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The Kingdom’s first IPO

The long awaited first security listing on the Cambodian Securities Exchange became a reality on February 23 with the Security Exchange Commission of Cambodia’s “in principle” approval of Phnom Penh Water Supply Authority’s (PPWSA) “disclosure document for public issuance of equity securities”.

This is effectively a preliminary prospectus that includes information on the company such as its history, operations, management and financials as well as the terms, proceeds use, timetable, and risk factors of the offer.

TongYang Securities (Cambodia) Plc, an overseas affiliate of South Korea’s TongYang Securities Inc, will act as sole underwriter, book runner and lead manager.  

An initial public offering, also referred to as a primary offering, is first sale of a company’s shares to investors on a public exchange.  PPWSA intends to issue 13.04 million ordinary shares with a par value of 1,000 riels.  

This represents a 15 per cent float, the total amount of shares publicly owned and available for trading. 

Eleven per cent of the float will be allocated to the company’s employee stock option plan. 

The state, represented by the Ministry of Economy and Finance will retain 85 per cent ownership or 73.9 million shares.

The role of the underwriter is to file the registration documents, advise on the IPO pricing, sell and distribute the securities, position and market the company, and purchase all the securities to be offered from the issuer under a firm commitment, which is the case of this offering.

Book building is the process of recording investor demand and the price the investor’s are willing to pay. 

For PPWSA offering, this began on February 29 and ends March 13.  

Interested investors must submit a book building form indicating the quantity of shares desired and a bid price, which must be in the range of the indicative offering price. 

A 10 per cent deposit is required based on the total equity value of securities that prospective investor has bid for.

The indicative offering price is US$1.00 to $1.57.  

The final offering price will be determined by the underwriter and issuer, using the weighted average method based on the price and the quantity of securities that investors have selected and indicated in the book building form.  

The Cambodia Securities Exchange and Securities Exchange Commission must approve the final offering price.

Successful bidders will be informed by the company and may subscribe for a quantity of securities in which they bid, or a larger amount with an additional deposit, during the subscription period. 

Subscriptions can be made through designated branch offices of ACLEDA Bank and ACLEDA Securities, the selling agent for the underwriter.  

There is a reserve of shares for unsuccessful bidders and investors who did not subscribe during the book building process.

The prospective listing date is April 18, and secondary market trading begins thereafter. 

PPWSA intends to pay a dividend.

PPWSA is forecasting revenues of $28.3 million for 2011, up from $26.2 in 2010. 

Net profit for 2009 was $6.4 million and was $7.2 million in 2010.  The company expects to continue to expand its service coverage, increase production capacity, reduce its water losses, and grow its customer base. PPWSA is a monopoly supplier. 

Proceeds from the offering will be used to repay loans from the World Bank, CAPEX, business expansion and working capital.

The prospective price-earnings ratio is between 11 and 18, in line with other water utilities around the world – a very exciting time for the Kingdom’s evolving capital markets.

Anthony Galliano is the chief executive of Cambodian Investment Management.  
anthonygalliano@covenantim.com

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