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Bourse softens listing criteria

A receptionist answers the phone at the Cambodian Securities Exchange in Phnom Penh.
A receptionist answers the phone at the Cambodian Securities Exchange in Phnom Penh. Hong Menea

Bourse softens listing criteria

For companies looking to float shares on Cambodia’s fledgling stock exchange, the rules have just been made easier.

After three years and only two listings, the Securities and Exchange Commission of Cambodia (SECC) has revamped the listing criteria, in a bid to increase the number of companies traded on the Cambodia Securities Exchange (CSX).

This comes on the heels of a new regulatory framework for a “Growth Board” on the CSX – aimed at attracting small- and mid-cap companies – that was announced last week.

The new prakas, issued on September 10 and adopted by the SECC last week, states that a business with a minimum capital of $7.5 million can now list on the main board with only two years of audited financial results, as compared to the three years required earlier.

“More companies can meet the requirements, especially when we require them to release only two years of financial reports,” said Sok Dara, deputy director general of the SECC.

“In fact, one year is enough. But we provide for two years of analysis so they can compare the two years’ results.”

Dara said the regulator was attempting to address two key challenges: easing requirements and matching them to those followed in the region. He added that some countries, such as Laos, had reduced the financial reporting requirement down to only one year prior to listing in order to attract more initial public offers (IPOs).

“They want to attract more companies and strengthen their competitive nature,” he said. “For us it is the same.”

In its earlier form, the rules stated that companies with capital ranging from $2.5 million to $5 million had to offer 20 per cent of their capital on the market, whereas businesses with $5 million and above were required to list 15 per cent of their capital.

“Now this requirement is removed, because we need to provide flexibility to companies,” Dara said. “Fifteen or 20 per cent is already very big for them.”

Despite the creation of two separate boards, Dara said bigger firms could consult with their IPO team, underwriters and the CSX to explore the possibility of listing on the Growth Board, which is meant for smaller businesses.

Given that the old criteria were too stringent for Cambodia’s young and developing capital market, the new changes are a step in the right direction, according to Thomas Hugger, CEO and fund manager at investment firm Asia Frontier Capital.

“It was a mistake to introduce such stringent listing requirements in the first place,” he said. “They might work in South Korea, but not in Cambodia,” he said, referring to the Korean-backed CSX.

However, while the SECC was softening the requirements, potential investors would have to be informed of the additional risk involved, Hugger added.

“Investing in smaller companies and companies with no or short profit history obviously has increased risk,” he said.

Hugger said the possibility of having a big firm list on the Growth Board “could really impact the index”, and said imposing a cap on who can list on the small board should be considered.

But Stephen Higgins, managing partner of investment advisory firm Mekong Strategic Partners, said investors were not concerned about which board got the listing, instead they were looking for liquidity in the market before jumping in.

“What investors want to see is a transparent, well-run company, with sound growth prospects,” he said.

“They also want to see liquidity in the stock, and that is a major drawback at the moment.”

Higgins called the current scenario a “real chicken and egg situation”, where investors were avoiding the market because of a lack of liquidity, which in turn keeps liquidity away from the market.

“What will change that is a company like Acleda [Bank] coming to the market,” he added.

Svay Hay, CEO of Acleda Securities, said companies potentially in line for an IPO are looking at listing on the main board and the new regulations will facilitate this process, especially with financial sector firms.

“They all have audited financial statements in place which can be assessed any time, so the requirements for two or three years auditing are met,” he said.

“It’s more attractive, as a better incentive in terms of expenses, timing, and for companies in medium-term operations.”

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