This is the chapter 9 out of 19 chapters of our Cambodia Investment Guide. Learn the best way to invest in Cambodia. Download the full publication here.

Chapter 9 : The Securities Markets

The Cambodian Stock Exchange (CSX), a joint venture between the government of Cambodia and Korea Exchange, was established in mid-2011 to oﬀer increased access to the equity capital markets in Cambodia. For this purpose, the Securities and Exchange Commission of Cambodia (SECC) was established to assist the government on the strategic and regulatory aspects of the securities market in Cambodia and to license all relevant securities-related operators, including the securities market operator, securities depository, clearance and settlement of facility operators, underwriters, dealers, brokers, investment advisors, securities representatives, investment advisory representatives, securities-specialized accounting firms, cash settlement agents, securities registrars, securities transfer agents and paying agents.

This chapter will primarily help companies and investors understand the general regulatory framework of securities, initial public oﬀerings and corporate governance of the listing company.

1. Overview of Securities Regulatory Framework

The securities market is primarily governed by the Law on the Issuance and Trading of Non-Government Securities, dated October 19, 2007 (Securities Law) and its implementing Sub-Decree No. 54, dated April 8, 2009 (Securities Sub-Decree); implementing regulations issued by the SECC; and the Law on Government Securities, dated January 10, 2007 (Government Securities Law).

Securities include government securities and non-government securities. Non-government securities issued by public limited companies or other legal entities include equity securities, bonds or debentures, interests in a managed investment scheme, derivative instruments, and government securities including Treasury bills, Treasury bonds, and other instruments creating or acknowledging indebtedness and issued by or on behalf of the government.

2. Securities Market Operator, Clearance and Settlement Facility Operator, and Securities Depository Operator

Securities market operators, clearance and settlement facilities operators, and securities depository operators may be separately licensed by the SECC. The National Bank of Cambodia (NBC) may operate a clearance and settlement facility or securities depository without being licensed by the SECC. A securities market operator may not be authorized unless clearance and settlement facilities are adequately established. A securities market, deposit, and clearance and settlement operator license was issued on February 28, 2011 to only one company – the CSX, which is 55 percent owned by the Cambodian government and 45 percent owned by Korea Exchange.

3. Securities Firms

Securities firms, including underwriters, dealers, and brokers, may trade securities in the securities market under their own account or on behalf of their clients. Securities firms must be licensed by the SECC. Certain securities dealers will be exempt from licensing requirements where the dealers engage in certain exempt securities transactions.

A securities underwriter may:

provide important advice on issues of securities such as pricing and distribution timelines or issue an amount and number of securities to be issued in the oﬀering and so on;
acquire from an issuer all or part of the securities, with a view to distributing or reselling;
acquire the unsold portion of the securities in a public oﬀering, with a view to ensuring the success of the issuance; or
make arrangements for a public oﬀering on behalf of an issuer or participate directly or indirectly in a public oﬀering.

Additionally, a securities underwriter may also operate a securities dealing, securities brokerage and investment advisory business.

4. Securities Dealers, Securities Brokers, and Investment Advisory Firms

A securities dealer may trade securities on its own account and at its own risk. Additionally, a securities dealer may also operate a securities brokerage and investment advisory business.

A securities broker may buy or sell securities on behalf of and by the order of its clients for a commission. A securities broker may also operate an investment advisory business.

An investment advisory firm is a professional firm licensed by the SECC to provide investment advisory services to public investors regarding decisions on securities investment. Fifteen securities and investment advisory firms were licensed by the SECC for an initial term of two years from 19 October 2010. Currently there are six securities underwriters, one securities dealer and three securities brokers licensed by the SECC.

5. Equity Securities Issuance or Initial Public Oﬀering

Securities may be issued under the form of private placement or initial public oﬀering (IPO). Private placements may be made only if: i) the total number of people to whom the oﬀer is made is no more than 30; and ii) the oﬀering is not publicly advertised by any means including for the purposes of asking for information or any advice on the securities investment.
Private placements will not be authorized by the SECC, but the SECC must be notified of the placement when the private placement is completed, and the result of the placement must be reported to the SECC. To date, no comprehensive guidelines or regulations have been adopted to regulate private placements.

Securities cannot be publicly issued and traded unless they are authorized by the SECC upon all requirements being satisfied. An IPO may not be conducted unless, amongst other things, the requirements in the following sections are satisfied.

