Cambodia’s stock CSX market will welcome its first-ever “Growth Board” listing on its secondary platform designed to assist small and medium enterprises (SMEs) raise capital and fund expansion.
The Cambodia Securities Exchange (CSX) – 45% owned by the Korea Stock Exchange and 55% by Cambodia’s Ministry of Economy and Finance is now hoping for a rapid expansion on both its main and secondary boards after celebrating its 10th year of operations.
In an exclusive interview with ‘Cambodia Investment Review – Leader Talks’ , Chief Executive Officer of CSX His Excellency Hong Sok Hour explained how the exchange is trying to attract more listings, its strategy to attract more institutional investors, and what future products may be on offer.
“We are delighted to have our first ever company list on the CSX Growth Board. It has been a long time since the board was established and we hoped to have this sooner. That said, this is mostly due to SMEs having compliance issues however now this has been addressed it should be a golden year for the board,” Sok Hour said.
The CSX Growth Board was first floated in 2015 and has only just recently approved the engineering firm company DBD Engineering – now currently completing its subscription period and brokered by SBI Royal Securities. The board has also approved in-principle condominium developer JS Land Plc.
According to CSX, the SME listings require shareholders’ equity should be more than two billion riels ($500,000) in comparison to the Main Board’s 30 billion riels ($7.5 million) minimum. Potential listings also require either a positive net income for the latest year or positive operating cash flow or gross profit margin of 10 percent and/or more.
Sok Hour said that the exchange is working every day to create more interest in the local stock market through training business owners on the possibility to raise funds from the capital market. A real-world example cited was the incubator programs created to help young businesses understand how they can leverage the stock market through providing free of charge consultation.
“We have been working with the market regulator – the Securities Exchange Regulator of Cambodia’s (SERC) excellency program. This is one of the initiatives we have to create more listings in the pipeline and can help the stock market grow quickly and organically. I myself spent a lot of time on training business owners about business standardization and fund raising. Our aim in the future is for companies not to see compliance as a negative but as an opportunity for investment,” he added.
Access to international and institutional investors
While the exchange has established a following amongst local retail investors it has struggled to gain traction among international and institutional investment firms that require more established risk assessments.
“The exchange has been working on all fronts to try and get more international and institutional players to invest in the local market. One of our upcoming flagship projects that will establish a custodian bank – this is because many institutional investors do not like to hold shares themselves so we are working on this to enable a license for a custodian bank hopefully implemented by next year,” Sok Hour said
A custodian bank is a specialized financial institution responsible for safeguarding a brokerage firm’s or individual’s financial assets and is not engaged in “traditional” commercial banking.
However, some in the industry have cited the currently listed companies’ lackluster performance as the main reason for low uptake, with around half of the equity-listed companies having a lower current stock price than their initial public offering.
“This is not a big concern for us because while some stocks are not performing well the index overall has been growing steadily. That said, COVID has disturbed us and some investors may believe a safer investment is in bank deposits. However, we encourage members of the public to have a long-term investment outlook and understand these rates won’t be available forever,” Sok Hour said.
Recovering from a sector shock and looking to the future
In June, the $27 million fraud dispute concerning derivatives broker and SERC licensed GoldFX Investment Co Ltd rocked Cambodia’s investment landscape with some retail investors assuming the CSX has had been involved with the issue.
In response, the exchange was forced to release a statement explaining that the controversy had nothing to do with the its exchange and investor’s funds were safe.
“We sent out a message last week just clarifying to the public that there is a difference between the Derivatives Sector and the Stock Exchange. We believe that most educated investors understand this already however some media has used incorrect terms which may have confused some,” Sok Hour said.
Looking to the future Sok Hour believes that the exchange will be able to expand the number of investment products offered and also leverage the much more developed and larger Thai stock exchange.
“Some of the new products in the pipeline should allow more investment options. We have been working on a depositary receipt – which is a form of security that has the underlying assets in stocks of foreign companies,” Sok Hour said.
In addition, Sok Hour added the exchange is also working on an Exchange-traded fund that tracks price movements in another market – like the Thai stock exchange. Listing of holding companies has also been raised.
However, while there are currently only seven equity and six bonded companies listed Sok Hour said: “In summary, we still need to focus on our existing products and increase the number of listed companies. We plan to have three or more stocks listed this year and 20 or 30 more in the next five years.”
‘Cambodia Investment Review – Leader Talks’ series interviews Cambodia’s most influential and important decision makers so our readers can better understand current and future investment opportunities.