In a first for the Cambodia Securities Exchange (CSX), a listed bond were traded on the secondary market on November 24, data from the bourse show.
As a result, South Korea-owned Phnom Penh Commercial Bank Plc’s (PPCBank) first bond offering (PPCB23A) on the CSX saw its weighted average price tick up to 105,309 riel ($25.88) from 100,000 at its date of issue.
The secondary bond market is where investors can buy and sell the shares they already own, with transactions proceeds going to intermediaries as opposed to the issuer of the bond.
CSX data show that the shares of PPCBank’s foreign-exchange- (FX-) indexed bonds were traded at a yield-to-maturity (YTM) of 4.49 per cent, which is substantially lower than the initial 6.5 per cent rate on the bond’s issue date.
FX-indexed bonds are those with coupon and principle payments linked to currency exchange rates. In short, the bond is protected from exchange-rate risk between the local Cambodian riel and the US dollar.
YTM refers to the total return rate of a bond if it is held until the maturity
CSX vice-president Ha Jong-weon stressed that this marked a watershed moment for the Kingdom’s corporate bond market.
“This is a great advancement for our newly launched corporate bond market. In fact, the bond market is not supposed to be as liquid as stock’s since its investors mostly are institutional investors who prefer to buy and hold for fixed income, but this market is undoubtedly huge,” he said.
Han Kyung-tae, CEO of Yuanta Securities (Cambodia) Plc, said the 200 basis-point (equivalent to 0.01 per cent) drop in yield is a meaningful reflection of the decline in overall market interest rates, which he said comes as a consequence of the Covid-19 economic slowdown.
He said: “The two key takeaways from the bond transaction today [on November 24] should be worth noting.
“First, it marks the first event in Cambodian capital market history where a securities transaction serves as an indicator of the current economic condition [which is normally the case in more advanced markets].
“[This is] while we remain cautious about drawing a hasty conclusion given the fact that the transaction size is relatively insignificant compared to bank lending activities and that it is not the only variable that determines the market rates.
“However, it is clearly an important and useful measure indicating what the current economic situation is like. Second, the transaction illustrates the importance of the capital market as a place that enhances the efficiency of capital flows where sellers in need of liquidity meet buyers with excess investible assets.”
PPCBank officially issued the bond on the CSX late in April to raise $10 million. And early last month, it raised another $10 million from the market with a second bond.