Industry insiders say it is better to use the US dollar in trading transactions when corporate bonds are issued for the first time in the Cambodian securities market next year. This, they say, will help grow the sector faster.
The matter was raised during a discussion at a seminar on “Comprehensive Understanding of Securities Market in Cambodia” which was held recently at the Cambodia Securities Exchange (CSX) Building in Phnom Penh.
RHB Indochina Securities Plc CEO Iv Ranarith said requiring the use of Khmer riel in the Cambodian securities market could create a major issue and strain the development of the securities sector in the country.
He said that having consulted with securities experts abroad, they argued that Cambodia is a dollar-denominated market, so if it uses the dollar, it will have more opportunity for faster growth and could also become one of the regional capital markets.
In defense of the riel
“It would be easier for Cambodia to develop its securities market through the dollar [more so than in the securities markets of other nations], as there is a lot of US currency in the Cambodian economy, as opposed to other countries,” he said.
Furthermore, while most Cambodians get their salaries in dollars, he said, they must usually first exchange their money into riel when they want to invest, creating an obstacle when investing in the sector.
His views were echoed by Hor Likea, director of Research and Training at the Department of Securities Market Development and International Relations, Securities and Exchange Commission of Cambodia (SECC).
Likea said in the past, some institutions and companies wanting to invest in the Cambodian securities market raised their concerns regarding the use of the riel for transactions as their income was in dollars.
She said the SECC leaders have raised the issue with the Ministry of Economy and Finance to study the possibility of implementing a policy which can push companies that earn income in US dollars to invest in the Cambodian stock market.
“If we can solve this problem, we think they [companies] will join the securities market,” she said.
However, the aim of using the US currency in securities transactions conflicts with the National Bank of Cambodia’s (NBC) policy of promoting the use of more riel in the economy and requiring its use in the securities market for the same reason.
At the end of 2016, the NBC issued a statement, instructing all commercial banks and microfinance institutions to release at least 10% of its total loans in riel, a regulation that will take effect by the end of next year.
Growth of a new market
However, Ranarith said the use of riel in securities trading operations does not appear to be of much help in promoting the currency’s use.
He said if the government really wants to promote the use of the riel and, at the same time help boost the securities sector, it should be done as the government is doing with the banking sector – using US currency in the beginning and gradually switching to riel.
Confidence in the stability of the riel may also be a factor impeding the investment objectives of major investors.
CSX’s Listing and Disclosure Department director, Lamun Soleil, said yesterday that if the authorities allow the use of the dollar, the securities market would grow faster than it did at present.
This, he said is because the public, and especially major investors, do not have complete confidence in the riel’s stability.
“If corporate bonds cannot be issued in US currency, the Cambodian stock market will have difficulty growing,” he said, referring to HKL Microfinance Institution’s corporate bond that is scheduled to be offered later this year.
According to Solei, all financial institutions want to issue corporate bonds in US currency because its issuance is always made in large amounts of money, and large companies, especially foreign ones, do not want to buy in riel.
He said issuing corporate bonds in dollars would be easy to sell and the coupon rate paid to buyers is also lower than if the purchase was in riel.
There are five listed companies in the CSX, with two others planning to issue shares later this year.