Royal Railways’ $24m bond issue was supported by both local and international investors and is an important step towards integrating Cambodia into the global capital markets, according to Hanna Mark, chief financial officer at the transport operator’s parent firm, Royal.
“The latest bond allows international firms to invest in people and opportunities that they wouldn’t otherwise have,” Mark told Cambodia Investment Review on the sidelines of the press conference announcing the bond’s launch which was held at the Cambodia Securities Exchange (CSX) on 22 December.
A large demand for finance in Cambodia
Mark said that there is a large demand for finance in Cambodia and Royal Railway’s latest issue, which will be used to invest in infrastructure, widens the path for domestic corporates to access global capital markets.
Mark also said that Royal’s subsidiaries had a pipeline of bond issuances planned for 2023.
“CellCard is looking to issue a bond, as is Ezecom. The financing needed for the telecommunications sector alone is huge and the local market can’t provide it, so this latest bond issue is important as it’s backed by international inventors,” Mark told CIR.
The bond is rated Kh-AAA by the newly-minted Rating Agency of Cambodia and Mark said that this high rating was possible because it is underwritten by GuarantCo Ltd, a member of the London-headquartered Private Infrastructure Development Group.
“Because these bonds are underwritten, international investors are not taking Cambodia’s risk, they’re not taking company risk. They’re taking highly-rated insurance company risk,” he added.
Exploring new financing channels
Mark’s point on the importance of broadening financing options for Cambodian corporates was echoed by Neak Oknha Kith Meng, Chairman of Royal Railway, in his speech at the CSX ceremony
“The reason for [issuing the latest bond] is because we need to explore new opportunities because we cannot always depend on banks. Using banks is good for a certain amount of time but after a while, this can be bad for investors,” he said.
While acknowledging the importance of international investor interest in the latest bond issue Meng also spoke of the need to develop the domestic capital markets in parallel if the country wants to continue its pre-pandemic economic growth levels of roughly 7% a year.
“The domestic capital markets have improved but it is not enough. We need to do more to promote and grow this because we cannot always depend on others and that is how Cambodia will sustain its ability to continue growing its economy,” he added.
Cambodia’s capital markets are developing
Nishant Kumar, Managing Director in Asia, of GuarantCo, which backed the bond addressed the press conference via a video link, however, was positive that Cambodia’s capital markets are developing.
Kumar said that the latest bond had the potential to be ‘transformative’, and that it would facilitate further infrastructure investments in Cambodia.
“The latest Royal Railways bond will be instrumental in helping companies unlock their capacity to support the development of the country’s capital markets while reducing their financing costs.
We hope that this transaction will shine a light on the untapped potential for the Cambodian rail sector, leading to more industries using the railway, and a more integrated supply chain which will further enhance the efficiency of the network,” he said.
The managing director told the press conference that the bond was split into a five and a ten-year tenor, with two domestic insurers, Prudential Life Insurance and Manulife, investing in the longer-dated paper, while a local corporate bought a chunk of the shorter exposure.
UK-based Kumar also said that the latest bond met the latest UN sustainability goals.
According to an October 2022 report by consultancy PWC, Cambodia needs to invest $28bn in infrastructure by 2040 to reach its full growth potential.