Future bourse potential touted

The lacklustre performance of Cambodia’s stock exchange, which has attracted only four companies since it launched in 2011 and whose stocks see days without a single trade, is expected to turn a corner soon, capital markets experts said during a panel discussion yesterday.

Speaking at an event hosted by regional law firm Sciaroni and Associates, they said vigilant optimism, sustained economic growth and more listings would eventually breathe life into the languid exchange.

Han Kyung Tae, CEO of Yuanta Securities (Cambodia), pointed out that the Cambodia Securities Exchange (CSX) was not the only stock market in the region to face depressed activity and growing pains.

“If you look at the Vietnamese stock market that opened in mid-2000 and the Chinese stock market that opened in early 1990s, both experienced a depressed stage like what Cambodia is going through right now,” he said.

The Ho Chi Minh City Stock Exchange (HCMC) launched in 2000 and currently has 307 listed companies with a market capitalisation of $51 billion as of end-2016, while the Shanghai Stock Exchange (SSE) launched in 1990 and boasts 1,213 listed companies, with a market cap of about $4.1 trillion. Laos, which launched its bourse the same year as the CSX, has five listed companies with a market cap of over $1.3 billion.

Seeing that it took years for these markets to take off, Han added it was only a matter of time before Cambodia’s impressive economic growth rate piqued the interest of investors looking to earn dividends in frontier markets.

“While the CSX has only four listed companies with a market cap of a little over $200 million, which is about 1 percent of the country’s GDP”, he said, “in the next five years, with the size of the local business that will likely list sometime in the future, I would expect the market cap to be over $4 to $5 billion.”

Han said this growth projection was largely contingent on the expectation that large financial institutions such as Acleda Bank, state-owned energy provider Electricite du Cambodge (EdC) and state-run port operator Sihanoukville Autonomous Port (SAP) would eventually joined the bourse.

To date, SAP is the only company that has formally announced its plan to list, and is reportedly on track to launch its initial public offering later this year.

Brian Erskine, head of asset management for Forte Insurance, said for the CSX to truly take off, foreign investors would have to get over their misguided perception of risk.

“While global perception of Cambodia risk is still quite high, as greater education to the international investment community increases, I believe that perception will ease,” he said.

He added that this would happen as the Mekong region matures in general and Cambodia’s outstanding economic growth attracts more investor attention. Initial focus would be on companies that are transparent and meet international accounting standards.

Erskine said the CSX should be viewed as having long-term potential, which would set the stage for future institutional investment.

“The point is, whether you are listing or investing in the stock market you should be prepared to take a long-term perspective, because it will take time for the economy to generate new liquidity and listings and to catch up with neighbouring economies,” he said. “But with Cambodia’s economic growth, it is inevitable that it will happen.”

Joseph Lovell, a partner at Sciaroni and Associates, stated flatly that low liquidity in the market continues to be a main stumbling block for the CSX.

“Liquidity is really like the chicken and egg situation,” he said. “Investors want liquidity, but need companies to list. But companies need to list to create liquidity.”

Nevertheless, he said he expected the stock market would double in size in the next five years and eventually attract foreign investor attention.

NagaCorp casino 2016 profits show modest growth

Cambodia's telecommunications regulator yesterday stepped up efforts to avert a brewing price warbetween the country’s six mobile network operators, ordering the companies to submit profitability statements within the next 10 days and summoning all operators to a meeting at the end of the month where it will determine whether any laws have been breached and discuss possible punitive action.

The announcement by the Telecommunication Regulator of Cambodia (TRC) coincided with the latest salvo in a looming price war, with market newcomer South East Asia Telecom, or Seatel, rolling out the most radical promotion to date. The Singapore-based telecom has advertised it will exchange $2 for $2,000 worth of on-network calls and $1 for 2.7 gigabytes of data.

The price war began late last month when CamGSM, the operator of Cellcard, launched a promotionthat allowed its customers to exchange $1 for $100 worth of mobile services. Following suit, Malaysian-owned SmartAxiata launched a package this month that allows subscribers to exchange $1 for $125 worth of mobile services.

TRC spokesman Im Vutha said yesterday that with Seatel’s actions and a potential price war looming, the regulator could invoke Article 78 of the Telecom Law. The article, used in cases of an operator found in breach of its licence terms, mandates the TRC to first warn, then suspend an operator of its licence. It also has the option to impose fines.

“We are looking at how we can use the law to help protect both customers and providers,” he said. “If the fighting continues we have to stop it.”

