Asking if it’s wise to launch Cambodia’s first stock exchange during an economic crisis
is missing the point, according to key figures behind the country’s proposed bourse
The Ho Chi Minh City Stock Exchange is the model for Cambodia’s planned bourse. BLOOMBERG NEWS
WHEN the opening bell rang on the first day of trading at the Ho Chi Minh Securities Trading Centre on July 28, 2000, just two companies were listed. From the outset, trading was a muted process.
"It takes time - in the case of Vietnam, it took five years [to gather momentum]," says Hang Chuon Naron, secretary general at the Ministry of Economy and Finance, which is overseeing development of Cambodia's first bourse.
The ministry is using the Vietnamese exchange as an influence, he adds, meeting regularly with Vietnamese State Securities Commission officials for advice.
The government has tied itself to an end-of-year launch for its bourse, leading the press to ask repeatedly whether it will be ready on time, and if it is wise to launch in the middle of an economic downturn.
Given the evolutionary nature of stock exchanges, government officials and financial analysts say the press have largely missed the point.
"There is no such thing as a right time or a wrong time," says Sam Ghanty, a US-trained Cambodian financial expert who has worked at Canadia Bank and Foreign Trade Bank. "I agree with some concerns, [but] when is the right time?"
Foreign investors in Cambodia seem to agree that getting the ball rolling remains a priority for Cambodia's embryonic exchange.
"People have asked if it makes sense to try to open a new stock exchange at a time when global markets are in disarray," investment fund Leopard Capital said in its May newsletter. "Our view is that since it will probably take a few years for the new exchange to get traction anyway, the earlier they start that process the better."
The Korea Exchange (KRX) - which is providing technical assistance to develop the exchange, of which it will have a 45 percent stake - took decades to develop from its original form, notes Hang Chuon Naron.
The more pertinent question, analysts say, should be: "Is Cambodia ready?"
"There's a lot of work that needs to be done," admits Hang Chuon Naron.
Since it will probably take a few years ... the
earlier they start that
process the better ...
For a start, construction of the four-storey, US$6 million structure planned to house the bourse won't begin until November at the earliest, says Duk-kon Kim, vice president of the project management team at World City Co Ltd, the South Korean company that is finalising designs for the exchange at its Phnom Penh satellite town Camko City.
He adds that the building - with the exchange itself on the first floor - will not be finished until "August or September next year". A further three months of "commissioning and testing" will also be required, he says.
So even though the joint-venture stock exchange company will be inaugurated this year, Hang Chuon Naron says trading will not kick off until the end of 2010 at the earliest.
In the meantime, creating an exchange in Cambodia - a country that has only recently familiarised itself with commercial banking - "needs a few ingredients", Ghanty says.
While the government has passed a series of laws preparing the country for bonds and securities trading, legislation-wise there is still a way to go.
"Additional work remains to clarify, among other things, accounting, auditing, and corporate governance rules and regulations, and to establish tax benefits for listed companies," Leopard Capital said last month.
As Ghanty points out, Cambodian companies have had a tendency towards opaque bookkeeping well below international standards. He acknowledges that in many cases it will be difficult to get most companies in the Kingdom to adhere to transparent auditing and accounting practices in an economic climate that generally dictates that "I will do whatever I have to do to maximise profit".
It has mainly been the banking sector that has abided by such standards, he adds, employing international accounting and auditing firms including KPMG and PriceWaterhouseCoopers. He predicts that these may form the second wave of exchange listings once the exchange is up and running.
With three state-owned companies tipped to list first - Electricite du Cambodge, Phnom Penh Water Supply Authority and Sihanoukville Autonomous Port, the Post understands - they must be ready to go ahead before the exchange can be launched, both in terms of accounting standards and confidence given the economic climate.
"You have to give incentives to companies to be listed," says Hang Chuon Naron. "Why do they want capital? They want to expand."
On the scale of the economy as a whole, KRX Project Director Inpyo Lee says the benefits include - among others - raising the stature of the Kingdom in the eyes of the international business community as an investment destination.
"It [the exchange] can bring transparency to the Cambodian economy," he says.
But it's not just the domestic and international private sector that matters, nor the government. For the exchange to benefit the economy, it must also engage the general population.
"You have to create a new culture," Sam Ghanty says.
Given that any exchange takes time to gain momentum, Hang Chuon Naron is predicting that the stock exchange is unlikely to represent a primary source for raising capital in the short term.
"In the next 10 years, the Cambodian financial sector will be dominated by the banks," he says. "It [the stock exchange] won't be able to play a fully fledged role as a mode of finance for a number of years."
And it's not just answers to the questions of timing and development that the creators of Cambodia's exchange can find in Vietnam.
Despite the slow evolution of the Ho Chi Min City exchange, by 2006 it had begun to overheat and the failure of the Vietnamese authorities to use measures to curb the boom made inevitable the slide that followed.
That's the number one lesson Cambodia has taken from Vietnam, Hang Chuon Naron says. "Your regulator has to know when to step in," he says. "When there is a bubble, you have to take away...incentives."
In the short term, at least, Cambodia's fledgling stock exchange is unlikely to require the authorities to put the brakes on.