ONE OF the personalities closely associated with the development of the stock exchange in Cambodia, Morten Kvammen, a director at SBI Royal Securities, says the CSX needs more companies to list in order to be successful.
Kvammen, a graduate of the Wharton School of Finance and a former fund manager in the Middle East, makes the case that investors want exposure to any economy that underlies the stock exchange
in any market.
“Investors will want to invest to get exposure to the underlying economy. You need companies listed that represent each sector of the economy,” he says.
“We would like to see more companies from the private sector coming to the market in areas such as banking, finance, mobile telecommunications and agriculture, including both plantations and processing like rice millers.”
In a tradition common to most of the stock exchanges that have opened over the years in Asia, including China, Korea and Vietnam, Cambodia starts with state-owned enterprises (SOEs), the first of which is Phnom Penh Water Supply Authority (PPWSA).
Upcoming SOE IPOs will include Sihanoukville Port, Telecom Cam-bodia and Phnom Penh Port.
“One of the key government entities that would be very attractive to list is the EdC, the electricity utility,” Kvammen says. “The tourism sector could also be interesting, because it represents a large portion of Cambodia’s economy, as does the garment industry.”
Another important factor in the success of any stock exchange is the overall market capitalisation, which is a key reason why Kvammen says having more companies listed is better.
“Overall market capitalisation of the exchange is very important. Right now, we are looking at having one company listed with total market capitalisation of just over $100 million, and that’s very small. We need to get big companies to list and ideally companies with a combined market capital in excess of a billion dollars. We think that will happen. Big companies here in Cambodia are already thinking about it, including banks and mobile operators.”
Some of the banking and mobile telecom services companies could have market capitalisations, or total value of all the shares issued, in excess of half a billion, or even a billion, dollars.
“Phnom Penh Water has a market cap of just over $100 million and of that, just over $20 million will be traded on the exchange.
“Some companies have a small portion of total capital listed; some have nearly all their shares listed. In all the government entities, the government will remain a significant majority shareholder. They won’t sell, at least in the near term, but over time they could sell more than.”
The company for which Kvammen is one of the directors, SBI Holdings, is an example of a shareholding structure where most of the shares are traded on the exchange and only a small percentage is held by the founding shareholders.
As for Cambodia’s first IPO, the PPWSA floatation, which is scheduled for April 18, Kvammen sees a lot of demand.
“We see a lot of demand for shares in PPWSA. Our only concern is that because it’s a small IPO, big institutional investors are not going to be able to take significant positions in the company and therefore there could be a significant number of investors who will look to sell their shares in the market rather than building and holding positions and holding the stock long-term.”
Kvammen says big institutional investors have to spend just as much time watching a company in which they have invested half a million dollars as they do watching a company in which they’ve invested five million dollars.
“As an institutional investor, I need to take a big enough position in a company to make it worth my time,” he says.
Kvammen says a “continued pipeline” of IPOs in Cambodia will maintain an increasing interest in the Cambodian market.
“More and more listings will also address the fact that there are currently only a small pool of shares that you can own. When more companies list, that’s what’s going to make the pool bigger and more attractive.