Investment Research

Cambodia Capital April 27, 2011

Approaching a final frontier

Progress on the road to opening the Cambodian Stock Exchange

Graeme Cunningham, CFA

gcunningham@camcap.net

+855 77 990 769

Cambodia Capital
Cambodia Stock Exchange

EXECUTIVE SUMMARY:
Approaching a final frontier: Nearing the opening of the CSX
In this report we give an overview of the significant progress that has been
made towards launching the Cambodia Stock Exchange (CSX), one of
Southeast Asia’s last frontier markets, and outline the few final steps still to be
completed. The four major pillars are in place; 1) the regulator, the Securities
and Exchange Commission of Cambodia (SECC) has been established since
2007, and has promulgated nearly all the necessary regulations over the last
two years, 2) the trading, depository and settlement platforms for the
exchange of the CSX are being rolled out under the management of owners
the Korean Stock Exchange and the Cambodian government, 3) the securities
firms, underwriters, brokers, dealers, advisors and settlement banks, clearing
agents, and auditors have been licensed, 4) the first three companies to be
listed, all state-owned enterprises, have been selected, and underwriters
chosen.

1) SECC established and most regulations complete: Established

in 2007, the Securities and Exchange Commission of Cambodia, with its staff of
70, has issued 11 out of the 14 major regulations that will be required prior to
opening, and released drafts of 2 more for public consultation.

2) CSX is licensed, housed and finalising systems: The Cambodia

Stock Exchange (CSX) is 55% owned by the Cambodian government and 45%
by the Korean Stock Exchange (KRX). A location is secured, operating rules
have been finalised and KRX-based systems are being rolled out.

3) Securities and settlements now licensed: The securities firms

have been chosen with 7 underwriters, 5 brokers, 2 dealers and 2 advisors
having received their licenses in early November, 2010. Settlements will be
undertaken separately by three commercial banks which were awarded
licenses on February 28, 2011. Auditors and clearing agents also were licensed
at this ceremony, and the official accreditation of lawyers should be completed
soon.

4) Firms planned to list now preparing for IPO: Three state owned
enterprises, Sihanoukville Autonomous Port (SAP), Telecom Cambodia (TC)
and Phnom Penh Water Supply Authority (PPWSA) have been selected to list
on the exchange. The lead underwriters have been chosen; SBI Securities for
SAP, and Tong Yang Securities for PPWSA and TC. Other SOEs and private
firms are contemplating listing, but may wait until the market proves itself.

Progress in respect to all of the ‘four pillars’

We believe that such progress has been made in respect to the first three
pillars that they will be fully prepared by the government’s targeted opening of
July 2011 for the exchange. However, it still uncertain whether all three
companies planning to IPO will be in a position to meet the listing
requirements by that date. This may mean that we see a soft opening of the
exchange in July 2011, but the first trading some months later, as we saw with
the Laos exchange. In this report, we give more detail on the forward
movement for each of the four pillars.
April 27, 2011
2
Cambodia Capital
Cambodia Stock Exchange

1) Regulatory framework and the SECC

A decade-long goal nearing completion
The development of equity markets in Cambodia has been a target for the
country for over a decade, not long after the basic financial legal structure was
established. This structure came in the form of; 1) a 1996 Central Bank Law (a
central bank law had previously existed, but the new law greatly clarified the
scope and operations of the bank) and 2) a 1999 law on banking and financial
institutions (Figure 1). The initial targets to develop capital markets were seen
soon after in the Financial Sector Blueprint for 2001-2010, written by the
Cambodian Government and the Asian Development Bank (ADB). This
blueprint is the first time that we see the goal of long term development of
the equity markets expressly targeted (see Appendix Note 1).

Figure 1: Key regulatory developments on the road to opening the CSX

Date Details

1996 Central bank law

1999 Law on banking and financial institutions

2001 Development of capital markets stated as a major

target in the Financial Sector Blueprint for
2001-2010

19 May, 2005 Law on Commercial Enterprises promulgated, but

with a freeze on the creation of public companies

2006 Financial Sector Development Strategy 2006-2015

outlines the need for further development of capital
markets

2007 SECC created by Law on the Issuance and Trading of

Non Government Securities

July-August 2008 Anukrets* and Preah Reach Kret** on the

establishment of SECC and the appointment of civil
servants to the SECC issued, SECC begins operating