While Vutha admitted that suspending an operator’s licence was a drastic step that the government would prefer to avoid, he said operators had 10 days to submit profitability statements for review.

“After that we will investigate them and then we’ll summon all operators to explain themselves by the end of the month,” he said. “We will have a decision about prices by early March to see if these promotions can continue.”

However, Vutha conceded that the regulator was hamstrung and would have to rely on operators to transparently submit their reports.

“The problem with our regulations is that they are outdated,” he said. “As consumers have shifted toward using data we don’t know how to regulate and value its usage to determine the correct price structure.”

Anthony Galliano, CEO of Cambodian Investment Management, said that it would not be unheard of for the authorities to start exerting pressure to rein in or stabilise prices without updating regulations.

“The TRC has the power of law to determine tariffs, so arguably the law is current and empowers the TRCto establish prices on both data and voice,” he said. “The difficulty [in pricing] probably applies to ascertaining the profitability of data services.”

Galliano added that by demanding operators submit profitability statements on recent products, it would give regulators “a fantastic opportunity to compare costs and spot anomalies”.

“Nevertheless, I would expect operator costs will be decidedly inconsistent,” he said

Park Café to invest in own local brew

Local food and beverage company Park Café will establish a coffee plantation in Mondulkiri province to produce coffee for its own restaurants and help reduce dependency on imported blends, a company executive said yesterday.

Heng Sengly, general manager of Park Café, said the decision made economic sense as the restaurant chain currently has 10 branches, consuming a total of nearly 15 tonnes of coffee a year. He said V-Trust Group, the parent company of Park Café, owns 100 hectares of land in Mondulkiri province.

A pilot project will grow coffee on 10 hectares.

“The challenge when producing a new product is always worrying about market demand,” said Sengly. “But we already have a market so that it is not the issue for the company.”

He added that the real challenge would be growing quality coffee that can compete with its current imports of Vietnamese coffee.

While he admitted that Cambodia grown coffee typically scored low for consumer interest, Park Café could carve out its own niche for domestic consumption.

Only after the locally grown coffee proves successful would the company consider selling beyond its own stores.

According to data from the Ministry of Agriculture, Cambodia had only 121 hectares of coffee planted as of the end of last year. The majority of coffee was planted in the provinces of Ratanakkiri and Mondulkiri.

Yin Chansothy, deputy director of industrial crops department at the Ministry of Agriculture, welcomed the plan to grow more coffee as demand is increasing while cultivation continues to decline.

“We expect that coffee plantations owned by local investors would strengthen Cambodia’s small coffee market,” he said.

Oranges struggle with disease

Orange farmer Say Samoeurth has been battling an invisible foe. He rarely sees his adversary, a tiny insect known as the Asian citrus psyllid, but wherever it goes this winged pest leaves behind a trail of destruction.

Most of the 1,000 orange trees that Samoeurth planted on his 2-hectare farm have been affected, with a bacteria transmitted by the sap-sucking insect stunting their growth and causing their leaves to turn colour and fall off. Some of defoliated trees still bear fruit, but its green, mottled appearance and bitter flavour prevents its sale in the market.

Samoeurth, who has been growing oranges on his land since 1996, said he first learned of the link between the psyllid and “citrus greening disease” from government agriculture officials. But no solutions were offered, and their advice was simply to cut down the orchard and plant something else.

Having invested his life savings into his orchard, the 52-year-old citrus farmer is reluctant to give up. Instead, he has sunk more money into his dying farm, uprooting the infected trees and transplanting new ones.

“I tried to invest in new saplings, but now they have become infected too,” he said. “The seller said they were healthy, but I had no way of knowing the origin of these trees, and whether or not they were infected.”

Hor Phuthea, director of horticultural and subsidiary crop department at the Ministry of Agriculture, said there is no cure or vaccine for the citrus greening disease, which has been spreading among Battambang’s prized orange farms since the 1990s. As such, the ministry has advised all affected orange farmers to destroy their orchards and switch to another crop though few have heeded the advice.

“Most of our orange trees are infected with this disease,” he said. “Once infected, the disease kills the orange tree and we found that once the tree approaches maturity in two years there is no way for it to survive. The only option is to cut it down and switch to another crop.”

He added that farmers who cut down the trees and plant new orange trees on the land will suffer re-infection, as the disease remains on the land.

In Sovanmony, director of Battambang’s provincial agriculture department, said citrus greening disease could be a death knell for the province’s famous orange industry. He said the disease was now endemic, and was continually whittling away at yields.

