Cambodia's exchange gets boost from latest addition

THE BIG guns of the Cambodian stock market - a "Clean Water Hero" and a liquor and real estate queen - may be able to revive the fortunes of one of the smallest exchanges in the world, with just five listed firms, that has seen thin trading since it began operating in April 2012.

A sixth listing, an imminent initial public offering by a Malaysian company, may also help revive investor interest. On July 10, 2018, Pestech International Bhd announced that it had received Cambodia's approval to list its unit Pestech (Cambodia) Plc on the main board of Cambodia Securities Exchange (CSX).

The IPO of Phnom Penh-based Pestech Cambodia, which constructs electrical substations and transmission lines, will involve up to 39 million shares, each valued at 10 US cents, and may raise gross proceeds of US$20.3 million, the company said.

So, what ails the CSX which, according to Fortune magazine, was the smallest in the world with a market capitalisation value of US$103 million in 2016?

The reason why more Cambodian companies do not list is that they prefer keeping their financial data private, and are loath to commit to transparency or adhere to tax laws. The stringent listing rules discourage them.

In order to woo small- and mid-sized companies to list, the Securities and Exchange Commission of Cambodia announced less intrusive listing criteria in 2015 for a new trading platform with reduced accounting and capital requirements.

Two of the listed companies have extraordinarily inspiring stories. The first concerns the Phnom Penh Water Supply Authority (PPWSA) which listed in April 2012. Its director general, Ek Sonn Chan, earned the title of "Clean Water Hero" for turning around the troubled PPWSA into an award-winning enterprise since he took over in 1990.

His heroics involved standing up to a powerful senior military officer. Mr Sonn Chan gave a first person account to the Phnom Penh Post: "There is a strong general, a three-star general. He has a water connection to his house in Tuol Kork (a locality in Phnom Penh). He has 30 bodyguards in his house and two or three jeeps escort. He's a very strong man."

The general, however, did not have a water meter. When Mr Sonn Chan became director general of the water supply authority in 1993, he and his staff began installing water meters at every house in the city, against the popular will.

There were 28,000 connections, and he set out to install 28,000 water meters. There were "28,000 people ... against us. Difficult. We could not discuss with everyone, so we had to send a very strong message."

When the general ignored his letters to install a meter, Mr Sonn Chan sent a team of people to install it. But they were prevented from doing so. He then went personally to cut off the general's connection. "Nobody else dares, so I do it myself."

Then, he felt something touch his head. He looked back, and saw the general pointing his shotgun at his head. Mr Sonn Chan looked back, and saw that his five staff had run away.

In the end, he succeeded in accomplishing the mission of the PPWSA to supply treated water 24 hours per day, seven days per week, with adequate water pressure and at a reasonable price to people in Phnom Penh and the adjoining Kandal province.

LIQUOR AND REAL ESTATE QUEEN

The liquor and real estate queen is a Cambodian of Chinese origin, Lim Chhiv Ho, who survived the Khmer Rouge years. After the Khmer Rouge was toppled, she sold noodles, and her husband, a fisherman, transported electronics, and liquor and cigarettes on his boat from foreign merchant ships to Cambodia. She later took over her husband's business and later opened a warehouse for these products.

She then started Attwood Export Import Co Ltd, a high-end liquor distributor and expanded into developing hotels and grew her real estate business. One of her major projects is the Phnom Penh SEZ Plc (PPSP), which was listed on the CSX in 2016. The Phnom Penh zone is operating with 82 investors from Japan, Malaysia, Taiwan, China, the US, and Korea in industries such as automobile parts, garments, food and beverages, plastic products, and jewelry.

Besides the PPWSA and PPSP, the other listed firms are the state-owned Sihanoukville Autonomous Port (listed in June 2017), the Phnom Penh Autonomous Port (in December 2015), and Taiwan's Grand Twins International (Cambodia) Plc in June 2014.

The only foreign company so far to get listed, Grand Twins, is a Taiwanese clothing manufacturer which counts Adidas and Reebok among its clients. Its IPO had, however, suffered delays due to the paperwork involved, and led to the listing date being postponed twice.

In a small market like Cambodia, about 80-85 per cent of trading is done by individuals, and institutional investors make up the remainder of shares traded, even though they represent only one per cent of the number of investors.

The Cambodian Ministry of Economy and Finance (MEF) has taken steps to help the exchange grow, such as eliminating capital gains and dividend taxes for local investors. International investors are given a reduced tax on dividends of 7 per cent.

The case of the Sihanoukville Autonomous Port's IPO is also instructive because it struggled to attract investor interest. The IPO was, however, fully subscribed, raising a total of US$27 million, with the majority of the public shares, worth 25 per cent of the total, being sold to the Japan International Cooperation Agency.

The Cambodian government has adopted an ambitious 10-year plan for the financial sector, which proposes a series of goals to encourage banks, and small- and medium-size enterprises to list on the exchange. The CSX was set up jointly by the Cambodian MEF and the Korea Exchange (KRX) with the former owning 55 per cent of registered capital and the latter 45 per cent.

A senior CSX official, Lamun Soleil, has said the exchange was looking to bring more listed firms to the stock market. But he believes that the growth of the exchange market would remain slow. This is because the Cambodian capital market has been playing a subsidiary role to the banking sector, and it would take at least five years before the capital market takes a larger share in the financial system.

The young stock market has some awe-inspiring corporate stories, of the Clean Water Hero and the liquor and real estate queen that have entered the pages of corporate folklore. The listing of the Malaysian firm will help. The next chapter, however, is still to be written.