November 2008-Present SECC starts issuing Prakas’*** detailing procedures

for the operation of the Cambodia Stock Exchange

November 2010 Securities firms awarded licenses

February 2011 Settlement firms, clearing agents and auditors all

awarded licenses

March 2011 Announcement that listing and trading will be

Cambodian Riel denominated, with settlements also
available in dollars for the first three years

April 2011 Trading/settlement rules for exchange finalised

Source: Securities and Exchange Commission of Cambodia (SECC), Cambodian Government, ADB

Note: *Anukret: Sub-decree, **Preah Reach Kret: Royal Decree, ***Prakas: Proclamation
April 27, 2011
3
Cambodia Capital
Cambodia Stock Exchange
Issue of public companies comes to the fore by 2005
From 2001-2005, the banking system began to develop and stabilise, with
almost all financing in the form of bank loans, but no progress on the stock
market, given a lack of a comprehensive company law. This was rectified with
the promulgation of the 2005 Law on Commercial Enterprises, and
importantly for the future equity market, the law gave details on the
establishment of public companies.

2006-2015 strategy points towards stock market in Cambodia

With the law regarding public companies in place, the Financial Sector
Development Strategy 2006-2015 detailed the steps needed to establish an
equity market in Cambodia. As with the original 2001 blueprint, the strategy
was developed by the government of Cambodia and the ADB and hinted at
eventual privatisation of some state-owned enterprises (see Appendix, Note
2). The report also commented that although several important laws had been
developed, including those on Corporate Accounts, the Audit and Accounting
Profession and the Law on Commercial Enterprises, they were still insufficient
to support capital market development (Appendix, Note 3).

The establishment of public companies was still also on hold, with the strategy
first requiring the development of an Insolvency Law, and a progressive
company framework, with graduated requirements for different sizes of
company. Once these steps were completed, the 2006-2015 strategy gave the
first explicit outline of the steps required to open a Cambodian stock market
(Appendix, Note 4).

SECC established by October 2007 law

Less than two years from the issue of this 2006-2015 plan, in October 2007,
the Law on the Issuance and Trading of Non-Government Securities had been
promulgated (a Law on Government Securities was actually written earlier, in
January 2007, but there still had been limited action on developing a bond
market). This law officially established the SECC and outlined its duties
(Appendix Note 5).

By July-August 2008, one Preah Reach Kret (Royal Decree) and 2 Anukrets
(Sub-Decrees) were issued that denoted the conduct and organisation of the
SECC, and addressed the appointment of civil servants that would run the
commission. Empowered by the 2007 law and the new decrees, the SECC
began operating in August of 2008 (although its official opening ceremony was
not held in April 2009) and began to issue Prakas’ (Proclamations). The SECC
had issued 11 major Prakas’ as of Dec 2010 covering the majority of
regulatory issues with regards to the CSX, as shown in Figure 2. There have
been public consultations on at least two more Prakas’, which should be
released soon, and we expect at least one more Prakas on conflict resolution.

Listing to be in Riels, operating rules finalised

In addition to the major Prakas’ issued, there has been released; 1) a major
policy announcement on the denomination of listing and trading, which will be
Cambodian Riel (KHR), although US$ settlement will be available for the first
three years of trading, and 2) the operating, membership and listing rules for
the CSX, which were finalised in late April 2011.

April 27, 2011

4
Cambodia Capital
Cambodia Stock Exchange

Figure 2: Laws and regulations related to the formation of the Cambodia Stock Exchange
Date Issued/Adopted Law/Regulation

10 January, 2007 Law: On Government Securities

4 Oct, 2007 Law: On the Issuance of and Trading of Non-Government Securities

23 July, 2008 Anukret (Sub Decree) 1: On the conduct and organisation of the SECC

30 July, 2008 Preah Reach Kret (Royal Decree): On the appointment of the civil servants of SECC

8 Aug, 2008 Anukret 2: On the appointment of the civil servants

25 November, 2008 Prakas (Proclamation) 1: On governance in banks and financial institutions

18 March, 2009 Anukret 3: On the appointment of the SECC

8 April, 2009 Anukret 4: On the implementation of the law on issuance and trading of non-government
securities

18 November, 2009 Prakas 2: On licensing of securities firms and securities representatives

1 Dec, 2009 Prakas 3: On granting approval to the operator of a securities market, the operator of a
clearance and settlement facility, and a securities depository