However, last year, the area of orange cultivation decreased marginally by 3 percent to 997 hectares compared to 1,027 hectares in 2015, according to government data. “Orange cultivation is declining and the extent of the damage will be even larger in the future if farmers continue to invest in their orchards without using healthy trees,” he said.

Sovanmony said some small farmers had given up on oranges and switched to other fruit cash crops, such as mangoes and longans. But the high profit potential of oranges – with farmers able to rake in over $20,000 from the harvest of one hectare of healthy trees – had tempted many farmers whose fields were ravaged by citrus greening disease to re-plant oranges.

“We know that it is profitable, but it is not a long-term investment and farmers will face high risk as the disease continues to spread,” he said.

There is hope, however. According to Phuthea, researchers at the Royal University of Agriculture are studying how to identify the disease in its earliest stages and educating farmers to avoid planting contaminated seedlings.

“We informed farmers to switch off of orange growing for a while,” said Phuthea. “Researchers at the Royal University of Agriculture have been studying this issue for many years and I believe they will announce their results to the public soon.”

Mak Samoeurn, a 65-year-old citrus farmer, said the 900 orange trees on his 1.5-hectare orchard in Battambang province’s Sangke district has until now remained free of the disease. He has harvested the five-year-old trees twice already, earning about $5,500 profit per season.

“Of course I’m concerned about the health of my farm,” he said. “I am trying to figure out if any fertiliser or chemicals can protect my trees. I saw other farms were infected by the disease and it damaged the trees.”

Telcos called to pay debts

Frustrated with the lack of compliance, the government has given the Kingdom’s mobile operators an ultimatum: declare their company revenue shares and settle all outstanding debts owed to the government by the end of the month or face swift and severe punitive action.

The announcement, released yesterday by the Ministry of Posts and Telecommunications (MPT) and Ministry of Economy and Finance (MEF), and signed by Prime Minister Hun Sen, states that the government is prepared to take unprecedented measures to penalise those telecoms that fail to pay their dues to MPT.

It said the government would start by publicly naming and shaming all delinquent operators, as well as their board directors, using various media channels.

If that fails, it promises to “take legal action such as freezing the company’s bank accounts, closing down the frequencies, freezing import-export activities, banning all public procurement activities, suspending or withdrawing business licence and/or other business legal documents, and finally, filing a lawsuit”.

Contacted yesterday, MEF officials listed on the document said they were members of an inter-ministerial group set up to process disputes, but were not authorised to speak to the press.

However, according to TRC spokesman Im Vutha, the strongly worded announcement was inked to convey the resolve of the government in collecting revenue. He explained that telecom operators are obliged by law to pay taxes as well as additional non-tax revenue annually, but that most are late or unwilling to pay, or manipulate their numbers to evade scrutiny.

“This strict announcement will strengthen the efficiency of revenue collection,” he said. “We have to stop companies that continue to break the law and cheat the government or we will not have the resources to develop critical areas of the economy.”

Cambodia’s has three large mobile network operators – Smart, Metfone and Cellcard – and three small operators – qb, Seatel and Cootel

While Vutha declined to name which companies the announcement was targeting in particular, industry insiders have said certain telecom operators with close government ties have routinely evaded tax and revenue-share payments.

CamGSM, the owner of Cellcard, is owned by influential tycoon Kith Meng’s Royal Group while Global Witness reported last year that the Prime Minister’s daughter, Hun Mana, has a $44 million stake in Viettel, the Vietnamese military-owned operator of Metfone.

An industry insider who requested anonymity said it was unlikely that the announcement was targeting any of the big three operators or those with connections.

“More likely it is one of the smaller operators that are still hanging around,” he said. “However, I know the other telecom operators believe that Metfone fudges their numbers and that they are struggling financially.”

Metfone did not respond to request for comment yesterday, while Cellcard said it would not comment as it was unaware of the announcement.

Vutha said he was unable to disclose how much the government collects from revenue-sharing each year. However, he said under its revenue-sharing model, mobile operators are required to pay 4 percent of their gross revenue to the state for the first five years of operation, and 7 percent after that.

Smart Axiata, a publicly listed company on the Malaysian bourse, said in a statement yesterday that it had already complied with government regulations, although it could not disclose the amount paid for 2016 as its financial statement have yet to be disclosed.

“Smart has always taken our national responsibilities very seriously in terms of being compliant towards paying tax and contributing to government development funds, and we can confirm that we have paid all dues to MPTC and MEF as per the specified requirements,” the statement said, adding that in 2015 the company paid $56 million to the government.

