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Local bond market on the horizon

A receptionist works at the Cambodia Securities Exchange (CSX) headquarters in Phnom Penh.
A receptionist works at the Cambodia Securities Exchange (CSX) headquarters in Phnom Penh. Heng Chivoan

Local bond market on the horizon

The government is preparing legislation to regulate the establishment of a corporate bond market that would give local companies a new debt instrument to raise capital for their operations or expansion.

Finance Minister Aun Pornmoniroth said during the listing ceremony of Sihanoukville Autonomous Port last Thursday that the securities regulator was working on legislation to introduce corporate bonds in Cambodia.

“The government will soon be introducing corporate bonds that will complement the existing stock market,” he said. “Bonds provide an additional option for companies that need a large amount of medium or long-term capital in order to expand their business.”

Lamun Soleil, director of market operations at the Cambodia Securities Exchange (CSX), confirmed to The Post that a public consultation on a draft of the legislation was held earlier this year covering regulatory issues such as bond issuance, credit rating agencies and bond representatives.

He said the Securities and Exchange Commission of Cambodia (SECC) was reviewing feedback from the consultation and that approval by its board of directors on the final wording of a prakas was “likely to happen soon”.

Soleil said the establishment of a bond market in Cambodia would allow local companies to optimise their capital structure with a mix of debt and equity instruments, and allow them to raise more capital with a longer tenure than borrowing from banks.

“Equity and debt are complementary to optimising the financing costs [of a company],” he said.

“A bond market can also complement bank loans, particularly in terms of maturity length. While banks provide shorter maturity loans with smaller amounts, a bond market helps companies [issue] longer-term loans with bigger amounts.

He added that a bond market would improve the flow of capital between lenders and borrowers, which would benefit the national economy as a whole.

“It helps the Cambodian capital market expand and run more efficiently to match those who have capital surplus with those [companies] who need the capital for their production expansion,” he explained.

“Hence, it would help the Cambodian economy to grow faster, more efficiently and more sustainably.”

According to Soleil, Cambodia’s first corporate bonds will likely be denominated in riel and listed on the local stock exchange, which he said already has the infrastructure in place to list and trade bonds.

“The bonds will most likely be issued on the CSX and denominated in riel,” he said. “However, we will consider US dollar denominated [bonds] too, but maybe at a later stage.”

While private companies have been hesitant to float equity shares on the CSX, which has just two private listed firms – Grand Twins International (GTI) and Phnom Penh SEZ – the opening of a bond market could spur interest in the sleepy bourse.

“A bond market is not only important for corporations, but also for investors who prefer a fixed flow of income with lesser risk of default than stocks,” he explained.

Shuzo Shikata, chief executive of SBI Royal Securities, said his firm aimed to be among the first to provide bond issuance and underwriting services to companies interested in raising debt capital.

“Some private companies in the finance and manufacturing sectors that have shown strong interest in this bond market,” he said. “We have already met some of them.”

He said allowing bonds to be issued in foreign currencies would make them more attractive to international investors.

“For an emerging country like Cambodia, bond issuance in foreign currencies such as Thai baht or US dollar should be permitted because the investment environment has not been enough,” he said.

“This practice is similar to other countries in Asia, including Laos.”

Han Kyung Tae, managing director of Yuanta Securities (Cambodia), warned that the liquidity issues that have hampered the performance of stocks on the CSX could also affect bonds issued on the exchange.

“If the market does not provide enough liquidity so that investors can exit freely when they need to, which is highly likely to be the case for the local bond market at the early stage of development, it can be considered as a long-term illiquid asset,” he said.

However, he said international initiatives such as the Credit Guarantee and Investment Facility (CGIF) could help give local bonds more visibility on the international radar.

“With assistance from International institutions such as CGIF, a credit enhancing institution, local companies and projects may be able to gain access to international bond investing community,” he said.

CGIF is a trust fund of the Asian Development Bank (ADB) established in 2010 to promote financial stability and boost long-term investment in Asean as well as China, Japan and South Korea. Its primary role is to provide guarantees on local currency denominated bonds issued by companies in the region in order to make it easier for them to secure longer-term financing via the bonds market.

Boo Hock Khoo, vice president of operations at CGIF, said that the facility’s bond guarantee would serve as a risk-free benchmark for the pricing of corporate bonds in the absence of a sovereign bond, which has not yet been issued by Cambodia.

“In Cambodia, the absence of government bonds has often been touted as the reason holding back the corporate bond market as there is no risk-free benchmark on which corporate bonds can be priced against,” he said.

“The pricing of CGIF’s guaranteed bonds when issued can be a proxy of the benchmark market rates in the absence of such government bonds.”

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