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Cambodia to issue first ever sovereign bond on the Cambodia Securities Exchange
The Cambodian Ministry of Finance recently announced that sovereign bonds will be issued on the Cambodia Securities Exchanges (CSX) for the first time from September 2022.
Here is a summary of the key points of this announcement.
What are the objectives and benefits of this issue?
For the government
The issuance of these first-ever sovereign bonds thus marks the beginning of a new era for the Cambodian capital market, which since its inception has only dealt with equities due to regulatory issues.
According to the latest official announcements, the government is hence seeking large-scale financing through institutional investors, both private and public, foreign and local, with banks and insurance companies being the main targets.
These government bonds are obviously issued primarily to finance various socio-economic projects to stimulate the country’s development, but the issue should also be seen as part of a long-term vision and as a way for Cambodia to step into the international capital market by attracting more interest.
Currently, after 10 years of existence, the CSX (a joint venture with the Korean Stock Exchange) has only 16 listed companies with a total of $280 million, with some 31,000 trading accounts, 10% of which are foreign.
But alongside the announcement of the government bond issue, it is also worth noting that the United Nations Capital Development Fund (UNCDF) signed a memorandum of understanding last week to help develop the securities sector in Cambodia.
For investors
On the other hand, these bonds are a way for investors to access safe investments at reasonable interest rates. As sovereign bonds are popular around the world and play an important role in the global securities market, it is expected that they will follow the same trajectory in Cambodia.
Indeed, in addition to their traditional reputation as safe securities, the government has announced that investors will benefit from a 50% withholding tax exemption on bond-related interest and a three-year exemption from capital gains tax on the purchase and sale of securities.
What are the characteristics of the bonds and how will they be issued?
The total value of the bonds will be USD 300 million, or 1.2195 trillion riels, with a face value of one million riels per bond (approximately USD 245).
It has been announced that they will be available for terms of one, three and five years with issues every four weeks. The three-year bonds will account for 800 billion riels of the total and will be auctioned in four lots, while the one-year and five-year bonds will be worth 200 billion riels each and will be auctioned in two lots.
In conclusion
The Cambodian stock market is relatively new and limited to a small circle, which is an obstacle to unlocking the potential that capital markets have to offer for economic growth and development. In this sense, sovereign bonds are a key financial instrument to diversify government financing and achieve greater independence from equities.
With the $300 million in bonds, Cambodia will now kick-off September with a brand new powerful financing option, more light on the CSX and high hopes for growth.
If you are interested in the capital markets in Cambodia and would like to know more about how you can benefit from this new investment opportunity, why not book a consultation with one of our experts.
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