Monday, October 5, 2009

After delays, Cambodia rekindles stock market dream

By Jason Szep

PHNOM PENH (Reuters) - Construction cranes and unfinished high-rise buildings surround the silty marshland where a year from now Cambodia hopes to turn the page on decades of upheaval by opening a stock exchange.

The idea of a Cambodian stockmarket has been floated since the 1990s but has struggled for traction in a country known for a culture of political impunity, chronic poverty and a history of violence, including the Khmer Rouge "Killing Fields."

But authorities argue those days are over and plan to sign a deal this month with World City Co Ltd, a South Korean-backed developer, to start building a $6 million, four-storey stock exchange on the waterfront of a new financial district.

"We want to do it next year," Mey Vann, director of the financial industry department at Cambodia's Ministry of Economy and Finance, said in an interview. "It'll be good timing for us with the economic recovery."

It was supposed to open in September, a target set last year when South Korea's stock exchange operator agreed with the Cambodian government to set up and run a joint stock exchange.

But the global financial crisis intervened, ending an unprecedented boom which saw Cambodia's economy expand 10 percent annually in the five years up to 2008. Foreign investment collapsed, tourist arrivals fell by double digits and garment exports, a mainstay of the economy, shrank by 15 percent.

In recent weeks, Cambodian officials have cautioned against moving too fast, in some cases questioning whether a country whose education system was decimated during Pol Pot's 1975-79 reign of terror is ready to invest in stocks.

"We've been waiting for a green light," said Intyo Lee, project director for Korea Exchange, Asia's fourth-largest bourse operator which will own 49 percent of the exchange and is recruiting and training workers for it. Cambodian will own the rest.

"We're pretty much ready," he added, "but many people say it's too early. The government is trying to build consensus."

STARTING SMALL

The exchange expects to start small with just four or five companies issuing about $10 million worth of shares each, said Lee. That's comparable to neighboring Vietnam's first stock market launched in 2000 with its initial market capitalization of $43 million. Today, Vietnam's market is worth $27 billion.

Yet there are risks to Cambodian investors. In Vietnam, most of the investors were local, often unaware of the risks, and many were burned as the market steered a rollercoaster course. Meanwhile, foreign investors largely sought to dip into the potential high returns of an emerging frontier market while hedging their bets with a highly diversified portfolio.

Like its communist neighbor, Cambodia is giving privatizing state companies priority with a place to sell stock. The Finance Ministry has asked three state-owned companies to list shares: Telecom Cambodia, port operator Sihanoukville Autonomous Port and the Phnom Penh Water Supply Authority.

Some of those companies have a simple question: why do it?

"We don't have any financial constraints. I don't understand the reasons we are going to be listed," said Ek Sonn Chan, who runs the Phnom Penh Water Supply Authority, which employs about 600 people, has about $200 million in assets and generates about $25 million in annual revenue. He said the company is profitable. Continued...

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