Cambodia Investment Review

Malaysian power firm PESTECH takes out $8M in political risk insurance for Cambodian assets, posts $3M in annual net profit

Malaysian power firm PESTECH takes out $8M in political risk insurance for Cambodian assets, posts $3M in annual net profit

PESTECH (Cambodia) a subsidiary of Malaysia-based PESTECH International (CSX:PEPC) has declared it took out $8.19 million in political risk insurance to cover two local assets. The company reported a total of $3.01 million in annual profit, down 4.6% from 2020.

According to the annual report which adheres to Malaysia’s financial year (June to July) the company disclosed the insurance was to cover 10-years at Stung Tatay Hydro Power Plant and 7-years for its circuit transmission line from Phnom Penh to Sihanoukville.

PESTECH did not disclose who is underwriting the insurance nor the exact terms and conditions of the agreement.

According to the ASEAN Risk Mitigation Instruments Database, political risk coverage is usually required for infrastructure projects. “This applies to Cambodia, Lao PDR and, to a lesser extent, Viet Nam. The lack of track record in infrastructure projects in Lao PDR and Cambodia complicates the risk assessment process”.

The insurance is typically designed to protect against the possibility that a government will take some action that causes the insured to experience a large financial loss. It covers many possibilities, such as expropriation (e.g., government confiscation of property), political violence (e.g., acts of civil unrest or insurrection), the inability to convert local currency and repatriate it, sovereign debt default, and even acts of terrorism and war.

Main providers of PRI cover in Southeast Asia include Japan’s Nippon Export and Investment Insurance (NEXI) and the China Export & Credit Insurance Corporation (SINOSURE). Multilateral agencies such as the Asian Development Banka and The Multilateral Investment Guarantee Agency, a member of the World Bank Group.

PESTECH (Cambodia) was listed on the Cambodia Securities Exchange in July 2020. The IPO listed 3.945 million ordinary shares at an offer price of KHR 3,120 per share. The total gross proceeds from the IPO amount to approximately $3 million.

PEPC is currently trading at KHR 3,230 (a 3.52% rise from IPO). PEPC announced its 2020 annual dividend will be KHR 26.52 riels or 0.85% of its IPO.

The company has stated it expects sustainable growth opportunities for PESTECH (Cambodia), where approximately 1,700-kilometer transmission lines are to be constructed in the next five to six years. As of 2020 the company had a total 2,276km stock of transmission lines.

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