Experts from the financial community share their views on the future of the newly opened Cambodia Stock Exchange
Émile Coué was a French psychologist who introduced a method of self-improvement based on optimistic autosuggestion. “Every day, in every way, I’m getting better and better,” was his mantra. He died in 1926 and probably never visited Cambodia, but his spirit has been hovering over the four-year-long preparation for the Cambodia Securities Exchange (CSX).
When the Korea Exchange (KRX) first signed a joint-venture agreement with the Cambodian Economy and Finance Ministry in 2007, both parties announced operations would begin by 2009.
After several delays the CSX opened last month, eventually sending a clear and positive ‘we are open for business’ message to all Cambodian firms who contemplate opening their capital to the public.
However, the financial community will need to practice the Coué method a little longer. Actual stock trading has not started yet because the Phnom Penh Water Supply Authority (PPWSA), the Sihanoukville Autonomous Port and Telecom Cambodia – the first three companies expected to list – need more time to prepare their initial public offerings (IPOs).
Officials from the last two have reaffirmed their commitment to stick to the deadline for the end of this year, but PPWSA has yet to confirm a date. Here, four experts share their views on the future of the CSX and what it will take to make it a success.
Why have the three public companies’ IPOs been delayed?
I am not qualified to answer for them, but as far as I know, our regulation is not a major obstacle. We made a public consultation with all potential listed companies and from the comments we received, I understand that meeting our requirements was not a problem. The publishing of their accounts for the last three years is not a problem because international firms have audited them.
They need to improve some level of corporate governance – for example, the establishment of committees – before the listing, but I think they are almost there. The problem is that an IPO process is very new to Cambodia and the preparation of a prospectus and other necessary documents takes time. Some underwriters have a lot of experience in their country, but the regulation in Cambodia is different. This is a first time for all stakeholders.
What are your teams focusing on?
We have a staff of 70 people. If you compare to other countries, this is a small team, taking into account all the work that we have to do behind the scene. So far, we have adopted the minimum regulation that can support the running of the CSX. We are now working on new regulations to support appropriate and long-term development of a capital market. For example, we are working on collective investment schemes and on the financial soundness of the security companies.
How will you enforce regulations against insider trading and market manipulation?
This is a very important question in order to protect the public interest and to build confidence in the capital market. By law, the SECC has the capacity to act as judicial police. We can investigate, file a case to the court and have the right to arrest people to facilitate investigations. We are building an investigation division, an enforcement division, and a complaints division in order to receive any complaint from the public. We are also finalising the related regulation. We are consulting regulators from other countries to learn how to conduct investigations, with the support of the Asian Development Bank. For the moment our staff resources are limited, but they will grow with time.
Is the decision to launch the CSX now a good one despite the fact that no companies are ready to be listed at this stage?
You have to start somewhere. Not a single stock exchange in the world has started off with 50 companies. In the longer term it’s a good decision, but one should not expect any immediate impact on Cambodia’s business.
Will the presence of CSX increase the standard of management practices in Cambodia?
Yes, similar to an initiative taken by the National Bank of Cambodia, which is pushing some banks to improve their standards in the way they assess the credits that they grant to companies. This kind of measure has a widespread effect because it in turn pushes the banks’ clients to adopt better practices in order to get some loans. In comparison, the impact of the CSX on the business community will be minor at first stage because very few firms will be listed initially, but it will help in the longer term. This said, it is appropriate for the SECC to come up with regulatory requirements, but they need to be careful that they are not too prescriptive and set standards that are too high to be achieved by Cambodian firms in the short term.
Why didn’t ANZ Royal apply to be a securities firm licensed by the SECC?
We are not interested in equities because we don’t think that, as a bank, we have the expertise. We were interested in a debt-underwriting license. To get such we were required to put aside $10m in capital, with no expected returns before at least five years, while we can use such a sum to support $60m worth of lending that could make us $6m dollars of revenue yearly. So financially, it didn’t make sense.