31 Dec, 2009 Prakas 4: On public issuance of equity securities

31 Dec, 2009 Prakas 5: On corporate governance for listed companies

18 March, 2010 Prakas 6: On accreditation of professional accounting firms providing professional services in
the securities sector

18 March, 2010 Prakas 7: On the prime principle of the operating rules of a securities market, a clearance and
settlement facility, and a securities depository

25 March, 2010 Prakas 8: On technical working group for studying tax incentive policy to develop securities in
Cambodia

28 June, 2010 Prakas 9: On the accreditation of the cash settlement agent

30 June, 2010 Prakas 10: On the registration of securities registrar, securities transfer agent, and paying agent

15 Dec, 2010 Prakas 11: On accreditation of valuation companies providing services in the securities sector

March 10, 2011 Policy on currency: Listing and trading will be in Cambodian Riel, but dollar settlement is
intended to be available for the first three years of trading

April 2011 Rule: On rules of securities clearing and settlement of the CSX

April 2011 Rule: Operating rules of securities depository of the CSX

April 2011 Rule: Operating rules of securities market of the CSX

April 2011 Rule: Membership rules of the CSX

April 2011 Rule: Listing rules

Draft released Prakas 12: On the implementation of financial reporting standards for issuers

Draft released Prakas 13: Accreditation of lawyers providing legal services in the securities sector

To be completed Prakas or Guideline: On conflict resolution

Source: SECC

April 27, 2011

5
Cambodia Capital
Cambodia Stock Exchange
The issue of Riel denominated listing and trading
On March 10, 2011, after many months of deliberation, including a public
consultation, the CSX confirmed that listing and trading on the exchange
would take place in Cambodian Riel, not US dollars. However, the SECC’s
policy on the currency for the exchange states that settlements will also be
available in US$ also ‘if there is an agreement between the securities issuer/
seller and subscriber buyer’ for the first three years of trading on the
exchange. It is still unclear to what degree some investors could be dissuaded
from investing in Cambodia due to this decision. Also, the CSX is still
reportedly arranging the mechanics of how they will actually facilitate the
process of US$ settlements. We expect that the majority of investors in
Cambodia will already possess a strong risk appetite, and any currency risk will
already be factored into their expected returns. However, for the more risk
averse investor, the following issues should be considered:

1) Cambodia is a dollarised economy: The Riel is pegged to the US$ and

Cambodia is a dollarized economy, with 90% of the transactions undertaken in
the US currency. This means that although an investor may ostensibly be taking
on currency risk in Riel-denominated shares, the economic transactions of
most firms will still be in US$, so it remains effectively dollar exposure.

This makes depegging in Cambodia less of a serious issue that it was in

Thailand, for example, following the Baht devaluation in 1997. With the Baht
representing the large majority of the transactions in the underlying economy,
investors in Baht assets took a large loss as these assets were devalued in
dollar terms. However, following a similar devaluation in Cambodia, with the
underlying assets denominated in dollars, there is an implicit hedge.

2) Central bank has limited experience and flexibility in managing

currency: Another related issue is that given Cambodia’s small foreign
reserves and continuing trade deficit, the central bank has limited flexibility in
dealing with a case of large capital flows entering or exiting the market, which
could lead to imbalances and volatility. This is exacerbated but the fact that the
central bank has had relatively limited experience in managing its currency
because of the peg. This is in contrast to Laos, for example, where the central
bank has had at least 15 years experience managing their currency.

3) Currently there is no way to directly hedge Riel risk: Although as

we have stated, the underlying economic risk is low, for the investor that did
insist on hedging any currency risk, there are no swaps currently available on
the Cambodia currency, making it difficult to hedge directly.

No clear guidelines on taxation

As important as the currency issue for investors will be taxation. Currently
the CSX and the tax department are working out the taxation policy for the
market. There is no visibility yet on whether there will be a capital gains or
dividends tax, or at what level these taxes might be.

April 27, 2011

6
Cambodia Capital
Cambodia Stock Exchange

2) The Cambodia Stock Exchange

CSX in the process of setting up systems
The Cambodia Stock Exchange (CSX) is a joint venture, 55% owned by the
Cambodian government and 45% owned by the Korean Stock Exchange
(KRX.) The CSX has secured a location on 25th and 26th floors of Canadia
Tower (Phnom Penh’s tallest building), and is in the process of installing its
systems. The CSX has just recently finalised its operating, settlement,
membership and listing rules, which we outline in this section.

