According to Sam Rainsy talking to Bloomberg, Cambodia’s new stock marketis is too risky

Asia’s Newest Stock Market Is Risk to Investors, Sam Rainsy Says
2012-02-07 23:01:00.0 GMT


By David Whitehouse

    Feb. 8 (Bloomberg) -- Investors in Cambodia, tied with
Yemen as the world’s 164th-cleanest country for doing business,
face risks in a planned stock market because of ineffective
financial and legal systems, the country’s exiled opposition
leader said.
    “Among the little dragons of Southeast Asia, Cambodia is
the least encouraging,” Sam Rainsy, 62, a former fund manager
with Banque Paribas and ex-Cambodian finance minister, said in
an interview in Paris. “The country needs a much longer period
of preparation in terms of company accounts and corporate
governance. Investors risk paying for nothing.”
    Cambodia’s stock exchange may open as early as April,
listing a state-run port, telecommunications operator, and
manager of the capital’s water system, according to partner
Korea Exchange Inc. Developing a capital market may lessen
reliance on aid, equivalent to a tenth of the nation’s $11
billion economy, and the government says it has delayed starting
the bourse until conditions are right.
    “Frontier markets need not be perfect democracies to be
lucrative investments,” said Douglas Clayton, chief executive
officer of Leopard Capital, whose $34 million Leopard Cambodia
Fund invests in closely held companies. “China and Vietnam are
one-party states but at certain times those countries have been
very good places to invest.”
    Lack of support from the financial-services industry for
agriculture is a constraint on Cambodia’s economic expansion,
according to the Asian Development Bank. The country’s economy
may grow 6.5 percent this year, according to the ADB. That’s
less than an average of 8 percent from 2001 to 2010, and
compares with an ADB prediction of 8.8 percent expansion for
China and 6.3 percent for Vietnam.

                         Facing Arrest

    Sam Rainsy, whose party controls 26 out of 123 national
assembly seats, faces arrest if he returns to contest elections
in 2013 following a 10-year conviction in absentia for removing
border posts along the frontier with Vietnam, charges he says
were politically motivated. Cambodia needs to tackle corruption
and bolster democratic institutions to propel growth, he said.
    Cambodia is ranked by Transparency International as 164th
in the world by perception of corruption, behind only North
Korea, Myanmar and Afghanistan in the Asia-Pacific zone, with
more than 5 percent of its health budget swallowed up by graft
before it leaves government coffers.
    “The country is a banana republic where corruption is an
ingrained part of government,” Sam Rainsy said, flanked by
Buddhist miniature statues in his family’s apartment near
Montparnasse in Paris. “Investors taking part in the new
Cambodian stock market will be taking large, unconsidered risks
because the conditions do not yet exist to create a securities
market worthy of the name.”

                         Not Involved

    The government is not involved with the charges against Sam
Rainsy, and other members of his party are operating as normal,
spokesman Phay Siphan said by phone from Phnom Penh, the
capital. Sam Rainsy must respect the rule of law and fight his
case in court, he said.
    “It’s the first time Cambodia is involved with a stock
market, which is why we delay and delay and delay,” Phay Siphan
said. “We are not perfect, but the government and private
sector are trying our best to facilitate and make everything
clean, transparent and fair for everyone.”
    Elections in 2008 fell short of international standards,
according to European Union observers. Though fairer than
earlier polls, they were marred by the use of state resources
and the distribution of money by the Cambodian People’s Party,
according to the EU. Prime Minister Hun Sen, 59, a former Khmer
Rouge member, has held power since 1985.

                         Raise Taxes

    Sam Rainsy, who leads a political party named after him,
said he’d raise taxes and increase salaries for public servants
in a bid to reduce corruption if he came to power.
    His political career echoes that of his father, Sam Sary,
who was a member of the Cambodian delegation that negotiated
independence from France in 1954. The family was exiled to
France in 1965 after Sam Sary founded a political party in
defiance of the French-appointed head of state, Norodom
Sihanouk.
    Sam Rainsy returned as finance minister in 1993 following
the nation’s first democratic elections. He lost the position in
1994 and set up his own party the following year.
    “I would have done it in any case,” he said, when asked
if the Sam Rainsy Party represented a continuation of his
father’s political efforts.

                        First Listings

    State-run Phnom Penh Water Supply Authority, Telecom
Cambodia and Sihanoukville Autonomous Port will be the first
three companies to list on the stock exchange, Shin Gil Soo,
senior vice president of Korea Exchange’s emerging markets
business team, said in an interview in Seoul. Several private
sector companies are considering selling shares, he said,
declining to name the companies.
    In 2011, Korea Exchange also started a stock market in
neighboring Laos. The two-stock Composite Index soared 86
percent in the first three weeks of operation a year ago. It now
trades 51 percent below its Feb 2, 2011, peak.
    “It’s a question of whether the stock-exchange operators
can isolate themselves from an environment that is perceived to
be pretty corrupt,” said Lao Mong Hay, a political analyst and
retired researcher at the Asian Human Rights Commission. “Once
started, I think it will run smoothly. The government cannot
afford to have such a bad perception of a newly created stock
exchange.”

--With assistance from Daniel Ten Kate in Bangkok, Caroline
Connan in London and Saeromi Shin in Seoul. Editors: Stephen
Foxwell, Jerrold Colten

To contact the reporters on this story:
David Whitehouse in Paris at +33-1-5365-5059 or
dwhitehouse1@bloomberg.net;
Daniel Ten Kate in Bangkok at +66-2-654-7318 or
dtenkate@bloomberg.net

To contact the editors responsible for this story:
Stephen Foxwell at +44-20-7392-0572 or
sfoxwell@bloomberg.net;
Jerrold Colten at +39-02-8064-4261 or
jcolten@bloomberg.net