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PPSEZ sweetens its IPO plan

People walk past the entrance of Phnom Penh Special Economic Zone in 2013.
People walk past the entrance of Phnom Penh Special Economic Zone in 2013. Heng Chivoan

PPSEZ sweetens its IPO plan

The book-build and upcoming listing of the capital’s port operator has taken some of the wind out of the sails of the IPO plans Phnom Penh Special Economic Zone (PPSEZ), but the industrial park operator has charted a new course and sweetened its dividend policy to entice potential investors, its chief financial officer said.

PPSEZ, which operates an industrial park on 357 hectares just outside the capital, aims to raise up to $15 million in an initial public offering on the Cambodian Stock Exchange (CSX) to fund its development of a new special economic zone on 53 hectares near the Thai border in Poipet.

But the commencement of IPO procedures by Phnom Penh Autonomous Port (PPAP) in October and its expected listing in mid-December is drawing from PPSEZ’s pool of potential investors.

“The capital market and financial resources in terms of fund investments here in Cambodia is smaller,” said Fong Nee Wai, chief financial officer of PPSEZ. “As such, PPAP’s IPO will certainly have a direct impact to PPSEZ’s listing date, as well as taking away some of our [potential investors] from our target source of funds.”

PPSEZ is Cambodia’s most successful special economic zone. Since launching in 2006, the industrial park has attracted nearly 80 companies that employ over 17,000 workers. About half of its tenants are Japanese industrial firms, including electronics and automobile parts manufacturers.

The company had previously announced plans to list on the CSX by the end of the year, with its chief executive stressing the importance of securing funds to commence construction work on its land in Poipet by the end of the rainy season this month. But with the capital’s port operator plodding ahead with its own listing plans, PPSEZ has pushed back its schedule to minimise the overlap.

“The roadshow and schedule for the listing date have moved, but we are [still] targeting by [the end of] this year,” said Carie Phou, PPSEZ’s company secretary and disclosure officer.

Over at Phnom Penh Autonomous Port, which is slated to become the third company to list on the CSX, officials are readying to open the company’s IPO for subscription next week.

The state enterprise has appealed to investors by offering a government-guaranteed 5 per cent dividend yield on the initial share price for five years.

PPSEZ will offer a similar, but distinct dividend guarantee, according to Nee Wai. He said the company will distribute at least a fifth of its net profit as an annual dividend.

“The company will declare at least 20 per cent [as a] dividend to the shareholders annually from its distributable profit after tax,” he said.

Nee Wai said the alternative dividend mechanism is advantageous in that unlike PPAP’s pledge to distribute 5 per cent of the stock’s initial share price as dividends, it would not require the company to set aside capital upfront to cover its dividend obligations. This would free up liquidity and make dividends more responsive to company performance.

Both PPAP and PPSEZ are hoping the prospect of a guaranteed distribution will increase investor interest in their IPOs and act as a price support mechanism for their stocks.

While investors will look at the underlying value of the stock, they are also likely to compare the dividend yield with a one-year fixed-deposit rate.

Thomas Hugger, CEO and fund manager at investment firm Asia Frontier Capital, said PPAP’s 5 per cent dividend yield based on the IPO price is “unique for emerging markets and frontier markets,” as companies in these dynamic markets normally use their profits or cash flow to grow. But for investors seeking high dividend returns, it is the superior of the two schemes.

“It is certainly much more attractive than PPSEZ’s dividend policy of at least 20 per cent [of net profits, which] will almost certainly end in a dividend yield below 5 per cent,” he said.

Hugger added that stocks with high dividend yields are usually considered as “defensive” stocks, and tend to outperform more speculative stocks in bear markets while underperforming in bull markets.

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