Cambodia Investment Review

Yuanta Securities Estimates Cambodia’s Current USD Sovereign Yield at Approx. 7% in May 2024 Report

Yuanta Securities Estimates Cambodia’s Current USD Sovereign Yield at Approx. 7% in May 2024 Report

Cambodia Investment Review

Yuanta Securities (Cambodia) has released a report demonstrating how to estimate Cambodia’s sovereign yields. The theoretical data is intended to guide investors interested in debt securities in Cambodia, serving as a crucial reference point in the absence of USD-denominated government bonds.

Sovereign yields, which are government bond yields, provide insights into economic conditions, investor sentiment, and government creditworthiness. They are essential for pricing corporate bonds and assessing investment performance. However, the current data from Cambodia’s KHR-denominated government bonds are limited.

MEF Has Issued Government Bonds in Small Amounts

The Cambodian government, through the Ministry of Economy and Finance (MEF) and the National Bank of Cambodia (NBC), has issued these bonds in small amounts, confined to the primary market without secondary market trading. This limitation results in data that do not fully reflect market prices or conditions due to low participation and infrequent transactions.

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In contrast, countries like Thailand have more developed bond markets, offering extensive data from both primary and secondary markets. Thailand’s market provides a broader base of participation and more frequent transactions, leading to more reliable and market-reflective yield data.

Cambodia’s high level of dollarization means investors prefer USD-denominated yields. These yields can be considered the minimum interest rate cost in USD for corporate issuers in Cambodia. However, the absence of USD-denominated bond issuance by the Cambodian government means there is no existing data to derive such yields directly.

Yuanta Securities addressed this gap by estimating theoretical USD-denominated sovereign yields for Cambodia. Using Thai sovereign yields, TRIS’ rating of Cambodia, Thai corporate bond spreads, USD-THB cross-currency swaps, and SOFR swap rates, the report provides a useful reference for investors. The estimated yields serve as a starting point for pricing corporate debt securities in Cambodia, particularly for those guaranteed by the government or issued by large corporations such as major commercial banks.

Cambodia’s Estimated Soverign Yield on May 8, 2024.

Compared to markets with robust data availability, like Thailand, Cambodia’s bond market is still in the early stage of development. The Thai market offers daily updates and a wider array of data points, which are crucial for accurate yield estimations. By adopting similar methodologies and

leveraging available regional data, Yuanta Securities aims to enhance the transparency and efficiency of Cambodia’s financial markets.

Cambodia does have a Rating Agency of Cambodia (RAC) – which does not do unsolicited credit ratings – however has taken a significant step to enhance Cambodia’s financial infrastructure by becoming a member of the Association of Credit Rating Agencies in Asia (ACRAA). The decision was approved by the ACRAA Board and signifies the international recognition of RAC’s diligent efforts to uphold credit rating best practices.

Launched in 2022, the Securities Exchange Regulator of Cambodia (SERC) authorized RAC, a joint venture between the locally owned conglomerate Royal Group and 3E:Fii Capital, to provide the first licensed credit rating services. This marks a significant milestone in the development of capital markets in Cambodia.

Cambodia’s Sovereign Rating Of B2 Is Speculative Grade

With this granted license, Cambodian companies can now receive a country-specific credit rating from RAC, such as ‘khAAA’ or ‘khBB’. These ratings will be a prerequisite for all listings on Cambodia’s Securities Exchange.

Read More: Rating Agency of Cambodia Joins Prestigious Association of Credit Rating Agencies in Asia

At present, Moody’s credit rating agency assigns Cambodia a sovereign rating of B2, which equates to speculative-grade or high-yield bonds. To add depth to the rating system for firms operating in Cambodia, the regulator will introduce a dual ‘Khmer’ and ‘Global’ rating structure. Under the local category, Cambodia’s sovereign rating will be set at AAA.

This initiative by Yuanta Securities is a significant step toward creating a more reliable financial benchmark in Cambodia, fostering investor confidence and aiding in the accurate pricing and evaluation of debt securities in the country. The regular publication of these theoretical yields is expected to contribute to the growth and stability of Cambodia’s financial sector, aligning it more closely with regional markets.

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