Figure 3:Trading on the CSX

7) Confirmation sent
back to buyer/sellers

2) Customers
3) Securities 6) CSX
put buy/sell
Buyers/ orders into Securities firms pass executes trade
Sellers orders to CSX through call
securities Firms CSX
firms auction system

5) CSX checks
depository to
ensure shares
available
4) CSX
1) Buyers and sellers
checks to
hold cash balances
with the settlements
Settlement ensure Securities
Banks buyer has Depository
banks (not the
cash
securities firms)
available

Source: CSX, SECC, Cambodia Capital

In Figures 4-8 below we outline the key details of the five sets of rules for the
exchanges and in Figure 9 show additional listing requirements. Note that
although these rules have reportedly been finalised according to press
reports, the SECC has yet to release the details on their website. For Figures
4-9 we have used the draft proposals, and there could be some changes to
these documents in the final versions.

We would highlight especially two key features of the exchange; 1)

Settlement not undertaken by the securities firms: Settlement is not
performed by the securities firms directly, but rather by designated
commercial banks. 2) Call auction based trading: The system is call
auction based, where trades are held until specific times and then cleared
simultaneously. There will be two auctions per day, one at 9:00 am and one at
11:30 am. The trading process overall takes place as follows (Figure 3):

i) Opening of both securities firm and settlement accounts:

Customers open trading accounts with the securities firms, but also cash
accounts with the settlement firms. Securities firms designate one of three
commercial banks to perform settlements for them. Customers of the
securities firms hold cash balances with these settlement banks, not the
securities firms. The securities depository holds the actual securities.

April 27, 2011

7
Cambodia Capital
Cambodia Stock Exchange
ii) Trade execution: When the CSX executes a trade, for example a buy
order, it checks with the settlement firm to ensure that the customer has
sufficient cash, and the depository to ensure the shares are available.

iii) Confirmation, cash transfer: The CSX then confirms the trades with
the securities firm, which in turn confirms the trade for the customer. The
settlement bank of the customer pays out cash to the settlement bank
account of the party on the other end of the trade.

Figure 4: Key details from Operating Rules of clearing and settlement

Settlement time Settlement is performed two days after the trade, T+2, at
8:30 am

Account opening Securities firms open both an account with a cash

settlement agent and with the securities depository

Good faith deposit A good faith deposit of 100% of the cash value of the trade
is required from the buyer and 100% of the securities to be
traded required from the seller

Clearing, settlement fees Clearing fees are 0.1% of the value of the settled trade
Source: SECC

Figure 5: Key details from Operating Rules of securities depository

Securities depository fee Fee during IPO procedure of KHR20 on KHR10MM

denomination

Book entry settlement fee Fee of 0.1% on the value of the trade, paid at 8:30 am on
settlement date

Ordinary transfer fee KHR15 on KHR10MM denomination, paid by securities

firms and listed companies when requesting transfer of
securities

Securities withdrawal fee KHR20 on KHR10MM denomination, paid by securities

firms and listed companies when withdrawing securities
Source: SECC

Figure 6: Key details from Operating Rules of securities market

Market hours, trading times Market is open from 8:00 am to 11:30 am, Mon-Fri, with
trades executed 2 times daily, 9:00 am and 11:30 am

Minimum trading unit For issues with a share price; 1) less than KHR50k, KHR50,
2) above KHR50k but below KHR500k, KHR250, 3) above
KHR500k, KHR500. Minimum trading unit one share

Daily price limit +/- 5% of the base price, or KHR50 where the base price is
below KHR1,000

Transaction fees (excl. 0.25% on the value of the settled trade

brokerage)
Source: SECC
April 27, 2011
8
Cambodia Capital
Cambodia Stock Exchange
Figure 7: Key details form CSX Membership Rules

Membership/participatory Securities firms, KHR20MM, cash settlement agent,

fees KHR5M, securities registrar, KHR2M, transfer agent
KHR2M. Listed companies are exempt from this fee

Annual fees Securities firms, KHR50MM, cash settlement agent,

KHR10M, securities registrar, KHR2M, transfer agent,
KHR4M. Listed companies are exempt from this fee

Membership duration Two years from the approval date

Source: SECC

Figure 8: Key details from Listing Rules

Key details from Listing rules

Quantitative requirements The number of less-than-1% shareholders holding ten

shares or more must be more than 200, while the total
number of common shares held by less-than-1%
shareholders must the larger of 200,000 shares, or 15% of
the total outstanding shares

