Small and medium-sized enterprises, which are expected to play a key role in the Kingdom’s emergent stock market, are far from ready to list, insiders say.

Most important, many SMEs lack the standardisations and controls required of publicly traded companies by the Securities and Exchange Commission of Cambodia, including transparent accounting systems and financial reporting, according to insiders.

As a result, SMEs would be unable to trade on the Cambodia Securities Exchange until they made the necessary changes, Phnom Penh Securities chairman Kuy Vat said on Friday.

“If they have all of those requirements, they can prepare for a listing on the CSX,” he said.

Although the process of readying businesses for the exchange might be time consuming, Kuy Vat said the rapid development of the Kingdom’s economy might speed up the process.

“I don’t think it will take a long time, because the business environment in Cambodia will be changing, meaning family businesses will transform into other kinds of businesses, such as private corporations, joint ventures or those where ownership is shared through stock holdings,” he said.

Government officials said they hoped Cambodia’s SMEs would eventually come into line with the market’s requirements, as those rules were within reach of even the smallest companies. “We have a lot [of SMEs], and we don’t limit how big or small they can be,” Huot Pum, deputy director-general of the Securities and Exchange Commission of Cambodia, said.

“They all can go public if they think that they can comply with our requirements.”

Huot Pum noted that companies needed to meet only basic requirements to list, among them three years of proven profits, transparent accounting and financial reporting and strong corporate governance.

“We intend to have SMEs list on the bourse. They’re the backbone for economic growth in Cambodia,” Huot Pum said.

“If a large number of them can go public, we will see a lot of benefits for the country, including job creation and an increase in confidence of entrepreneurship.”

Hun Lak, secretary-general of the Federation of Associations for Small and Medium Enterprises of Cambodia, pointed to the limitations of most SMEs that would prevent them listing.

These SMEs lacked simple business plans, let alone financial and accounting controls, Hun Lak said, adding that the CSX should focus on larger companies until SMEs matured as businesses.

“Big companies are the capable ones because they have to have auditing firms and consulting firms, and all of them are professional.

“SMEs don’t have the ability to do that, to hire those kinds of firms to inspect their businesses.”

Kham Sophannary, managing partner of the ice-cream restaurant Direct Queen, said she had already instituted a formalised accounting system for her business, as well as financial reports.

Regardless, it was the size of her business that made her question whether she wanted to list on the exchange, even if selling shares in Direct Queen could raise much-needed capital for the company.

“I think my company is still small, so we are just trying to follow our strategy, step by step. I don’t have to join the stock market yet.”