About Cambodia No.1 News Channel
Posted
by Cambodia News
on June 23, 2009
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."
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