Qualitative requirements Share ownership of the largest shareholders must not have
changed for one year before the official listing

Eligibility, listing fees KHR4M for the examination of eligibility, 0.1% of the total
market capitalisation according the to base price of the
stock for listing

Annual fees Market cap <= KHR12BN, fee of 3.0M Riel

Market cap > KHR12BN, <= KHR40BN, fee of KHR3.0M

on first KHR12.0BN market cap, 0.02% on remaining
market capitalisation

Market cap > KHR12BN, <= KHR200BN, fee of KHR3.0M

on first KHR12.0BN, KHR5.6MM on the next KHR28BN in
market cap and 0.02% on remaining market capitalisation

Market cap > KHR200.0BN, fee of KHR3.0M on the first

KHR12.0BN, KHR5.6MM on the next KHR28BN in market
cap, KHR24MM on the next KHR160BN in market cap, and
0.005% on remaining market capitalisation
Source: SECC, CSX

April 27, 2011

9
Cambodia Capital
Cambodia Stock Exchange
Figure 9: Other key listing requirements

Size i) Equity capital above KHR5BN (US$1.2MM) at filing time

ii) Last financial year income above KHR500M (US$125k)
iii) Aggregate income for last 3 years above KHR1BN (US
$250k)
iv) Companies with equity below KHR20BN (US$2.5MM),
20% of equity capital must be listed. Otherwise, 15%
must be listed

FInancial Accounts Audited financial statements for last three financial years

Governance The Board shall not exceed 7 members and have at least 1
independent director and 1 non-executive director as a
representative of the private shareholders

Other requirements i) Three year business plan

ii) Controlling shareholder lock-up for 12 months and 15%
shareholder lock-up for 6 months
Source: SECC, CSX

Figure 10: Progress and delays on the the road to the CSX

6 Sept 2007 Cambodia announces that South Korea’s KRX will help the
country establish a stock exchange, with US$1.8MM for systems
and training. Target opening date of H2/09.

21 Jan 2008 KRX and CSX release further details on plans for joint ownership
of exchange, including initial planned shareholding

June 2008 Exchange officials suggest CSX to open by Q4/09

August 2008 SECC begins operations

Sept 2008 Global financial crisis accelerates

Jan 2009 Finance Ministry announces indefinite delay in opening of

exchange due to financial crisis

Feb 2010 SECC sets target to open exchange by Q4/10

June 2010 CSX announces that it will initially be located at Canadia Tower,
Cambodia’s tallest building

July 2010 Finance Ministry announces delay in opening to July 2011

February 2011 CSX officially certified by the SECC to operate the stock
exchange in Cambodia

April 2011 Operating, listing and settlement rules of CSX finalised

To be completed Finalise systems

July 2011 Official opening of CSX targeted

Source: Press reports, SECC, CSX, Cambodian Finance Ministry

April 27, 2011

10
Cambodia Capital
Cambodia Stock Exchange
Current target opening looks achievable after series of delays
Although the targeted opening of the exchange has been delayed several
times, as we outline in Figure 10, currently the SECC, CSX, and securities firms
appear on track to meet the official opening of the exchange planned for July
2011. Whether the firms planning to list will be prepared by this date is
another issue, as their accounts are reportedly in various stages of
preparedness for listing.

In late 2007 and early 2008 the first announcements were made that the
bourse would be operating as a joint venture between the Korean Stock
Exchange and Cambodian Government, with an initial target opening date of
H2/09. By June 2008, this target had been revised to Q4/09. The onset of the
global financial crisis in September 2008 brought the viability of the plan into
question, and by January 2009 the Ministry of Finance had put the project on
hold indefinitely. The SECC’s official opening ceremony was still held in April
2009 (although it had been already operating since August 2008), but there
were no new Prakas’ issued until November 2009.

With the global financial system stabilising by early 2010, the stock market
plan had renewed vigour and the SECC is quoted in the press in February
2010 suggesting an end-2010 target date for opening. The first signs of the
CSX as a physical reality appeared in June 2010, with the CSX naming Canadia
Tower as its initial (temporary)* location. This was just a month before
another (and we believe final!) delay in the exchange was announced, with the
current target date of July 2011 set.

