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Companies should expect IPO costs, say analysts

Companies should expect IPO costs, say analysts

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090612_13.jpg

Firms that decide to list on Cambodia’s forthcoming stock exchange will be required to invest money to reach necessary standards of business practice

Photo by:

Tracey Shelton

Listing on the forthcoming Cambodian stock exchange, which will be housed at Phnom Penh’s Camko City, will require investment in international-standard accounting, among other measures.

PREPARING to list on the Cambodian Stock Exchange in order to secure additional capital will likely be a complex and costly exercise for many local companies, finance experts said this week.

Many companies would need to restructure their business to comply with stock exchange regulations, which are currently being decided by the Securities Exchange Commission of Cambodia (SECC), said Sam Ghanty, a US-trained Cambodian financial expert who has worked at Canadia Bank and Foreign Trade Bank.

Companies would be required to have an international-standard accounting system in place and transparent accounts, he added. Auditing by international firms, training staff and computerising their systems would also add to the bill of meeting SECC standards, said Ghanty.

"[Companies] need to put in place the whole ingredients ... they have to change the way they do their business," he said, adding that companies would also need to ensure they "follow the rules", as their accounts would be open to greater public scrutiny.

A business's ability to access capital would also be critical in its decision on whether to list, he said, meaning that companies might opt to secure financing through less regulated means.

An official from the SECC who spoke on condition of anonymity said more than 40 people were working on drawing up regulations for the new exchange, with help from the International Organisation of Securities Commissions.

He said he expected draft regulations to be released for public consultation in October.

I ... think those fees are ... little if we think of the advantages

of [an] IPO.

The Korea Exchange (KRX), which runs South Korea's stock market, will hold a 45 percent stake in the soon-to-be incorporated stock exchange company, with the Ministry of Economy and Finance taking the remaining 55 percent. Companies listing on the Cambodian exchange will have the option of also listing on the KRX.

The requirements for listing on the Cambodian Stock Exchange would be different, and possibly less strict than the KRX, the SECC official said.

However, a team was working to harmonise regulations between Korea and Cambodia to make it easier for companies to list on both.

Inpyo Lee, project director of KRX, said there were many procedures involved in the process of going public.

Management would need to gain the approval of the board of directors before they prepare and file a registration statement with the Cambodia Securities Exchange (CSX), he said. If registration is satisfactory with the CSX, it would then submit a registration statement with the Securities Exchange Commission of Cambodia (SECC), he added.

Should the SECC approve, the company would then be in a position to offer its shares for trade, said Lee.

"There are no business restrictions as long as they [companies] meet listing eligibility requirements or for requirement itself: The company has to have their financial statement audited by accounting firms; have profit in recent years; have enough staff to meet the need; good reputation; and so on," said Lee.

If a company wants to list on both the Cambodian and KRX stock exchange, there will be additional costs, he said.

Han Kyung Tae, chief representative of Tong Yang Securities Plc of South Korea, a securities brokerage firm that opened its Phnom Penh branch in November 2006, said the fee to list on the stock exchange - to be paid to the investment bank arranging the listing - would vary from 3 to 8 percent of the total amount of the public offering.

He cited an example of a company with a total market value of US$100 million in explaining the process.

"This company decides to go public by issuing 30 percent of its total share on the stock exchange, which will be equal to US$30 million. In this case, [the] IPO fee will be 3 to 8 percent of the $30 million of new capital inflow," he said.

Lee noted, however, that these preliminary procedures and costs would be worthwhile, should companies decide to list.

"I ... think those fees are ... little if we think of the advantages of [an] IPO," he said.

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