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Phnom Penh. Construction cranes and unfinished high-rises surround a marshland where a year from now Cambodia hopes to overcome decades of upheaval and open a stock exchange.

The idea of a Cambodian stock market has been floated since the 1990s, but has struggled for traction in a nation known for a culture of political impunity and extreme poverty and violence in the wake of the genocidal Khmer Rouge “Killing Fields.”

Authorities argue those days are over and plan to sign a deal this month with World City, a South Korean-backed developer, to start building a $6 million, four-story stock exchange on the waterfront of a new financial district.

“We want to do it next year,” said Mey Vann, director of the financial industry department at the Ministry of Economy and Finance. “It’ll be good timing for us with the economic recovery.”

The market was supposed to open in September, a target set last year when South Korea’s stock exchange operator agreed with the Cambodian government to set up and run a joint exchange .

But the global financial crisis intervened, ending an unprecedented boom that saw Cambodia’s economy expand 10 percent annually in the five years prior to 2008. Foreign investment collapsed, tourist arrivals fell by double digits and garment exports shrank by 15 percent.

Recently, Cambodian officials have cautioned against moving too fast, in some cases questioning whether a country whose education system was decimated during Pol Pot’s 1975-1979 reign of terror is ready to invest in stocks.

“We’ve been waiting for a green light,” said Intyo Lee, project director for Korea Exchange, Asia’s fourth-largest bourse operator, which will own 49 percent of the exchange and is recruiting and training workers for it. Cambodians will own the rest. “We’re pretty much ready, but many people say it’s too early. The government is trying to build consensus.”

The exchange expects to start small, with just four or five companies issuing about $10 million worth of shares each, Lee said. That’s comparable with neighboring Vietnam’s first stock market, launched in 2000 with an initial market capitalization of $43 million. Today, Vietnam’s market is worth $27 billion.

Yet there are risks to Cambodian investors. In Vietnam, most of the investors were local and often unaware of the risks. Many were burned.

Meanwhile, foreign investors largely sought to dip into the potential high returns of an emerging frontier market while hedging their bets with a highly diversified portfolio.

Like its communist neighbor, Cambodia is giving privatizing state companies priority with a place to sell stock. The Finance Ministry has asked three state-owned companies to list shares: Telecom Cambodia, port operator Sihanoukville Autonomous Port and the Phnom Penh Water Supply Authority.

Some of those companies have a simple question: Why do it?

“We don’t have any financial constraints. I don’t understand the reasons we are going to be listed,” said Ek Sonn Chan, who runs the Phnom Penh Water Supply Authority, which has about $200 million in assets and generates $25 million in annual revenue. He said the company was profitable.

“If we become a public company, maybe we are more responsible, more transparent and maybe we can help the government allocate financial support to our company. But in the meantime, we don’t know much about how it happens. It’s very new to Cambodia, very new to me.”

The area where the stock exchange will be built is flooded swampland on the edge of Boeung Kak Lake in the heart of the city. The Finance Ministry said the end of the rainy season this month will allow workers to begin building the exchange on the corner of what developers are calling Phnom Penh Boulevard.

Cambodian officials rejected an initial design, saying the exchange’s exterior was too modern and not Cambodian enough. It has since been redesigned using traditional Khmer accents.

A new Securities and Exchange Commission of Cambodia, Vann said, is drafting market regulations to be issued soon. “We have a very good team at the Securities and Exchange Commission. They graduated from overseas,” Vann said. “Our law is very strict in terms of speculation.”

Some observers are not convinced, saying authorities need to demonstrate how investors will be protected in a country with a reputation for corruption at nearly every level of the bureaucracy. Some fear speculative gambling by public employees.



Reuters