April 27, 2011

* We understand that the CSX will move to a permanent downtown Phnom Penh 11
location within the next 3 years.
Cambodia Capital
Cambodia Stock Exchange

3) Securities firms and settlement banks

As outlined above, the operation of the CSX requires both the securities firms
and the commercial banks for settlements. Deadlines for submitting
applications for both groups were in 2010. The securities firms were awarded
licenses in early November 2010, with 7 underwriters, 4 brokers, 2 dealers
and 2 investment advisors permitted to operate (Figure 11). The settlement
banks were awarded licenses on February 28, 2011 and the operating,
membership, listing and settlement rules finalised in April 2011 (Figure 12).
These two last steps were especially key, as they allow the securities firms to
choose which settlement bank to work with and begin to integrate their
systems (Figure 13). We expect that with more than two months to go, there
is sufficient time to achieve this before the targeted opening.


Figure 11: Securities firms awarded licenses (November 2010)
Underwriters Brokers

1) Tong Yang Securities (Cambodia) 1) Cambodian Capital Securities

2) SBI Phnom Penh Securities 2) ALCEDA Securities

3) OSK Indochina Securities 3) SONATRA Securities

4) CAMPUBANK Securities 4) CAB Securities

5) Cambodia-Vietnam Securities

6) CANA Securities

7) Phnom Penh Securities

Dealers Investment Advisors

1) Sacombank Securities (Cambodia) 1) Angkor VDS Securities PLC

2) Golden Fortune (Cambodia) Securities 2) Angkor Capital Advisors

Source: SECC

Figure 12: Settlement banks, clearings agents, auditors awarded licenses (Feb 2011)
Cash settlements Securities registrars, Accountancy firms
agents Securities transfer
agents, Paying agents

ACLEDA Bank ACLEDA Bank Pricewaterhouse

Coopers Cambodia Ltd.

CANADIA Bank Sacombank Securities KPMG (Cambodia) Ltd

(Cambodia) Plc

Bank for Investment and Tricor Securities Services Plc BDO (Cambodia) Ltd
Development of Cambodia
Source: SECC

April 27, 2011

12
Cambodia Capital
Cambodia Stock Exchange
Figure 13: Securities firms and settlement bank timelines

March, 2010 Deadline for applications from securities firms

August 2010 Deadline for applications for settlements firms

November 2010 Securities firms’ licenses awarded

February 2011 Settlement banks’ licenses awarded

April 2011 Operating, listing and settlement rules finalised

To be completed Securities firms and settlement banks integrate systems

To be completed Underwriters prepare firms for listing

To be completed Trading begins

Source: SECC

April 27, 2011

13
Cambodia Capital
Cambodia Stock Exchange

4) Listed companies
There are currently three companies which have been mandated to list on the
market, all of them state owned enterprises. They are; 1) Sihanoukville
Autonomous Port (SAP), 2) Phnom Penh Water Supply Authority (PPWSA),
and 3) Telecom Cambodia (TC). The lead underwriters for the initial public
offering (IPO) have been selected, with Japan’s SBI Securities handling SAP and
Korea’s Tong Yang Securities underwriting PPWSA and TC (Figure 14). The
firms are currently in the process of preparing the companies for listing.

In addition to these three that have officially announced their listing, one of
Cambodia’s largest banks, ACLEDA, reports on its website that ‘It is intended
that ACLEDA Bank will seek a listing on a stock exchange at some time in the
future.’ We also understand that a number of private companies, including an
insurance firm and a conglomerate, are considering listing once the market has
proven itself. We also expect that growing private equity purchases over the
last two years should support a pipeline of IPOs over the medium term.

Figure 14: Planned listed companies and their underwriters

Company Lead Underwriter

Sihanoukville Autonomous Port SBI Securities

Telecom Cambodia Tong Yang Securites

Phnom Penh Water Supply Authority Tong Yang Securites

Source: Companies

Sihanoukville Autonomous Port (SAP): The Sihanoukville

Autonomous Port maintains a significant competitive advantage as Cambodia’s
only deep water sea port. The state owned enterprise has seen a strong
rebound in revenues by 24% to US$30MM in 2010 after declining by 16% in
2009 as trade was hit by the global financial crisis.

Telecom Cambodia (TC): State owned enterprise Telecom Cambodia is

the country’s main fixed line provider, with a reported 35,000 subscribers as
of end 2010. The company plans to grow its business into broadband and cable
television. Revenues grew 14% in 2010 to US$31.5MM from US$27.6MM in
2009.

