are nevertheless ready to invest money in the Cambodian stock market, therefore making the economy of the country benefit from it.” On the same level, Kang Chandararoth felt quite pleased about the idea that the transparency regulations imposed on the listed companies would facilitate state control over big firms.
Convincing companies: no easy task
The minister of Economy insisted that all the questions revolving around the topic had to be answered before the launching of the market, and particularly the question of the actual number of companies who will apply for a listing.

Hang Chuon Naron, secretary general of the Supreme National Economic Council and of the Ministry of Economy and Finance, reckoned: “We do not know yet which companies will be listed on the market. We still have to implement a process of training [among companies] so that big enterprises get a clear idea on how the whole thing will work.”
Huot Pum’s point of view was similar: “Many companies would like to take part in this, according to the studies we carried out, but we are not sure yet about the number of companies who will indeed be able to do so. Some contractors claim they would like to be listed on the market but once informed of the strict regulations we will apply, they seem to retract. The SECC’s intention is to limit the number of listed companies, to start with. We would like to open the market with about a dozen companies, in order to be sure that we can handle the situation and guarantee the efficiency of the system.”
Will these companies be foreign or Cambodian? “Both!” said Huot Pum. “To start with, the local companies will consist of banks and big groups like Sokimex, for instance. […] As for abroad, companies from Korea, Thailand and Vietnam have already established a contact with us.”
Sung Hee-Hong, executive director of Korea Exchange (KRX), admitted in a speech given at the Initial Public Offering Conference in Phnom Penh that convincing the companies would be no easy task. “A few companies show hesitation because of the world financial crisis”, and they do not quite trust the activities of stock markets, heavily criticised these days.
The South-Korean director advocated that in order to convince the enterprises, the state should put in place a solid legal framework and bring in technical support, since it is a question of trusting the institutions and the system as a whole. Hence the need to support other financial sectors, as pointed out by Hang Chuon Naron: “Parallel to the development of the stock market, we will need to consolidate other sectors: the sector of banks, insurance companies – which only represents a small share, and the microfinance sector”.


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