Cambodia Embracing Capitalism
Cambodia Securities Exchange CEO Hong Sok Hour
Cambodia Embracing Capitalism
Cambodia Embracing Capitalism
Cambodia Embracing Capitalism
Cambodia Embracing Capitalism
Min Sovannry wasn’t born when the
Communist Khmer Rouge took power in 1975 and abolished
Cambodia’s money, markets and financial system. Now the 21-year-
old college student can’t wait to embrace capitalism.
One of thousands of Cambodians who have attended more than
200 stock-trading seminars in Phnom Penh, Min said she plans to
invest as much as one-third of the $300 monthly salary she
expects to earn next year in the country’s stock exchange, which
is scheduled to begin trading its first shares April 18.
“I’m very excited,” Min said in an interview. “I’m happy
to have this market because it’s a chance for me to make money
from buying stocks instead of putting it in the bank.”
Enthusiasm about the start of trading at the exchange,
which opened last July without a single listed company, extends
beyond the borders of the Southeast Asian country. Investors
including Templeton Emerging Markets Group Chairman Mark Mobius
said they plan to participate in Cambodia’s stock market after
state-owned Phnom Penh Water Supply Authority has its initial
public offering next month.
“The potential for investors in Cambodia is excellent,”
Mobius, who oversees about $50 billion, wrote in an e-mail.
“The listing of publicly traded stocks will drive up interest
and demand. If a country can list its state-owned enterprises
and list enough stocks so that foreign investors can get
involved, then it can be very, very good.”
Phnom Penh Roadshow
Phnom Penh Water’s shares will likely be priced near the
high end of a marketed range after investors sought more than 10
times the available stock, said a person with knowledge of the
matter who requested anonymity. The company, which plans to
raise as much as 82.8 billion riel ($20.7 million), held a two-
week roadshow 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.
Two more state-owned companies are expected to list in the
coming year: Telecom Cambodia and Sihanoukville Autonomous Port.
With two dozen computers in an air-conditioned room on the
25th floor of Phnom Penh’s tallest office building, Cambodia
Securities Exchange Co. is a joint venture with Korea Exchange
Inc. (KOSPI), the operator of the Seoul bourse.
“I have met more than 100 foreign investors who came to
Cambodia because of the stock exchange,” said Han Kyung Tae,
managing director of Tong Yang Securities (Cambodia) Plc, which
is managing the Phnom Penh Water IPO. “They are very serious.
They see the potential, and they’re very, very positive about
Economic growth in Cambodia, sandwiched between Thailand,
Vietnam and Laos with a population of 14.3 million, may reach
6.5 percent this year, according to the Asian Development Bank.
That’s less than the average of 8 percent it experienced from
2001 to 2010 and compares with the development bank’s estimate
of 8.8 percent expansion for China and 6.3 percent for Vietnam.
The Cambodian government has said it wants to spur economic
development by privatizing its state-owned companies and
encouraging private enterprises to expand with new funding. The
three share offerings, with the possibility of two more after
that, are expected to encourage private companies to list.
Within five years, the market value of traded shares could
constitute a quarter of the country’s gross domestic product, or
more than $3 billion, said Kao Thach, 39, deputy director
general of the Securities and Exchange Commission of Cambodia.
Banks, telecommunications companies, rice millers, garment firms
and mining companies could seek public listings, he said in a
February interview in Phnom Penh.
“If we have a complete financial system, the economy can
grow very fast and be stable,” he said. “Small or big, at
least we have a complete financial system.”
That system was fractured in 1975 when the Khmer Rouge
captured Phnom Penh during the final stages of the Vietnam War.
Its Communist guerrillas blew up the central bank, declared
currency worthless and outlawed private property and trading.
During leader Pol Pot’s reign, Cambodia’s fertile
countryside became the killing fields where 1.7 million people,
or 20 percent of the population, perished. The currency, the
riel, was reintroduced in 1980 following a Vietnamese invasion
to rout the Khmer Rouge.
Almost four decades after Pol Pot exterminated the
country’s educated classes and emptied its cities, distrust of
the currency and financial system has remained high among
Cambodians, who have one of the lowest savings rates in Asia.
As a percentage of economic output, Cambodia’s savings rate
was 14.4 percent in 2010 compared with 27 percent in neighboring
Vietnam and 53 percent in China, according to the Asian
Development Bank. The U.S. dollar is still widely used, though
the government is trying to encourage acceptance of the riel.
Shares of PPWSA and the other companies will trade in riel.
The bourse itself has been delayed several times since
2009, derailed by the global financial crisis, technical issues
and lack of readiness among Cambodia’s companies.
“I feel like I’m constructing a highway with a couple of
shovels, with no experienced co-workers,” said Han of Tong Yang
Securities about the difficulties of managing the country’s
first IPO. “But we tell each other, we are a part of the
history of capital markets. We encourage one another like that.
Otherwise it will be very, very frustrating.”