Phnom Penh Water Supply Authority (PPWSA): PPWSA is an

emerging markets success story, with the company completely revamping the
dilapidated Phnom Penh water system of the the mid-1990s. The company has
grown coverage from 25% to 100%, increased available water supply from 10
hours/day to 24 and boosted revenue over 1000% over the last fifteen years.

April 27, 2011

14
Cambodia Capital
Cambodia Stock Exchange
Rough estimate of CSX potential market cap
With the three firms now confirmed for listing, we have generated a (very
rough) estimate of the potential market cap of the CSX. Although we do not
have detailed 2010 financials for the firms, we do have revenue figures for
each. We apply the global industry average for EBIT margin, EV/EBIT multiple
and gearing to get a rough estimate of possible market cap for each name, and
then take a range of +/- 20% around this value.

We have also added ACLEDA Bank to the calculation. Using Jardine

Matheson’s 2010 purchase of 12.25% of the bank for US$34MM implies a
Price/Book (P/B) multiple of 2.6x. We apply this P/B to ACLEDA’s 2009 book
value and again take +/- 20%. This gives us an estimate of market capitalization
for the CSX ranging between US$346.3MM and US$519.4MM (Figure 15).

Figure 15: Estimated potential initial CSX market cap

US$MM TC SAP PPWSA ACLEDA Total

Revenue 32.0 28.4 24.7

EBIT Margin (%) 19% 28% 30%

EBIT 6.2 8.0 7.4

EV/EBIT (x) 11.3 13.8 12.0

EV 69.6 109.7 88.9

Gearing (%) 50% 38% 41%

Implied Market Cap 34.8 68.0 52.5 277.6

Market Cap (Low) 27.8 54.4 42.0 222.0 346.3

Market Cap (High) 41.8 81.6 63.0 333.1 519.4

Source: Companies, Cambodia Capital Estimates

Opening of Laos Exchange sets precedent

The Laos Stock Exchange officially opened in October 10th, 2010, but trading
did not occur until January 10, 2011, three months later. We believe that this
has a read across for the Cambodia exchange, in four ways:

1) Frontier Indochina markets are reality, not rumour: As we

have seen in an earlier section of the report, there have been several delays on
aggressive opening date targets for the CSX and relatively limited visibility on
any of the progress. This had lead investors to question if the frontier
Indochina markets would ever get open, or if they would continue to be just
ongoing rumours. The opening of Laos is a key indicator that the opening of
these market can, and will, happen.

2) Trading start some time after the official open: Given the
current early stages of preparing the firms for listing, the July 2011 date will
prove tight for the IPOs of all three state owned enterprises in Cambodia. We
may see only one or two companies list by the official opening, or there may
be a delay between the official opening and actual trading, similar to Laos.

April 27, 2011

15
Cambodia Capital
Cambodia Stock Exchange

3) Spirit of national competition should drive opening: We

expect the fact that their much smaller neighbour opened its stock market
earlier will help drive Cambodia to meet its stated deadline.

4) Strong retail demand in Laos: Another upbeat read across from the
exchange is that retail demand has been strong in Laos, given a lack of
alternative investable assets. There is similar limited menu of investments for
Cambodians, and we expect that the CSX will prove popular with local
investors. In addition, there is a requirement that 20% of the IPOs must be
allocated to domestic investors in Cambodia, so that should also help generate
local interest.

Our estimate: July 2011 official opening, trading by Q4/11

As we have shown in the sections above, the bulk of heavy lifting in
establishing the Cambodia Stock Exchange has been completed. Delays from
very bullish dates set early on in the process have mainly been because the
regulatory framework has taken a considerable amount of time to complete,
but also because the financial crisis slowed progress.

We believe that from the SECC, CSX and securities firms/settlement bank
sides, progress is sufficient that the July 2011 target is achievable. The real
swing factor at this point is the level of initial preparedness of the companies
planned to be listed. This will in turn determine how long the underwriters
will need to bring the companies to market.

We expect that the exchange will be opened in July 2011, whether the
companies are fully ready for trading or not, similar to what we have seen in
Laos. However, if we conservatively allow for a several month window to
prepare companies for listing, we target the first trade occurring on the
exchange by sometime in Q4/11.