In late 2015, the SECC redefined the stock exchange markets by introducing a new market called the Growth Board. The original stock exchange market being called the Main Board. Although these two stock exchange markets are not expressly defined, based on the listing requirements for each board, these two markets are operated based on the size of the companies proposing to list. Pursuant to Prakas 006/15 on Implementation of Listing Rules dated 10 September 2015, at the application date, to be listed in the Main Board, an eligible applicant must have total shareholders’ equity of KHR 30,000,000,000 (approximately equivalent to USD 7,500,000) and KHR 2,000,000,000 (approximately equivalent to USD 500,000) to be listed in the Growth Board. Any listed company may apply to move from the Growth Board to the Main Board, subject to submission of an application to the SECC and fulfillment of requirements under the Main Board. Pursuant to this Prakas, it is understood that the purpose of the Growth Board is a listing market instituted for small and medium sized enterprises and newly incorporated companies that have potential for high growth.

5.1 Corporate Compliance

An issuer must comply with the following corporate requirements:

the issuer must be a public limited company or permitted entity;
share ownership of the shareholders holding the largest number of voting shares must not be changed for the last one (1) year until being officially listed; and
the issuer must prepare and maintain corporate records including articles of incorporation, minutes of meetings, the resolutions of directors and the committees “of directors”; copies of all meeting notices; a securities register; shareholders’ agreement; minutes of meetings thereof and shareholders’ resolutions and share certificates.

Furthermore, depending on which Board an issuer is listed on, an issuer must comply with the following:

For the Main Board:

shareholder’s equity must not be less than KHR 30 billion at the date of filing the application for initial listing on the CSX;
the number of shareholders holding less than 1% voting shares, holding 10 shares or more, must be at least 200 as of the date of completing the procedures for initial listing, unless determined otherwise by the SECC as proposed by the CSX; and
the number of shares held by shareholders holding less than 1% voting shares must be at least 7% of the total voting shares, unless determined otherwise by SECC as proposed by CSX;

For the Growth Board;

shareholder’s equity must be not less than KHR 2 billion at the date of filing the application for initial listing at CSX;
number of shareholders holding less than 1% voting shares, who hold 10 shares or more, must be at least 100 as of the date of completing the procedures for initial listing, unless determined otherwise by SECC as proposed by CSX; and
number of shares held by shareholders holding less than 1% voting shares must be at least 10% of the total voting shares, unless determined otherwise by SECC as proposed by CSX.

5.2 Regulatory Compliance

An issuer must comply with the following regulatory requirements;

the issuer’s establishment must be in good standing with regard to company registration, tax registration, labor registration, the National Social Securities Fund (NSSF), including the filing of all changes or amendments and other required documents;
the issuer must have regulatory approvals or licenses required for some specific activities such as environment impact assessment reports, construction permits, factory licenses, tourism licenses, and/or specific operating licenses; and
the issuer must report to the relevant authorities such as the Council for the Development of Cambodia (CDC), the Ministry of Commerce (MOC), the General Department of Taxation (GDT), and/or other governmental authorities.

5.3 Accounting and Tax Compliance

An issuer must prepare financial and accounting records in compliance with accounting standards as determined by the Ministry of Economy and Finance (MEF), and the records must be properly kept for 10 years. The issuer is also required to file monthly and annual tax returns to the GDT.

5.4 Corporate Governance

An issuer cannot be listed on the securities market unless, among other things, corporate governance requirements are strictly observed and implemented under Article 38 of the Securities Law.

The issuer must set up a mechanism to: (i) protect the shareholders’ and other stakeholders’ rights; (ii) organize the management structure of the company, as well as determine the authority and obligations of the board of directors; and (iii) set up a management monitoring system to facilitate disclosure and transparency.

The board of directors must be composed of independent directors, at least one-fifth of whom are board members. An audit committee and a risk management committee must be established by the board. Both the audit committee and risk management committee must be composed of at least three members, with each committee chaired by an independent director. A code of conduct and ethics for directors and senior oﬃcers must; be adopted by the board and publicly disclosed. The issuer is required to set up a management monitoring system through market mechanisms and disclosures in an eﬃcient and timely way, providing required information that may inﬂuence the decision-making of shareholders and other stakeholders.

