Introduction

 

According to Ministry of Planning’s Cambodian 2014 Inter-Censal Economic Survey, the total number of business establishments in Cambodia as of March 2014 was 513,759, in which about 97% are micro establishments (under 10 persons are engaged), one third of which are under three years of existence. A new board for SMEs is being initiated by the Royal Government of Cambodia to add another option of financing for those small and medium-size businesses which account for more than USD10 billion in annual sales, and 1.3 million jobs. Taking into consideration the growth potential of those businesses, we name our new board “Growth Board”.

 

How Can the Stock Market Help SMEs Grow?

A business owner in Cambodia may ask why bother going public and listed on the stock exchange by going through all the complex process, while the majority of those SMEs have grown before the existence of the stock market and will likely continue to grow without getting involved with it. But listing on the stock market will bring new financial options alongside a new environment that helps the companies grow to its utmost potential in the future.

In the following paragraphs, we highlight some factors that will help upgrade SMEs to the next level:

 

  • Obtaining Long-Term Source of Fund:

When designing a business expansion plan, SMEs will almost always face the problem of funding for its investment and working capital. Companies usually have various sources of funding from different financial institutions, yet most of them are short-term funding that may be a barrier for them to develop their long term business plan. In contrary, on the stock market, those companies can have a long term funding by way of issuing and selling their shares to the public, and use it to implement their long-term business plan while they need to pay back only dividend based on actual company’s profit and cash availability.

 

  • Receiving Special Tax incentives:

This is a primary incentive for SMEs that are looking for raising fund by way of issuance securities and listing on the CSX. According to Anukret on Tax Incentive in Securities Sector issued on January 08, 2015, all companies going public and listed on the CSX will enjoy, over a period of three years after listing of 50% reduction on corporate income tax, and this “tax holiday” period will end in January 2018. At the same time, companies will be waived all corporate income tax liabilities for the last 10 years, found by external auditors after auditing by General Tax Department. In addition, a monthly prepayment of 1% profit tax will also be suspended during a period of three years.

 

  • Sustaining Business with Stronger Corporate Governance and Internal Control:

To establish a business entity, one needs to overcome many issues; yet, make it sustainable is even harder and a big challenge for business owners. SMEs are usually subject to concerns over corporate governance and internal control practices. But with the status of listed company, once they stand out in the public, they will be able to improve their corporate governance by having clear structure of board of directors, who will oversee the performance of the management. In addition to this, business owners can enhance internal control in the company that will help prevent misconducts or fraud in daily business operations. As a result, good corporate governance and internal control will help SMEs grow sustainably.

Adoption of good corporate governance practices should better prepare Cambodian SMEs to face the arrival of other ASEAN competitors with an introduction of ASEAN Economic Community at the end of 2015.

 

  • Improving corporate profile and visibility:

A listed company generally draws attention from domestic and foreign investors, the news media and the public, and its financial or operational affairs are reported on the newspaper and TV and communicated within and outside the country. This enhances the visibility and profile of the company, which further improve the awareness of the company’s products and services. Through this, company also can strengthen the competitive advantage vis-a-vis its non-listed competitors in an increasingly globalized and competitive world.

 

  • Proactive to government regulations:

All companies are being scrutinized by the government on their compliance with regard to tax practices, accounting records and audit etc. This shrinking “freedom” shall be in favor of an early adoption of compliance standards and getting the status of a listed company.

So, let’s catch the first train and enjoy the first mover’s advantage.

 

Do listing criteria feasible for SMEs in Cambodia?

The Growth Board is designed to better suit the characteristics of SMEs by setting lower requirements which will imply lower cost and shorter period of time for preparation.

Basic requirements include the followings:

  • Operating history: at least one year of business tract record; and
  • Shareholder’s equity: at least KHR2,000,000,000 (USD500,000); and
  • Net profit: no loss for the last fiscal year, or positive operating cash flow with at least 10% of gross margin.

In addition to the above requirements, an applying SME shall prove that its businesses are sustainable and can prosper in the medium and long run.

 

To have further understating on “Growth Board” as well as “Main Board”, please refer to the new Listing Rules of the CSX.