Cambodia's plans for a stock exchange
PHNOM PENH: Until recently, the buzzwords of hope for lifting Cambodia out of dire poverty were "offshore oil."

Now the government hopes that a "securities market" will attract international capital and help the country expand the economic base beyond the clothing industry, which has been Cambodia's main moneymaker so far.

Last month, the Senate passed a law on the issuance and trading of stocks and bonds in the latest move to prepare Cambodia for establishing its first stock market by 2009.

Finance Minister Keat Chhon says the country needs a stock market to diversify the way businesses raise money. So far, beyond international aid for development projects, most financing has come from banks. But he acknowledges that it will take some time for Cambodian entrepreneurs and the public to accept the idea of a stock market - particularly the requirement that all companies' bookkeeping would be open to scrutiny.

"It is like entering exams with a strict standard," Keat Chhon said. "Some firms could be reluctant to be part of it."
Companies will not be allowed to sell shares if their accounting is not certified by independent auditors, he said.

Vietnam started its stock market in July 2000, and it has been a big success, for companies and investors.

"There's always complaints made that capital is hard to get in Cambodia," said Bretton Sciaroni, an American who runs a law firm in Phnom Penh. "The banks are very liquid, but it's all short-term money that the banks have, and it makes it difficult for long-term projects."

For investors, the country's below-investment-grade credit ratings suggest that Cambodia is a risky bet because of weak oversight and rampant corruption.

The economy, while growing at more than 11 percent annually during the past three years, is small and largely driven by just one industry, textiles, which accounts for nearly 80 percent of exports. The other key industries are tourism, construction and agriculture, while telecommunications is a promising area.

"The very weak state of governance - in terms of overall effectiveness of government operations, regulatory quality and rule of law - adversely affect Cambodia's credit fundamentals," Thomas Byrne, a vice president of Moody's Investors Service, said in a statement in May. Until the country broadens its economic base, he added, "it will remain vulnerable to domestic and external shocks."

Moody's gives the Cambodian government bonds a credit rating of "B," five rungs below investment grade. Standard & Poor's put Cambodia at "B+," four levels below investment grade.

Chevron's discovery of offshore oil in the Cambodian seabed last year has generated hope that the country could benefit from that income. But it is not clear yet if the oil will be commercially viable or when it can be tapped.

Cambodia needs to move beyond relying only on international aid and banks loans, Prime Minister Hun Sen said in early September at the start of the stock exchange plan. Those two sources are "still not sufficient to fulfill enormous capital demand of the Cambodian capital-hungry economy," he said, adding that bank loans last year totaled about $500 million.

The creation of a stock market would most likely increase foreign direct investment, which last year totaled just $483 million, compared with $2.3 billion in Vietnam and $9.7 billion in Thailand, according to the United Nations world investment report for 2007.

Local business executives appear to be positive, but perhaps cautious, about setting up a local stock exchange.

"Having a stock exchange is a good idea - companies and the public can benefit by taking part in it," said Kith Meng, president of Royal Group, which includes Mobitel, the country's biggest mobile phone service provider. "But I will have to see first."

To be listed on the exchange, companies will be required to submit their balance sheets for auditing and stamping by certified professional accountants, government officials say.

In Channy, chief executive Acleda Bank, a leading commercial bank in the country, says his company had already been making its financial reports public on its Web site for some time.

It is "our bank's obligation to let our partners and clients know about our situation," he said. "We have no fear to participate in a stock market."

Last month, the government began requiring about 400 enterprises to submit their financial statements to independent auditors by December, one of a series of steps the government says is necessary for a successful opening of a stock market.

To develop an exchange, Cambodia has turned for aid to South Korea, which has provided $1.8 million to set up an exchange and train personnel.
But Sam Rainsy, a former finance minister and the main opposition leader, warned that most Cambodian companies had questionable business practices. "There are few companies that meet international standards," he said. "But the rest are rather dubious if not controversial companies, which are here doing business not in a transparent manner."

Sam Rainsy, who is president of the Sam Rainsy Party, added: "I am afraid that many potential stock holders will be cheated by stock manipulation. Big risk. They will be victims of manipulation."