* Taiwan garment maker is Cambodia's second ever listing
* Local business tycoons see few benefits in going public
* Lack of financial records, strict listing rules and red
tape to blame
* Tax incentives, landmark listings seen needed to boost
By Prak Chan Thul and Lawrence White
PHNOM PENH/HONG KONG, June 16 The number of
companies on Cambodia's stock exchange doubled on Monday - to
The debut by a Taiwan garment maker is an important baby
step for the bourse, but the firm's long road to listing and a
lack of clarity on the number of companies to follow underscore
just how far Cambodia has to go before it becomes a hot frontier
While neighbouring Vietnam has seen around 660 companies go
public since the opening of its first bourse in 2000, both
Cambodia and Laos, which has three listed firms, have failed to
live up to early expectations that came when their exchanges
opened for business in 2011.
Many Cambodian firms are unwilling to commit to transparency
by providing financial statements or to comply with taxation
laws, brokers and investors in the country say. Red tape and
listing rules more suited to a developed market only compound
"We find it a very bureaucratic market to invest in, and
they are shooting themselves in the foot with listing
requirements that are too strict," said Thomas Hugger, manager
of the Asia Frontier Capital fund.
That the newly listing company - Grand Twins International
(Cambodia) Plc, a major clothing manufacturer in the country -
is not Cambodian but Taiwanese only serves to highlight local
corporate reluctance. As does the two-year gap since Cambodia's
Grand Twins, which counts Adidas and Reebok among
its clients, had initially planned to list last year. It says it
decided it would fare better in Cambodia where the textile
industry is a pillar of the economy rather than
But its $19 million IPO was pushed back due to delays in
getting paperwork done - a problem which resurfaced even after
the offering was completed with its listing date postponed
twice, sources with direct knowledge of the matter said.
Companies planning to list must provide three years of
financial statements, have made a profit for three years and
fulfil potentially onerous requirements to have a variety of
The Cambodia Securities Exchange, a joint venture with
Korea's bourse, initially announced plans to list three
state-owned companies by the end of 2012 but so far only the
Phnom Penh Water Supply Authority has made it to market.
And there is not a whole lot of turnover, with no shares
changing hands in one in three trading days last month. The
trading floor was empty and computers sat switched off when a
Reuters reporter visited in June.
While some 100 people, mostly media, were in attendance for
the ringing of the bell for Grand Twins, it was a subdued debut
with the stock falling 5 percent in extremely thin trade.
Hong Sok Hour, CEO of the exchange, has said around 10
companies are exploring a listing and there would likely be one
more before the end of the year, but noted preparing financial
statements continued to be a challenge.
"We can't know when they are ready," he told a news
conference earlier this month.
Frontier markets, a subset of emerging markets but which are
more illiquid, less stable and carry more risk, have
increasingly found favour with investors and without change,
Cambodia has much to lose in potential capital.
The MSCI frontier markets index is up almost 15
percent so far this year, against a 5 percent rise in the MSCI
emerging markets index.
Vietnam's benchmark index was Southeast Asia's best
performer last year, rising 22 percent and while it took a bit
of a knock last month on tensions with China, it is still up 14
percent for the year to date. It has a market cap of $47
billion, though that still pales in comparison to emerging
markets like Thailand whose benchmark has a market value
of around $400 billion.
Lack of action from Cambodia and Laos mean they risk being
eclipsed by Myanmar, says Asia Frontier's Hugger.
Myanmar, which has enacted sweeping political and economic
reforms since 2011, is drawing huge foreign investor interest
with some of that beginning to bear fruit. Gap Inc, for
example, just announced plans to open two factories in Yangon.
Myanmar, which currently has two listed firms, plans to open
a brand new exchange in October next year with Japanese help. It
says half a dozen companies will list in the early stages
including Myanmar Agribusiness Public Corporation and Asia Green
While experts say that both Cambodia and Laos do have well
run companies that would be attractive investment targets, there
needs to a change in mindset as business tycoons have yet to be
convinced about the benefits of listing.
Pervasive corruption has also fostered a sense of distrust
that is hindering the development of a local institutional base,
despite most of the necessary regulatory framework being in
"Foreign investors and, to my surprise, even quite a number
of local investors are still questioning the trustworthiness of
local companies' financial statements," said Han Kyung-tae, head
of Southeast Asia investment banking at Tongyang Securities
(Cambodia) Plc, who worked on the first Cambodian IPO.
The Cambodian government could benefit by taking a leaf out
of the books of other frontier markets such as Bangladesh, said
Douglas Clayton, CEO of frontier market fund Leopard Capital.
Public companies in Bangladesh pay 27.5 percent tax, while
most private companies must pay 37.5 percent. Cambodia could,
for example, cut corporate taxes in half for three to five years
for listed companies, he said.
"The greater transparency this would bring might actually
increase tax collections over the long term," he added.
Also key will be convincing bigger companies to list - a
factor far more important than quantity. Vietnam's market only
took off from about 2007 after the government pushed more large
firms to list and lifted a cap on foreign ownership.
Most of investor attention in Vietnam is occupied by only a
handful of stocks, said Adrian Cundy, managing director at Ho
Chi Minh City-based VinaSecurities. Among companies with a
market value larger than $500 million, just 11 have more than $1
million worth of trade a day.
"Cambodia needs to find three or four companies that can
trade at those levels, such as a bank, a telco or a power
company," he said.
(Additional reporting by Mai Nguyen in Hanoi, Yantoultra Ngui
in Kuala Lumpur and Martin Petty in Bangkok; Editing by Edwina