Tokyo-based Asset Design Co. and Frontaura Capital LLC of
Chicago said that while they’re interested in investing in
Cambodia there are hurdles. A high valuation for the PPWSA
offering and administrative hassles like having to turn up in
person to transfer money are among the drawbacks, said Nick Padgett, managing director of Frontaura, which invests more than
$90 million in countries such as Tanzania, Serbia and Pakistan.
“Everyone is enthusiastic and eager, but this is a first-
time experience for the country and its institutions, and they
have a lot of learning to do,” Padgett said. “There are a lot
of hoops to jump through for foreign investors and at the end of
the day, some investors will decide it is not worth it.”
The SECC plans to hire 10 to 15 people a year to add to the
more than 80 currently employed, Kao said. The regulator,
established four years ago, has already approved seven
“When it’s crowded with companies queuing for IPOs, you
will see that this number is not enough,” said Kao. His goal is
for the regulator to implement adequate enforcement and
education. “Market confidence will be very crucial. 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 attended 200 trading seminars
organized by Phnom Penh Securities since June, said Chief
Executive Officer Stephen Hsu, a Taiwanese who moved to Cambodia
and has hired 45 brokers, underwriters, auditors, advisers and
managers. He plans to add 50 staff by the end of the year and
set up brokerage branches in Phnom Penh and Siem Reap, close to
the 12th century Angkor Wat temple complex.
“Almost all the clients do not know how to trade and what
a stock is,” said Hsu, who moved to Phnom Penh two years ago.
“The human character is to make money, and the stock market is
one of the key methods.”
Ly Bora, 27, a broker for Phnom Penh Securities who has
taught more than 30 of the seminars, including one at a local
business college attended by Min Sovannry, said that government
officials, foreign investors and local businessmen as well as
students were among the attendees. His biggest presentation was
to an audience of 300 in one of the capital’s hotels.
“This is the new era for Cambodia,” said Ly, whose
parents kept their savings under the mattress and in cupboards.
“Cambodians did not trust the financial system before. They put
their money at home. Now they have options and can put it in the
bank or invest.”
‘On the Move’
Ly said he has signed almost 300 customers since he started
working at the company last April and wants to open 1,000
accounts in three years.
At Acleda Securities, a unit of the country’s biggest bank
with more than $1 billion in deposits, managing director Svay
Hay said he expects 5 percent of its 700,000 depositors to be
potential investors in the stock market. The company’s new six-
story building in Phnom Penh will attract more clients and
contribute to the nascent sector, Hay said.
“This is a country on the move,” said Bretton Sciaroni,
chairman of the American Cambodian Business Council, whose Phnom
Penh law firm, Sciaroni Associates, advises on investments.
“They come from a very tragic history, but what they’ve seen in
the last 20 years is all kinds of progress going on.”
Booms, Busts, Boredom
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,”
said 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, but even so will
help mobilize capital for private-sector development.”
Vietnam’s stock exchange, started in 2000, now lists more
than 300 companies with a market value of about 500 trillion
dong ($24 billion). The Ho Chi Minh Index surged four-fold from
2006 to 2008 to touch a high of more than 1,100 before tumbling
during the 2008 financial crisis. It now trades at about 430.
Laos, Southeast Asia’s smallest economy, opened its stock
exchange in January 2011. The two-stock Composite Index soared
86 percent in the first three weeks of operation. It has since
fallen 50 percent.
Lack of Trust
At the Cambodian exchange, a glass pane looking into the
empty room is printed with a graph of the stock-market index
shooting to 15,000 over the next 10 years.
“My parents say they don’t trust this market,” said Min,
who is studying business and finance. “Sometimes I try to
explain, but they still don’t understand. I trust this because
our government is trying so hard to push this trend.”
Investors in Cambodia’s market face risks because of
ineffective financial and legal systems, Sam Rainsy, 62, a
former fund manager with Banque Paribas and onetime Cambodian
finance minister, said in a February interview in Paris.
Cambodia was ranked by Transparency International last year as
164th in the world by perception of corruption, ahead of only
North Korea, Myanmar and Afghanistan in Asia.
Hong Sok Hour, 37, head of the stock exchange, said his two
biggest challenges are to build public confidence in the bourse
and to ensure listed companies comply with all the requirements
of transparency and corporate governance.
“If I speak purely as the CEO of a stock exchange, I will
say I’ll try to develop the market as fast as possible,” he
said. “But as a civil servant of the government, I need to take
into account government priorities. I need to make sure that
everything will operate smoothly.”
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 the firm, Mengly J. Quach Group, majority-
owned by his brother, ran through Cambodia’s jungles to Thailand
when he was 17 to flee the turmoil in his country. Now 48 and a
U.S. citizen, he returned to Cambodia five months ago to help
build the company.
“After I understand more, we can think about an IPO,”
said Quach, who added 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.
“Cambodia is growing very rapidly, very fast,” said
Quach. “The same jungle where I escaped from has become a
casino, a playground where tourists go.”
To contact the reporter on this story:
Joyce Koh in Singapore at
To contact the editor responsible for this story:
Philip Lagerkranser at