April 27, 2011

16
Cambodia Capital
Cambodia Stock Exchange

Appendix
The following are key excerpts from Cambodia’s two major financial strategy plans
relating to the establishment of the equity market in Cambodia.

The Financial Sector Blueprint for 2001-2010:

(Note 1) i) “a sound, market-based financial system in ten years that will enhance resource
mobilisation and sustainable economic growth”

ii) “an efficient and transparent capital market with a critical mass of issuers that mobilises
funds for long-term investment”

The Financial Sector Development Strategy 2006-2015:

(Note 2) “State ownership of financial institutions and state intervention in the allocation of
financial resources hinder the development of a market based financial sector”

(Note 3) “The Law on Corporate Accounts, their Audit and Accounting Profession and the
Law on Commercial Enterprises provide the basic framework for companies, financial
information and company securities. However, they are in themselves insufficient to support
capital market development.”

(Note 4) “Establish a central securities depository for all public company securities and
begin general registration of public companies. This will establish the foundation of a possible
public securities exchange, and will include real name registration, price data, and both debt
and equity securities of public companies, and essentially operate as an over-the-counter
(OTC) public company securities market.”

“Consider establishing a formal securities exchange on the basis of the public companies
securities depository, with a feasibility study as the first stage.

Development of appropriate licensing and regulatory scheme for securities intermediaries,

including banks, insurance companies and securities firms.”

(Note 5) “Cambodia Securities and Exchange Commission shall be established under this
law consisting of a Chairperson and eight members which shall be appointed under sub-
decree. CSEC Members shall have mandate of five years.

CSEC shall have the following functions:

1. to regulate and supervise securities markets, both government and non-government, in the
Kingdom of Cambodia
2. to enforce policy with respect to securities market
3. to formulate conditions for granting approvals to the operators of a securities market,
clearance and settlement facility, and securities depository
4. to formulate conditions for granting license to securities companies and securities company
representatives
5. to promote and encourage compliance with the requirements of this law
6. to play a role as an institution to examine and solve complaints against licensed legal
entities’ decisions affecting the benefits of participants or investors
7. to consult with any qualified person to develop policies for the purpose of developing a
securities market in the Kingdom of Cambodia
8. to fulfil other duties prescribed by sub-decree”

April 27, 2011

17
Cambodia Capital
Cambodia Stock Exchange
Analyst Certification. The analyst(s) named on this report certify that the views expressed in this
report accurately reflect their own personal views about the subject. The analyst(s) also certify that no
part of their compensation was, is, or will be, directly or  indirectly, related to the specific
recommendations or views expressed in this report. The analyst(s) named on this report confirm that
they do not personally hold positions in any of the companies or securities mentioned in the report,
unless stated otherwise in the report. The analyst(s) who prepared this report are compensated based
upon (among other factors) the overall profitability of Cambodian Capital Securities Limited
("Cambodia Capital" or “CamCap") and its affiliates, which includes the overall profitability  of
investment banking services. Compensation for research is based on effectiveness in generating new
ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings
estimates, and service to clients.

General Disclaimer. The opinions, estimates and projections contained in this report are those of
Cambodia Capital as of the date of this report and are subject to change without notice. Cambodia
Capital endeavours to ensure that the contents have been compiled or derived from public sources
that we believe are reliable and contain information and opinions that are accurate and complete.
However, Cambodia Capital makes no representation or warranty, express or implied, in respect
thereof, takes no responsibility for any errors and omissions contained herein and accepts no
liability  whatsoever for any loss arising from any use of, or reliance on, this report or its contents. 
Information may be available to Cambodia Capital or its affiliates that is not reflected in this
report.  This material is  not and should not be interpreted as an offer or solicitation to buy or sell
securities, or personalised investment  advice, and forms no part of any contract with Cambodia
Capital.   Cambodia Capital or its affiliates may provide remunerated services, including investment
banking services, to companies mentioned in this report. Cambodia Capital or its affiliates,
officers, directors or employees may have a long or short position in many of the securities discussed
herein, related securities or in options, futures or other derivative instruments based thereon. The
reader  should assume that Cambodia Capital or its affiliates may have a conflict of interest and
should not rely solely on this report in evaluating whether or not to buy or sell securities of
issuers discussed herein. This report is produced under copyright by Cambodia Capital and may not
reproduced, copied, distributed, modified, used for the creation of derivative works, in whole or in part,
without the prior written consent of Cambodia Capital. 

April 27, 2011

18