Phnom Penh Autonomous Port (PPAP) is the latest company to seek an IPO in Cambodia, with plans to raise $6.41m. So far, Yuanta Securities (Cambodia), the sole underwriter, bookrunner and lead manager, has secured enough demand from its clients for at least 70% of the offering. And of those bids, a huge portion comes from institutional investors.
This is the first time an IPO in Cambodia has seen such resounding interest from foreign investors, with accounts from Australia, Japan, Korea and Thailand looking to participate, said Han Kyungtae, Yuanta’s managing director. Unlike local investors, who have lost money on previous IPOs, the foreigners have focused on PPAP’s fundamentals, he added.
Three years ago, the Phnom Penh Water Supply Authority (PPWSA) became the first company to float on the CSX, raising Khr82.18bn ($20.5m at exchange rates then) in April 2012. The stock closed at Khr9,300 on its first trading day — a 48% pop over its issue price, and rose to a high of Khr9,400.
Some 800 investors piled into the trade, although foreign investors were largely absent.
“PPWSA opened at a premium and for a few days it was the most expensive utility stock in the world at around 35x-40x P/E,” said Thomas Hugger, chief executive officer of Asia Frontier Capital. “Then its share price crashed and local investors have been subdued on IPOs ever since.”
Fast forward to 2015, and both PPWSA and Grand Twins International, the second firm to list on the CSX last year, are trading below their offer prices. But if the interest around PPAP is any indication, Cambodia’s ECM is poised for a change of course.
Government guarantee
One reason PPAP has been able to lock in a record amount of foreign demand is the 5% dividend guarantee by the government, a first for Cambodia’s stock market. It is a feature the issuer hopes will compensate for the general lack of liquidity on the CSX.
Valuations are also a huge draw. One foreign asset manager said PPAP is being sold at just 25% of its book value, which undervalues the land holdings in its stable. “We’re not even looking at any comparables for this transaction. The dividend guarantee and undervaluation are sweet enough,” he said.
Investment firm Mekong Strategic Partners intends to be a cornerstone investor in PPAP and take up a 30% stake via the IPO — the first time it will participate in a Cambodian listing, according to Stephen Higgins, founder and managing partner. “PPAP is by far the most attractive IPO to come out of the CSX,” he said.
Still, market participants concede that the CSX is far from being a well-functioning exchange. The single biggest drawback for investors continues to be the lack of liquidity — there are days when the two stocks on the CSX do not trade at all.
In addition, IPO hopefuls are constrained by regulations, which Higgins says are too strict and not appropriate for an emerging market. But the rules are being loosened up, for instance with the reduction in the required audited financial statements to two years instead of three.
There are also few incentives for companies to list in Cambodia. And being a small and young country, it does not possess a diversified industrial base outside of the agriculture, shoe and textile industries, said Asia Frontier’s Hugger.
Yet the government remains committed to growing its equity market, and sees a vibrant stock market as a source of national pride, said Mekong Strategic’s Higgins.
Banking on Acleda
As far as IPO candidates go, industry watchers hope to see Acleda Bank, estimated to be worth more than $1bn, pursue a float. “Many investors want it to list because it is the biggest bank in Cambodia with branches in Myanmar and Laos,” said Higgins. “It is expanding very quickly and is an incredibly well-run bank.”
One measure the regulators are considering putting in place before the end of the year is a market maker mechanism, said Yuanta’s Han. Cambodian officials have been flying to South Korea to learn from the stock exchange there and are drafting the necessary regulations.
Nonetheless, growth on the CSX will be slow as long as its domestic investor base remains narrow, say market watchers. Local institutional investors are non-existent, while foreign investors, even those with a frontier market focus, can easily look elsewhere.
“That’s why the IPOs in my pipeline are stuck,” said a Phnom Penh-based investment banker. “There are two which have completed documentation but are having trouble finding investors. I may have one listing in mid-2016 if all goes well. We are also chasing the big fish, like Acleda Bank.”
PPAP debut
PPAP is one of Cambodia's two international port operators, and the largest river port operator and port authority within the Phnom Penh Port Commercial Zone. It is offering 4.14m shares in the IPO at a price range of Khr4,405-Khr6,320 apiece.
Bookbuilding begins on October 19 and will run until October 22. Pricing is expected to be announced on October 30, and will be followed by the subscription period from November 12-17. PPAP is slated to make its debut on December 11.
The IPO will raise between Khr18.22bn-Khr26.15bn. The firm plans to float 20% of its shares, of which 2% will be be allocated to employees and 18% to private investors.