The Cambodia Stock Exchange (CSX) is one of the youngest and smallest stock exchanges in the world, with the shares of only four companies currently being traded on it.
The first company to list on the CSX was Phnom Penh Water Supply on 18 April, 2012. Since then, there have been three additional listings – garment maker Grand Twins International, the Phnom Penh Autonomous Port, and the special economic zone operator Phnom Penh SEZ Plc. This is comparable to the present activities of young stock markets of Laos, with five listed companies, and Myanmar, which has three listings.
The establishment, and growth, of the stock exchange represents an important milestone for the maturation of the Cambodian economy. The availability of domestic listing provides Cambodian companies the opportunity to raise expansion capital without the burdens and limitations of debt financing. With the prospect of a potential domestic initial public offering, private equity investors are also encouraged to help finance companies at earlier stages of their growth, as exit strategies can be expanded to encompass an eventual local IPO.
Public listings also support the Kingdom’s goal to improve corporate and financial compliance as public companies, and companies planning to publically list, must generally adhere to higher accounting and governance standards.
For listed companies, the advantages of public listing go beyond improved access to financing. Stock options become more attractive to employees, so the ability to attract and retain talented staff is enhanced. Public listing can also improve recognition and credibility of the company with clients and suppliers. And Cambodia offers certain tax incentives to companies that list on the CSX.
Companies that want to list on the main board of the CSX must meet the following requirements:
- Shareholders’ equity must be at least thirty billion riel ($7.38 million) as of the date of the listing application
- Net profit must be at least two billion riel ($4.92 million) for the latest full financial year prior to the date of application, and the aggregate net profit for the most recent past two financial years must be at least three billion riel
- There must be at least 200 shareholders, holding ten shares or more, who each own less than one percent of the total authorized voting shares
- At least seven percent of total authorised voting shares must be owned by shareholders who each own less than one percent of the total voting shares (unless otherwise approved by CSX and the Securities Exchange Commission of Cambodia)
In order to broaden participation in the CSX, in September 2015, a growth board was established to attract listings from small and medium enterprises. While there are yet to be any growth board listings, it is anticipated that the junior board will help to accelerate the growth of the bourse and increase trading of CSX-listed equities.
Companies that want to list on the growth board of the CSX must meet the following requirements:
- Shareholders’ equity must be at least two billion riel as of the date of the listing application
- The company must have net profit for the financial year prior to listing application or have a positive operating cash flow and gross profit margin of at least ten percent
- There must be at least 100 shareholders, holding ten shares or more, who each own less than one percent of the total authorised voting shares
- At least ten percent of total authorised voting shares must be owned by shareholders who each own less than one percent of the total voting shares (unless otherwise approved by CSX and the Securities Exchange Commission of Cambodia)
As more companies list on the CSX and trading liquidity, in turn, increases, it is expected that more investors, both international and domestic, will be drawn to invest in the Cambodian bourse. This should in turn lead even more companies to look to public listings to finance their growth.
An active stock exchange takes time to develop, but the CSX appears to be on the right track. Vietnam’s Ho Chi Min Stock Exchange began in July 2000 with two listings and is now one of South East Asia’s most vibrant markets with well over 300 listed companies. As the economy of Cambodia continues to mature and expand, the CSX can be expected to follow.
This article was written by Joseph Lovell, Partner and Head of Banking & Finance Practice Group at Sciaroni & Associates.
With over two decades of Asia-focused legal, business and investment experience, Joseph’s expertise includes cross-border investments, M&As and corporate law across multiple sectors (technology, media, telecoms, manufacturing, finance, oil & gas, mining, green tech and pharmaceuticals). A member of the bar in New York, Texas and Hawaii, he holds MA and JD degrees from the University of Hawaii and a BS degree from Georgetown University. Fluent in Mandarin, he is conversant in French, Khmer and Thai.
Sciaroni & Associates, one of Southeast Asia’s leading professional services and investment advisory firms, has been providing skilled counsel and knowledgeable business insights for over two decades. Based in Cambodia with legal offices in Laos and Myanmar, their experienced team of advisors brings considerable general and sector-specific expertise to the challenges confronting companies doing business in emerging markets. Their clients comprise many of the world’s premier companies, banks, financial institutions, governments and global development organisations.