Cambodian companies will be able to receive a country-specific credit rating such as ‘khAAA’ or ‘khBB’ issued by the Kingdom’s only licensed ratings agency Rating Agency of (Cambodia), the ratings will be a requirement for all listings on Cambodia’s Securities Exchange.
Cambodia currently has a sovereign rating of B2 set by Moody’s credit rating agency meaning all bonds and companies operating in the Kingdom have the same rating typically defined as not investment-grade or as high-yield bonds.
To overcome this, the regulator will allow a dual “Khmer” and “Global” rating structure that can provide much more depth to ratings for firms operating in the Kingdom by setting Cambodia’s sovereign rating at AAA under the local category.
The ratings will follow international standard code designations (such as khAAA, khBB, khCC) to express their assessment of the risk quality of a bond, typically the higher a bond’s rating, the lower the interest rate it will carry.
The Securities Exchange Regulator of Cambodia (SERC) granted the Rating Agency of (Cambodia) Plc. (RAC) the first licensed credit rating services for Cambodia’s developing securities market in February 2022.
RAC is a joint venture between the locally owned conglomerate Royal Group and 3E:Fii Capital, a member of 3E:Fii Group and marks an important milestone for the development of capital markets in Cambodia.
Help to promote Cambodia’s capital market
In a keynote speech delivered at the International Business Council Monthly Open Meeting by SERC Director General H.E. Sou Socheat he highlighted that the securities market is an exhaustible source of capital that provide enormous benefits for both private and public companies that wish to seek funds to develop their business.
“The presence of the Credit Rating Agency in Cambodia will help to promote Cambodia’s capital market as well as promoting creditworthiness for Cambodia,” he said.
“Therefore, I am quite enthusiastic to have our first local credit rating firm that has the eligibility and enough creditability to provide the rating service like the Big Three credit rating agencies which are S&P Global Ratings (S&P), Moody’s, and Fitch,” he added.
According to our Prakas on Public Offering of Debt Securities, to issue a bond, the company is required to submit the credit rating report on the guarantor issued by the credit rating agency accredited by the SERC.
“During the absence of the Credit Rating Agency, the bond issuers were required to submit a report on the level of some material financial ratios with certification on appropriateness from their expert or underwriter,” Socheat said.
By having the bond rated, listed companies can enhance their creditworthiness, and reputation, as well as attract more investment from national and international investors with low cost of funds, and can ensure financial discipline with continuous monitoring from the credit rating firm.
While comparing to the cost of using the international rating, Socheat added that using a local one is cheaper he said that for an investor, investing in a rated bond means they are investing in a lower investment risk product.
Credibility, transparency and independence
In a business presentation by Executive Director of RAC Chakara Sisowath he outlined the rating agency will operate under the three principles of “credibility, transparency and independence” and a mission to become the leading credit rating agency in Cambodia, provide global benchmark quality credit ratings and supply data analytics and risk management solutions.
According to Chakara Sisowath rating fees will vary depending on the based on the complexity of the business, and size of the bond issuance with a timeframe between 8 weeks to 12 weeks adding there will be options for firms to annual or bi-annual reviews
He also addressed questions from the audience on concerns around independence as well as the safekeeping and non-disclosure of sensitive corporate information from third parties including its parent company Royal Group.
“We understand that our business will only work if we have full investor confidence that the ratings we issue are fully independent and free from any coercion. We have seven rating committee members which include independent members that must agree before we can issue a rating,” he said.