Camko City - Future Home of the Cambodian Stock Exchange

The last three years have seen a surge of anticipation for a fully functioning stock exchange in Cambodia. Expected to be established in CamKo City, hopefully by the end of the year, the Cambodian Stock Exchange (CSX) will be a joint-venture between the Korean Exchange and Cambodia’s Ministry of Economy and Finance (MEF).

Proponents of the exchange point out the potential benefits of raising much needed capital and thereby facilitating growth in local companies. A less publicized benefit of a well functioning stock exchange in Cambodia may be that it will encourage a more rational allocation of resources, given the current propensity of Cambodian investors to park their money in land for long periods of time.

Until March 1st, the Stock Exchange Commission of Cambodia (SECC) accepted license applications from firms seeking to participate in the future stock exchange. According to press reports, twenty-two national and international firms applied. A qualifying firm must comply with rigorous standards. The legislation states that along with having a sound corporate structure, firms seeking a securities license must have a minimum capital between USD 96,000 to 9.52 million. Prospective firms must also pay a license fee ranging from roughly USD 100,000 to 10 million. The minimum capital requirements and license fees vary depending on the type of securities license sought.

The SECC is currently reviewing its twenty-two license applications and is expected to reveal very soon which firms qualified for and will receive licenses. With only three state owned companies announced to list on the stock market—Sihanouk Autonomous Port, Phnom Penh Water Supply Authority, and Telecom Cambodia—experts believe that the SECC should grant licenses to fewer than half of the applicant firms, or risk oversaturation of the fledgling stock market.

Although the SECC’s receipt of so many securities license applications was a relative success in the journey to open the CSX, numerous obstructions in the path still exist. Such obstacles include the unfinished CSX premises, of which construction has yet to commence and disagreement over which currency to use. Some argue that the CSX should be used as a vehicle for promoting the local Riel while their opponents point out the value of sticking to the more stable US Dollar.

Another considerable obstacle is the lack of private companies interested in listing or able to list on the CSX. Although one private company, Cambodia Air Traffic Services, has publicly expressed interest in listing, many companies distrust the proposition of going public through the CSX. It is probable that many companies are adopting a wait and see approach while other companies simply cannot meet the revenue and transparency/accounting standards necessary to list. Further, the three state-owned companies that have already announced their intention to list have yet to court investors and the SECC has yet to issue the legislation necessary to transform the companies into public entities.

Despite the fact that there is still a lack of necessary legislation to enable the CSX in some areas, the advent of the stock exchange has already prompted the creation of other key legislation. For instance, 2009 saw a much needed fillip to Cambodian corporate governance legislation with a strengthening of standards of internal auditing for public enterprises and the creation of an Internal Auditing Department through the Ministry of National Defense. Most recently, the SECC released a Prakas stipulating corporate governance requirements for companies to list on the CSX.

Even with these legislative in-roads, and the SECC’s success in receiving abundant securities license applications, experts still predict that the CSX will not open until the second quarter of 2011 or even until 2015.

Whatever the case with the eventual start date, it is better to have the commencement of the exchange delayed until it is truly ready to ensure some measure of investor confidence rather than open early because of some arbitrary deadline.

Update: Government minister says the exchange won’t open until next year, at the earliest. Story here.