Riel deal for new bourse

A money changer displays 500 riel notes in Phnom Penh on Friday. Reuters

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Monday, 14 March 2011 15:01 Soeun Say and Jeremy Mullins

CAMBODIA’S stock exchange will require listings in riel but will initially allow dual currency settlements, according to the Securities and Exchange Commission of Cambodia.

“The issuing of securities shall be completed in riel and the quotation of securities in the [Cambodia Securities Exchange] shall be conducted in riel,” it said in a statement issued late last week.

Settlements between buyers and sellers, however, will be allowed in both dollars and riel during the first three years of the bourse’s operation, it said.

Government policy is to promote usage of the domestic currency in order to facilitate economic development, said SECC Director General Ming Bankosal. The dual options for settlements reflected the widespread use of the dollar, he said.

“We will use the riel, but we also recognise [there is interest in] widely using US dollars in the Cambodian securities markets,” he said yesterday.

The Cambodian economy is currently highly dollarised. The National Bank of Cambodia has estimated the greenback accounts for more than 90 percent of currency in circulation, but has also stated it is committed to dedollarisation.

Private sector officials said yesterday they were supportive of the decision.

ACLEDA Bank CEO and President In Channy said yesterday that initially allowing bourse settlement in either dollars or riel would invite more participation in the exchange, which is due to launch this July.

Banks currently more deposits than outstanding loans, meaning there was excess liquidity available which could be invested in securities, he said. “The stock exchange does allow small investors the great opportunity of owning a portion of … a large corporation,” he said.

Leopard Capital Managing Partner Scott Lewis said most countries – including neighbouring Laos – successfully used local currencies for listings. “The government has a clear policy to encourage use of the riel and I think it’s appropriate to list the stocks in riel,” he said yesterday.

Although there could be concerns over currency risk, the government does keep the riel in a fairly tight band against the United States dollar, he said. He also hoped companies would continue to be allowed to disclose financial results and complete accounting in dollars.

Leopard has two interests in the Cambodian exchange – it has a few companies in its portfolio that may list, and could also pursue opportunities to buy shares in some of the first companies to list.

Scott Lewis also stressed that it was important that companies were ready to float and the regulatory framework was in place for the exchange to succeed.

“If that takes six months or it takes three years, I’m indifferent. I’d rather have them do it right, and more time allows more companies to become mature and become listing candidates,” he said. “So I don’t think there’s any rush.

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CSX riel listings make sense in the long term

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Monday, 14 March 2011 15:01 Steve Finch

THE decision to use riels on the forthcoming stock exchange may alienate some foreign investors, at least at the start, but in the longer term opting against dollar listings was the right decision.

If Cambodia is to dedollarise an economy in which 90 percent of money supply is in foreign currency then running the stock exchange in riels from the outset means avoiding a painful process of converting from the greenback to local currency listings later.

In the longer term, the country has to start moving away from the greenback if the National Bank of Cambodia is to seize full monetary control.

The creation of a major institution such as the stock exchange operating in the United States currency would have had knock-on effects within the economy creating further dollar dependency. Were listings in dollars, then by logical extension debt issuance would have been also, meaning the main options for raising capital in Cambodia will have been in the greenback. Dollar listings would have attracted more dollars into the economy.

But in the short term, when the stock exchange remains an unknown quantity and confidence is vital, will riel listings scare off foreign investors?

The assertion this month by NBC Assistant Governor Sum Sannisith in local media that there is no dollar bias in the private sector seems partly misleading. While many local investors no doubt support riel listings, a number of foreign investors and analysts have both privately – and in some cases publicly – warned of the potential negative effect local currency listings could have on appetite for Cambodian stocks.

The riel has in recent years mostly remained stuck in a slow, steady decline in value against the dollar and is an unknown quantity on international currency markets. This creates a high level of risk for foreign investors.

No doubt the SECC will help alleviate some of this risk at the outset by allowing dollar settlements by negotiation for the first three years. But this solution raises as many questions as it answers. What exchange rate will determine settlements and stock values, and therefore to what extent will currency risk associated with the riel be removed as a result of this short-term measure?

The SECC said it had been in regular consultation with international financial institutions, academics, the private sector and the public in making its decision so presumably there is substantial support for riel listings. The question is, how much?

If the government has truly accounted for riel sentiment then its currency gamble should pay off representing a significant step towards dedollarisation. Anything less and Cambodia’s stock exchange could face a difficult debut.

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Investors eye provincial enterprises

Workers outside the Green Feed plant in Kampong Cham, which was visited by potential investors last week. Photo by: Tom Brennan

Stanley Tan (centre), director of LTC Executive Search, speaks with Pol Kiri Sambath (right) at the Green Feed plant in Kampong Cham. Photo by: Tom Brennan

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Monday, 14 March 2011 15:01 Tom Brennan

Kampong Cham Province

JUST off National Road 7, outside Kampong Cham city centre, stands Green Feed’s massive processing plant. Inside, a machine three storeys high mixes raw materials like corn, tapioca and soy bean meal into animal food destined for local poultry and swine farmers.

The engine’s loud rumble nearly drowns out the voice of Pol Kiri Sambath, the company’s finance controller, as he gives a delegation of Singaporean investors, who are taking part in a project to boost small and medium enterprise, a tour of the facility last week.

Green Feed employs 100 permanent staff, in addition to 200 other workers, over two shifts a day, putting out 100 tonnes of product before the last person clocks out. The goal, though, is to reach 120 tons to 150 tonnes a day. And to get there, Pol Kiri Sambath needs some help.

He wants to grow his customer base beyond just medium-sized farms to their larger peers. The problem that faces Pol Kiri Sambath is that he doesn’t have the money to extend credit to these big farms, and banks like ANZ Royal, ACLEDA and others won’t lend Green Feed the money do it. They say the prospects are too risky.

