Earlier this month Sihanoukville Autonomous Port (PAS) became the fifth listed firm on the Cambodian Securities Exchange (CSX) following an initial public offering that raised $27 million. The Post’s Brian Ng sat down with Shuzo Shikata, CEO of SBI Royal Securities (SBIR), the sole underwriter of the IPO, to discuss the state-owned port operator’s journey to becoming a public listed company.
Were you satisfied with the bookbuild and subscription results for PAS?
The results were what we had expected after we have completed the pre-marketing, which helped us gauge the investor interest and understand the demand in the market. During the pre-marketing, SBIR targeted the right group of investors for the port’s business, including strategic investors and other large institutional investors, and the IPO’s success was driven mainly by these investors due to their commitment at the early stage.
The subscription was fully subscribed as these larger investors had given us their confirmation that they were ready to take up any remaining shares. The issue price was 5,040 riel ($1.26) with JICA taking up about 54 percent of the IPO shares and another 35 percent going to investors in the bookbuild and subscription.For large IPOs like this, the underwriter must use connections to draw investors into the country. Different investors will favour different investment types, and the underwriter has to approach the right investor based on the issuer’s business characteristics.
Two-thirds of the bookbuild shares went to Cambodian investors, which included two large local institutional investors. Was this surprising?
It’s not surprising because we knew of these two local institutional investors when we started the premarketing activity. We went to find the candidates [who were interested to join as] a strategic investor and got their confirmation.
However, as the government already selected JICA as a potential investor, there was no room for more strategic investors and so we had to shift the excess investors to subscribe for the bookbuilding shares.
For this IPO, we saw over 30 percent of the share offering went to Cambodian investors, compared to around 20 percent for our previous IPO, Phnom Penh Special Economic Zone.
What does JICA’s strategic investment in PAS say about the port operator?
The investment will strengthen the confidence of public investors in the company’s performance and future growth potential. JICA has been a development partner that has provided both financing and technical assistance to PAS since 2000. Most of the main port’s infrastructure, such as a new container terminal and multi-purpose terminal, is financed by loans from JICA.As the largest private shareholder, JICA is involved in the management, sets the company direction and improves the internal control and corporate governance of PAS.
The IPO was repeatedly delayed due to taxation and land-titling issues. How were these issues eventually resolved?
These issues did not affect the company, but rather the timeline set by the Ministry of Economy and Finance (MEF). Once they were resolved we were allowed to list on the exchange.
The taxation issue was about the accounting framework implemented by the company, as different accounting standards will incur a different tax liability. Before the IPO, the company implemented the French accounting framework.
However, for PAS to be listed, it had to follow the Cambodian International Financial Reporting Standard. We got strong support from the MEF to resolve the taxation issue, which was resolved by removing the tax liabilities upon approval by the MEF.As for the land titling, it is a confidential matter so we cannot comment on it, but it was also resolved with the approval of the MEF.
What led to the decision to offer investors a guaranteed 5 percent dividend on the initial share price?
It is a way to encourage both local and foreign investors to participate in the IPO at this early stage of the stock market. When a capital gain is less likely to be generated, investors will receive a dividend as a secured compensation.
The IPOs of PPAP and Phnom Penh SEZ also included a guaranteed dividend scheme, but for five years. Why was the decision made to only offer three years to PAS investors?
The dividend policy of three years was decided by the management of PAS and the MEF. We think that three years is good for investors given the strong financial fundamentals of PAS, and we have confidence that the company will be able to achieve a positive cash flow.
With institutional investors taking up almost 80 percent of the floated shares, and more inclined to hold shares over the longer term, will this limit the stock’s liquidity?
This was the largest Cambodian IPO with proceeds of $27 million. Even though institutional investors took up 80 percent of the shares there are still enough shares to be traded on the secondary market. It will not affect the stock’s liquidity because the remaining shares are held by retail investors, and more liquid. We are also in the process of deciding whether we should become a liquidity provider.
This interview has been edited for length and clarity.