Cambodia's market regulator has finalised regulations for establishing a corporate bond, moving one step closer to introducing a new capital market tool that would allow companies to raise funds for expansions, debt refinancing or acquisitions, officials announced yesterday.
In a press release, the Securities and Exchange Commission of Cambodia (SECC) said it had approved three initiatives that solve the remaining regulatory hurdles for bond issuance, bond representatives and allowing credit rating agencies to provide ratings.
Sou Socheat, director-general of SECC, told The Post that now that the government has established regulations for a corporate bond market, those seeking to issue bonds can submit a letter of intention
to the market regulator for approval.
“I believe that there will be many companies that want to issue bonds as it provides them more options to raise funds without changing the structure of equity in the company,” Socheat said, adding that SECC was looking for a first-mover to demonstrate the viability of a Cambodian bond market.
“There will be also many public investors who are willing to buy corporate bonds, if issuers offer good interest rates,” he added.
SECC has identified three different types of corporate bonds it would potentially issue, including a secured bond, guaranteed bond and a plain bond, providing an international credit rating agency can give them a value.
Socheat added that SECC will closely monitor the issuer to ensure their ability to repay the bond’s face value and distribute interest payments regularly.
Han Kyung Tae, managing director of Yuanta Securities, said he was pleased that the government has finally made tangible progress in establishing a local bond market. He added that a diversified product line would help the sluggish local capital market garner more interest from investors.
“I believe there will be some potential issuers as well as investors interested in the new opportunity,” he said. “Financial companies in the banking sector, one of the fastest growing sectors, may be interested in diversifying their funding sources in particular for their long-term debt financing.”
Han added that since the bond prices will be based on the soundness of the business, which is generally measured by credit ratings, a government bond would normally be used as the barometer for bonds issued by companies.
However, he added that despite Cambodia not having government bonds, with a “proper and reliable credit rating system in place” the issuance of a corporate bond “wouldn’t be an impossible obstacle”.
He also added that given the highly dollarised economy it would make sense to issue bonds in US dollar instead of trying to promote riel bonds, as future cash flows will continue to be based on the US dollar.