Cambodia Gets Ready For Its Opening Bell

Novice investors eagerly await a water company’s IPO | There’ll be “booms, busts, and boredom along the way”

Joyce Koh

Phnom Penh Water will be the first company to trade on Cambodia’s stock exchange


Min Sovannry hadn’t been born when leaders of the Communist Khmer Rouge took power in 1975 and abolished Cambodia’s money, markets, and financial system. Now Sovannry, a 21-year-old college student, can’t wait to embrace capitalism. One of thousands of Cambodians who have attended stock trading seminars in Phnom Penh, Min says she’ll take as much as one-third of the $300 monthly salary she expects to earn next year and invest it in the country’s stock exchange, which is scheduled to begin trading its first shares in April. “It’s a chance for me to make money from buying stocks instead of putting it in the bank,” she says.

Trading will begin on April 18 when state-owned Phnom Penh Water Supply Authority has its initial public offering. Phnom Penh Water’s shares will likely be priced near the high end of the target range after investors sought more than 10 times the available stock, says a person with knowledge of the matter who requested anonymity because he wasn’t authorized to discuss the offering. The company, which plans to raise as much as 82.8 billion riel ($21 million), held a two-week road show in the nation’s capital starting Feb. 29, with about 400 potential investors crammed into a conference hall with seating capacity for half that number.

Enthusiasm extends beyond the borders of the Southeast Asian country. Investors including Mark Mobius of Templeton Emerging Markets Group say they are planning to invest in Cambodian stocks. “I have met more than 100 foreign investors who came to Cambodia because of the stock exchange,” says Han Kyung Tae, managing director of Tong Yang Securities, the Cambodian brokerage that is managing the Phnom Penh Water IPO. “They are very serious. They see the potential, and they’re very, very positive about Cambodia’s economy.”

The stock will trade on the Cambodia Securities Exchange, which has two dozen computers in an air-conditioned room on the 25th floor of the capital’s tallest office building and is a joint venture with Korea Exchange, the operator of the Seoul bourse. The Cambodian government has said it wants to sell stakes in state-owned companies and encourage private ones to expand with new funding. Two more state-owned companies — Telecom Cambodia and Sihanoukville Autonomous Port — are expected to list in the coming year, with the possibility of two more after that. Eventually banks, telecommunications companies, rice millers, garment makers, and mining companies could seek public listings. “If we have a complete financial system, the economy can grow very fast and be stable,” says Kao Thach, deputy director general of the Securities and Exchange Commission of Cambodia. That system was fractured in 1975 when the Khmer Rouge captured Phnom Penh. Its Communist guerrillas blew up the central bank, declared currency worthless, and outlawed private property and trading.

The SECC has already approved seven firms to act as securities underwriters, and Kao expects more will be needed. “When it’s crowded with companies queuing for IPOs, you will see that this number is not enough.” To help supervise those brokers, Kao says the SECC plans to hire 10 to 15 people a year to add to the more than 80 currently employed. He wants to have enough people to police the markets and make sure investors are well-informed. “Market confidence will be very crucial,” he says. “If it fails one time, we’ll need at least 20 years to restore the confidence. We cannot afford it.”

More than 5,000 Cambodians have attended the 200 trading seminars organized by Phnom Penh Securities since June, says Chief Executive Officer Stephen Hsu. He has hired 45 brokers, underwriters, auditors, advisers, and managers and plans to add 50 more by the end of the year and set up brokerage branches in Phnom Penh and in Siem Reap, home to the 12th century Angkor Wat temple complex. “Almost all the clients do not know how to trade and what a stock is,” says Hsu, who moved to Phnom Penh from his native Taiwan two years ago. “The human character is to make money, and the stock market is one of the key methods.”

Investor interest in Cambodia’s new capital market may cool after the initial euphoria, as evidenced by the experiences of exchanges in neighboring Vietnam and Laos. “A new emerging-markets stock exchange takes a decade to mature at best, with booms, busts, and boredom along the way,” says Douglas Clayton, founder and CEO of Phnom Penh-based Leopard Capital, whose $34 million Leopard Cambodia Fund invests in closely held companies. “The Cambodia stock exchange will explore all of these phases at different times.”

At one of the stock trading seminars in Phnom Penh, Paul Quach was taking notes and mulling whether to seek a public listing for his seven-year-old company, which operates seven school campuses in the capital. Quach, chief financial officer and vice chairman of Mengly J. Quach Group, which is majority-owned by his brother, ran through Cambodia’s jungles to neighboring Thailand when he was 17 to flee the turmoil in his country. Now 48 and a U.S. citizen, he came back to Cambodia five months ago to help build the company. “After I understand more, we can think about an IPO,” he says, adding that he is amazed that the ravages of war have been replaced by progress and that the country is drawing people from all parts of the world. Says Quach: “The same jungle I escaped from has become a casino, a playground where tourists go.”

The bottom line Phnom Penh Water Supply Authority may raise $21 million in an IPO next month, and two more state-owned companies may list this year.


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