“That’s why I look for funders from outside” Cambodia, he said. That’s where those Singaporean investors come in.

Their visit last week to Kampong Cham province, as well as Svay Reing province, was part of larger trip organised by Cambodia MSME, an initiative funded by the United States Agency for International Development that seeks to bolster local micro, small and medium enterprises.

With so much investment centred in Phnom Penh, the group was trying to generate cash flows in other parts of the country.

While no one expects these two provinces to replace Battambang as Cambodia’s major agricultural centre any time soon, government officials, NGOs and local businessman see the region’s potential.

As Tauch Tiepich, chairman of Svay Reing’s rice millers’ association, said, Kampong Cham and Svay Reing are “moving in that direction”. Though they still have a way to go.

Most of the Singaporean investors cited corruption as a major concern for starting a business in the Kingdom, saying they were somewhat unsure of how to navigate such an environment.

Still, others said the such concerns weren’t enough to keep them away.

“It shouldn’t be something that stops you from investing here,” said Lai Poon Piau, director of Acorn Investments, who was searching for agriculture opportunities in Cambodia.

“Because I think this country offers a lot of opportunities for people with foresight. I believe that I am able to manage most of the business risk.”

Lai Poon Piau is not alone. Lee Kian Heng, who hopes to open cashew processing facilities, said he is looking to start “very soon” though he listed his “number-one concern” as potential government corruption.

Xavier Hu, chief negotiator for SME Funding Advisory, said these issues were just a part of doing business and that Cambodia was not that much different from Vietnam, Indonesia or Malaysia.

“Corruption happens in the whole world,” he said. “In some places, it’s known as donations and lobbying.”

Hu, whose firm finances small and medium-sized enterprises, was approached by Green Feed’s Pol Kiri Sambath for funding.

But SME will only deal with companies that have Singaporean partners, and there are not a lot of Singaporean investors currently in Cambodia.

Still, Hu said he felt he should be able “to work something out.”

If it does work out, the funding could catapult Green Feed to the next level.

That would be a small step toward achieving Pol Kiri Sambath’s vision for his company and Cambodia MSME’s vision for the provinces.

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Garment training centre planned

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Monday, 14 March 2011 15:01 Soeun Say

THE Garment Manufacturers Association in Cambodia (GMAC) said that this year it plans to spend US$5 million to build a training centre in order to boost the skills of garment workers and enable them to take over management functions currently dominated by foreign workers.

“We hope to get something started as soon as in June,” said Ken Loo, secretary general of GMAC, after finishing an annual general meeting at the Cambodiana Hotel in Phnom Penh yesterday. “Now, we are looking for a location to set up a building,” he said.

The training centre will be built using a loan from the French Development Agency, Ken Loo said.

Van Sou Ieng, who was elected president of GMAC yesterday, told The Post that the institute will be able to train around 1,000 workers a year.

“Our main purpose in building this institute is to train Cambodian workers in the garment sector with skills so that they will be able to replace foreign workers who are working in the management level in Cambodia at present,” Van Sou Ieng said.

Around 320,000 people work in Cambodia’s garment sector, including about 10,000 at management level.

However, most managers tend to be Chinese, Vietnamese or Filipino.

Van Sou Ieng said Cambodian workers with at least two years’ experience could apply for the training courses, which would range from six months to three years. Fees would be paid by employers.

Ath Thon, president of the Coalition of Cambodian Apparel Workers’ Democratic Union, said yesterday that he welcomed the GMAC’s training centre as it will help Cambodians to get management-level jobs. Currently 90 percent of those positions in Cambodia are held by foreigners, he claimed.

“I hope that the training centre will enable our Cambodian workers to keep in touch with and to have access to modern techniques in the garment sector to fulfill the requirements of investors, and to replace foreign workers in Cambodia at present,” he said.

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Wai Chun axes plans to buy Kingdom mines

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Monday, 14 March 2011 15:01 Ellie Dyer

WAI Chun Mining Industry Group has scrapped the planned purchase of two Cambodian iron mines.

According to a filing on Friday with the Hong Kong stock exchange, the company has terminated an agreement over the possible acquisition of the mines together with a 74 percent interest in a South African manganese mine from Guangxi Non-ferrous Metals Group Company Limited and Guangxi Sincerity Investments & Trading Company Limited.

The two Cambodian mines were described in a November statement as being in the Kohkeo and Phnom Thmar regions of Cambodia.

Wai Chun was to purchase the mines through a combination of cash and a share issue to state-owned Guangxi, which would have seen the firm become “the flagship enterprise of Guangxi Non-Ferrous Metals in undertaking business activities in the mining and mineral resources sector,” it said in the November statement.

However, the two parties had mutually agreed to terminate the provisional agreement, said Hong Kong-based Wai Chun on Friday. “The company and the Guangxi Parties are unable to reach an ultimate agreement on the final structure and terms of definitive agreements in relation to the proposed acquisitions,” it said.

The buy “would require reorganisation and compliance with the relevant laws and regulations which provides uncertainties to the proposed acquisition”, it added.

Its board considered that the termination of the Heads of Agreement and the terms of the termination “have no material adverse impact on the existing business operations of the group”.

For the six months of 2010, the group recorded a turnover of HK$133 million (US$17 million) largely attributable to demand for its footwear business.

The company’s main business, according to its website, is the holding of 65 percent equity interest in Nority Limited, a manufacturer of athletic and athletic-style leisure footwear and golf shoes.

Gross profit during the same period was HK$17 million.

Shares in Wai Chun ended at HK$0.184 at close of trade on the Hong Kong exchange on Friday.

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