“We commend and support these initiatives as it will result in all operators being treated similarly and competing on a fair basis in terms of offerings and future sector investments,” the statement said.

Telcos called to pay debts

Frustrated with the lack of compliance, the government has given the Kingdom’s mobile operators an ultimatum: declare their company revenue shares and settle all outstanding debts owed to the government by the end of the month or face swift and severe punitive action.

The announcement, released yesterday by the Ministry of Posts and Telecommunications (MPT) and Ministry of Economy and Finance (MEF), and signed by Prime Minister Hun Sen, states that the government is prepared to take unprecedented measures to penalise those telecoms that fail to pay their dues to MPT.

It said the government would start by publicly naming and shaming all delinquent operators, as well as their board directors, using various media channels.

If that fails, it promises to “take legal action such as freezing the company’s bank accounts, closing down the frequencies, freezing import-export activities, banning all public procurement activities, suspending or withdrawing business licence and/or other business legal documents, and finally, filing a lawsuit”.

Contacted yesterday, MEF officials listed on the document said they were members of an inter-ministerial group set up to process disputes, but were not authorised to speak to the press.

However, according to TRC spokesman Im Vutha, the strongly worded announcement was inked to convey the resolve of the government in collecting revenue. He explained that telecom operators are obliged by law to pay taxes as well as additional non-tax revenue annually, but that most are late or unwilling to pay, or manipulate their numbers to evade scrutiny.

“This strict announcement will strengthen the efficiency of revenue collection,” he said. “We have to stop companies that continue to break the law and cheat the government or we will not have the resources to develop critical areas of the economy.”

Cambodia’s has three large mobile network operators – Smart, Metfone and Cellcard – and three small operators – qb, Seatel and Cootel

While Vutha declined to name which companies the announcement was targeting in particular, industry insiders have said certain telecom operators with close government ties have routinely evaded tax and revenue-share payments.

CamGSM, the owner of Cellcard, is owned by influential tycoon Kith Meng’s Royal Group while Global Witness reported last year that the Prime Minister’s daughter, Hun Mana, has a $44 million stake in Viettel, the Vietnamese military-owned operator of Metfone.

An industry insider who requested anonymity said it was unlikely that the announcement was targeting any of the big three operators or those with connections.

“More likely it is one of the smaller operators that are still hanging around,” he said. “However, I know the other telecom operators believe that Metfone fudges their numbers and that they are struggling financially.”

Metfone did not respond to request for comment yesterday, while Cellcard said it would not comment as it was unaware of the announcement.

Vutha said he was unable to disclose how much the government collects from revenue-sharing each year. However, he said under its revenue-sharing model, mobile operators are required to pay 4 percent of their gross revenue to the state for the first five years of operation, and 7 percent after that.

Smart Axiata, a publicly listed company on the Malaysian bourse, said in a statement yesterday that it had already complied with government regulations, although it could not disclose the amount paid for 2016 as its financial statement have yet to be disclosed.

“Smart has always taken our national responsibilities very seriously in terms of being compliant towards paying tax and contributing to government development funds, and we can confirm that we have paid all dues to MPTC and MEF as per the specified requirements,” the statement said, adding that in 2015 the company paid $56 million to the government.

“We commend and support these initiatives as it will result in all operators being treated similarly and competing on a fair basis in terms of offerings and future sector investments,” the statement said.

Regus opens its second biz centre

Global workspace provider Regus officially opened its second business centre in Phnom Penh yesterday with the aim of offering flexible office solutions for the growing number of Cambodian and global professionals.

Located in Casa Meridian, a luxury condo development on Phnom Penh’s Diamond Island, the firm offers 191 rentable workstations, co-working spaces, professional address solutions and virtual offices that are bookable by the hour.

Lars Wittig, country manager for Regus Cambodia, said that the demand for short- and long-term rentable office space and meeting rooms has been on the rise. The company first opened a 208 workstation facility in Canadia Tower in 2012.

“As a developing economy, Cambodian enterprises, especially startups, are challenged by a lack of capital, business networks and affordable professional office space,” he said. “By providing opportunities for modern and dynamic businesses to work where and when they want, they can become better connected globally through our network.”

The firm, which is based in Luxembourg and listed on the London Stock Exchange, claims to be the world’s largest provider of flexible workspace solutions with 2.3 million customers spread across more than a 100 countries with 3,000 locations. The company posted total revenue earnings of nearly $3 billion last year with a net profit of $183 million.

Wittig added that for startups, rentable workstation fees start at $79 per person a month while office space for two or more people begins at $479 per month.