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Two’s company at CSX

Workers at Grand Twins International’s Phnom Penh factories piece together Adidas-branded clothing
Workers at Grand Twins International’s Phnom Penh factories piece together Adidas-branded clothing last week. Vireak Mai

Two’s company at CSX

It may not have all the glitter, adrenaline or the iconic tolling bell of Wall Street, but today, the usually deserted Cambodian Stock Exchange (CSX) will be a hive of activity.

After first hinting at an initial public offering more than two years ago, garment manufacturer Grand Twins International (GTI) and its chief underwriting firm, Phnom Penh Securities (PPS), have steered their way through the listing process to become the country’s first private-company stock offering since the CSX launched in 2011.

With an opening price today of $2.41 per share, GTI will become just the second firm to list on the bourse after the state-owned Phnom Penh Water Supply Authority (PPWSA) in April 2012.

“This is the most important listing for the CSX’s future. The entire private sector, not only here but also overseas, is watching to see if Cambodia’s stock exchange is going to grow,” Stephen Hsu, CEO of PPS said.

GTI, which has more than 5,600 staff making sporting apparel for the likes of Adidas and Reebok in its factories on the outskirts of Phnom Penh, announced in January that it was floating a 20 per cent stake in the company through an eight-million-share offering. In April, after numerous delays in the initial book-building process, the firm cemented its per-share listing price.

GTI arrived in Cambodia in 1997, leasing a space within the Canadia Industrial Park before moving into its current facility in 2006. The company touts itself as a model example for factory working standards, with a clean bill of health from the International Labour Organization’s Better Factories Cambodia.

The company’s employees, the ranks of which are set to grow by an additional 2,300 upon completion of two expansion projects funded by the $20 million raised through the IPO, say that the monthly pay, leave entitlements and working conditions are above average.

“My base salary now is $240, not including other bonuses,” said Srun Thida, who has worked for GTI for more than eight years. “Salary here is determined by your seniority and skill. If you are a quick learner and can produce good pieces in shorter time, you can get a $10 to $30 [monthly] raise every six months or every year,” she said.

GTI’s workshops pump out about 650,000 pieces of clothes per month. Patterns are sent from brands where GTI’s designers use computer imaging and industrial-scale stencil cutters to produce templates. Rolls of metres-long fabric are laid out and cut to meet the design standards before they are passed on to the 52 sewing production lines, where workers wear colour-coded bandanna’s to signify their job on the factory floor.

“Compared to other factories, GTI has stricter working rules or principles. Workers are not allowed to answer the phone while working. Workers are asked to focus on working during the working hour. But they do not force you to work hard, but if you work hard, they reward you,” Thida said.

Despite GTI’s above-average pay, analysts remain sceptical about the prospect of a garment manufacturer listing publicly, as negotiations over the minimum wage continues and fatal clashes between factory workers and police in January are fresh in everybody’s minds.

“Of course we received concerns from investors about GTI’s listing in terms of the Cambodian garment sector’s unrest,” Stanley Shen, assistant to the chief financial officer at GTI, told the Post.

Douglas Clayton, CEO and founder of frontier market investment firm Leopard Capital, however, is not so convinced.

“The garment industry is a low-margin business, and it is highly dependent on cheap wage costs,” he said. “With Cambodia’s minimum wages rising, now up to a minimum of $100 per month and more in the future, you would have to ask how long this company actually intends on sticking around.”

Clayton added that with high-profile brands Adidas and Reebok taking up more than 80 per cent of GTI’s customer base, the firm runs the risk of receiving disproportionate consumer backlash if demonstrations like the ones in January – where at least four protesters were shot dead as part of a crackdown – recur.

GTI’s success or failure today could have long-lasting ramifications.

Parent company QMI Industrial Co, which has subsidiary firms in its home base of Taiwan and Vietnam, will consider going public with its other operations if GTI’s listing in Cambodia, which generated more than $20 million in working capital for the company during the IPO process, proves to be a successful stock.

“GTI is the only one that is going public at the moment. Other QMI companies are considering listing in their respective counties upon seeing GTI’s example,” GTI’s Stanley Shen said.

“We have got a lot of pressure to be the success on the stock market. Not just from ourselves, but from the whole private sector.”

A “success story” is overdue for the CSX. On April 18, 2012, PPWSA became the first company to list on the local exchange. Within the first week, the firm’s share price rose 9 per cent from 9,400 riel ($2.33) to 10,300 riel ($2.55) before plummeting to $6,600 ($1.63) and continuing to decline to its current price of 4,800 riel ($1.19).

Hong Sok Hour, the chief executive officer of the stock exchange, said PPWSA’s poor performance, unwillingness from Cambodian businesses to adopt transparent business practices, and the cost of an IPO process, which on average equates to about 10 per cent of a $20 million share offering, all contributed to the lag between offerings.

“PPWSA’s flat share price has been a major discouraging factor. We need to make sure we do not repeat the same situation. Either way, GTI’s price will be dictated by the market, so we really have no choice,” he said.

The CSX, like most other exchange markets, has installed price ceilings to control fluctuations in the market. The exchange restricts stocks from declining beyond 90 per cent and above 150 per cent of the IPO price, then 5 per cent every day after.

“Many companies are not interested in the CSX, or afraid of being transparent. They still have a lot of freedom and a lot of darkness around them,” Hour said.

Stephen Hsu of PPS is optimistic about the future of the world’s smallest stock exchange and believes its growth will encourage transparent business practices among the wider business community.

“The more listed companies, the more companies that need legitimate taxation invoices in order to report and meet the regulator’s standards,” he said.

“Listed companies’ business partners, or those who it does business with on a regular basis, will by default be forced to adhere to the same transparency standards.”

Scott Osheroff, regional analyst for Asia Frontier Capital Ltd, a hedge fund investing in publicly traded companies of 12 Asian countires, said GTI’s listing could mark the beginning of a long term upwards trend for the local exchange.

“There are some great opportunities here for private companies to list, some of the banks in particular have provided great value to the economy and I believe that those types of companies will list in the future,” he said, adding , however, that GTI’s price of $2.41 per share was a bit too expensive.

“That is something that investors will be looking at, whether to invest in Cambodia or in similar, cheaper companies in other countries.”


An earlier version of this article incorrectly stated the restrictions the Cambodia Stock Exchange places on fluctuations in stock prices for IPOs.


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