Since it began trading in 2012, the Cambodia Securities Exchange (CSX) has welcomed seven stocks.
And since the government launched a corporate-bond market in 2017 to diversify the range of capital market products, eight bonds have been issued on CSX.As of end-2020, market capitalisation stood at $2.5 billion, trading accounts reached 27,000 and the average daily trading value was about $150,000.
While CSX’s Main Board has seen increasing growth over the years, the Growth Board has failed to attract a single issuer, although optimism remains high that at least one company will list by year’s end.
The Growth Board was launched in late 2015 as a secondary platform to lift some of the barriers for listing and cater more to companies with less access to capital or financial resources.
One of the minds behind CSX’s success is vice-chairman Ha Jong-weon who will end his tenure on March 30 after three years of serving the bourse.
Ha sat down with The Post’s May Kunmakara to discuss the market during his tenure in Cambodia.
As the youngest capital market in ASEAN, what are the main challenges we face?
There are two major challenges in our market we need to overcome.
On the supply side, there are still a limited number of investment products on board. Even though we have seven stocks and eight bonds, the number is still low. Bonds don’t make the secondary market work as much as stocks do. We need more stocks and other new products especially good quality ones like ACLEDA. Low stock valuation, high IPO (initial public offering) costs and tax issues are the top and primary issues to be solved.
On the demand side, even though liquidity has been improved, it has to keep up to a certain level to trigger foreign investor interest especially the institutional ones.
Why has the Growth Board struggled to attract issuers?
The Growth Board was established in 2015 – it is now almost six years old. Even though the requirements of the growth board are more simplified than those of the main board, most SMEs (small and medium-sized enterprises) still find it hard to fulfil all those requirements while some have no desire to go public.
As you already know, the majority of SMEs in Cambodia are family business without proper accounting records and tax compliance. And to swiftly adopt the International Financial Reporting Standards (IFRS) and achieve full compliance of tax rules will pose a great challenge for them.
So far there are a lot of campaigns to help them understand the importance and benefits of listing on the board. CSX has provided free consultation to companies through incubator programmes on the IPO preparation process.
Furthermore, CSX has hosted monthly “Executive Talk” and “35 Minutes on Business” as a forum for business owners to present their business models and at the same time to inspire business founders by sharing IPO successes.
Besides that, CSX also joined the Securities and Exchange Regulator of Cambodia (SERC) on the first “Excellence Programme” to promote Cambodia’s capital market and now is working on the second edition for this year.
There has been a fruitful result too for the first “Excellence Programme” as there’s one SME that successfully went through the listing eligibility review and is going to become the Growth Board’s first listed company.
What does the corporate-bond market look like now?
Corporate bonds are doing really well so far with six companies – mostly banks and financial institutions – issuing corporate bonds on the market during the last few years. Three of them were issued in 2020 alone and we’re welcoming a few more in 2021.
However, one more thing I’d like to add is for companies issuing corporate bonds to consider targeting public investors more. These days, most corporate bond investors are institutional rather than the general public.
How has CSX fared during the Covid-19 pandemic?
The pandemic has slowed down the speed of our market development. We admitted that last year it outperformed, with five new listed securities and tripled market capitalisation, though we could have done even better if there had been no pandemic.
Trading activities have slightly dropped – mainly that of foreign investors. However domestic trading showed an increasing sign since people started to eye stock investment while real estate prices were getting stagnant during the pandemic.
Investors realised there’re profitable investment alternatives in the stock market where they can switch from one option to another easily and the convenience of online trading really fits in such an era of social distancing which is more likely to be a new norm that people need to adapt for future living.
What do the next few years have in store for Cambodia’s capital market?
We’ve seen good progress in the last few years and we’re optimistic the growth will continue. It’s a slow progress and we need to wait patiently. We saw a lot of experience from other exchanges in the region where it took decades for a capital market to prosper. For capital to come this far in just a few years, it will only get better and better.
This interview has been edited for length and clarity.