5.5 Prospectus

The issuer must prepare a prospectus with the assistance of the underwriter, accounting and auditing firm, law firm, and other reliable professional advisers.

The content of the prospectus must address the following;

general information;
risk factors;
use of proceeds;
investment projects;
description of business;
description of plant, machinery, and equipment;
operational plan and financial position;
asset valuation and/or re-valuation;
directors and oﬃcers;
involvement of directors and oﬃcers in certain legal proceedings;
certain relationships and related parties’ transactions;
directors’ and oﬃcers’ compensation;
options granted to directors, oﬃcers, and employees;
transactions with directors and shareholders;
net assets per share and earnings per share;
ownership of the issuer’s equity securities;
determination of the oﬀering price;
description of equity securities being oﬀered;
financial information and financial statements; and
consolidated financial information and financial statements.

The prospectus must be registered with and approved by the SECC.

6. Initial Public Oﬀering Process

Before starting the process for an IPO, the issuer must engage an underwriter that advises the issuer to comply with the requirements above, to prepare the prospectus, and to determine the amount of shares or other securities to be issued and the price.

Next, the issuer must file an application to the CSX to determine whether it may be able to be listed on the CSX. After the CSX confirms the listing eligibility of the issuer, the issuer files the final prospectus to the SECC for its IPO.

After the SECC issues approval-in-principle for the IPO, the issuer prepares and submits the terms and conditions, including the securities pricing to be approved by the CSX and then by the SECC. After the prospectus is registered and approved by the SECC, the newly issued securities (20 percent reserved for Cambodian individuals and 80 percent for the public) are oﬀered to and subscribed by the public through securities underwriters, dealers and/ or brokers. The underwriter itself is required to subscribe the outstanding newly issued securities after the end of the subscription date, if any. At the end of the IPO, the issuer is required to register with the CSX so that its securities may be traded.

7. Other Securities Supporting Actors

The securities and the subscribers will be registered with the securities registrar of the issuer. ACLEDA Bank PLC and Tricor Securities Services PLC were licensed by the SECC on 28 February 2011 as securities registrars for the issuer.

After registration with the CSX, the securities may be freely traded on the market. To facilitate the trading process, three cash settlement agents – ACLEDA Bank PLC, Canadia Bank PLC, and Bank for Investment and Development of Cambodia PLC (BIDC) – were licensed by the SECC on 28 February 2011 to assist securities firms in settling payments for the securities.

During securities trading, any of the transfer agents and paying agents – ACLEDA Bank PLC, or Tricor Securities Services PLC, licensed by the SECC on 28 February 2011 – are required to be engaged by the issuer to assist in registering the securities and paying dividends and interest, if any, at the end of each financial year.

Please note that all issuers need to be audited by independent auditors accredited by the SECC. Currently, there are six audit firms – PricewaterhouseCoopers (Cambodia) Ltd., KPMG Cambodia Ltd., BDO Cambodia Limited, Ernst & Young (Cambodia) Ltd., Angkor Certified Accountant Network McMillan Woods (Cambodia) Co., Ltd., and Grant Thornton (Cambodia) Ltd. –accredited by the SECC to assist issuers.

8. Developments at the CSX

The CSX has been in operation since mid-2011. However, the first IPO (of shares in the Phnom Penh Water Supply Authority (PPWSA)) did not take place until April 2012. Currently, there are four companies listed on the Cambodia Stock Exchange (CSX), these are;

Water Supply Authority (PPWSA), listed on 18 April 2012
Grand Twins International (Cambodia) PLC (GTI), as the first private company, listed on 16 June 2014
Penh Port Autonomous (PPAP) as the first joint-venture public enterprise, listed on 9 December 2015
Phnom Penh SEZ Plc. (PPSEZ), the first private Cambodian company, listed on 30 May 2016

IPOs for two other government authorities (the Phnom Penh Electricity Authority and the Sihanoukville Port Authority) were to accompany the PPWSA IPO, but those IPOs have not occurred as of the date of publication. This is not a reﬂection of issuer confidence, but a reﬂection of the fact that Cambodian companies have not traditionally been focused on maintaining accounts with the required form and detail.

This fact, combined with the strict requirements for listing and the rigorous approach taken by the SECC to its supervisory duties means a certain period of time will be required for companies to meet the relevant requirements. These are very early days and market participants are confident that further IPOs will be launched in coming years.