Raising capital through the stock market can offer low cost capital, and provide further long-term benefits.
According to the World Bank’s latest report on the Cambodian economy, released on May 18, 2023, the Kingdom is firmly on a path to recovery, led by manufacturing exports and growth in services and agriculture.
However, findings from the UN released on May 16, 2023 show that international trade remains under pressure following the Covid-19 pandemic due to geopolitical tensions, declining global demand and tightening monetary policy – with Cambodia not immune.
While choppy economic waters need to be successfully navigated and crises avoided, many owners of businesses and companies could view the challenging environment as representing a good opportunity.
Those already with a strong business model could consider finding additional sources of capital to expand the company’s potential as much as possible, in line with its mission and vision.
Sources of financing
Choosing the right source of financing is essential for business owners, with two complementary sources available – bank loans and the issuance of equity securities (stocks) or debt securities (bonds).
Bank loans
A bank loan is a common choice for business owners seeking capital to expand a business or accelerate production to meet customer demand.
However, this method of raising capital requires the company to pay interest, or interest along with the principal, for the duration of the loan.
Additionally, the company may have to pay high fees and provide collateral or forms of documentation, which can be burdensome.
Although bank loans can be complex and risky, they remain a good option for obtaining solid and specific capital.
Issuance of securities
Another source of financing that business owners should not overlook is raising capital through the stock market, which can offer low cost and almost unlimited capital, and provide long-term benefits.
Companies with a sustainable business model are more likely to succeed in the long term if the owner balances debt and capital.
Raising capital through the stock market allows companies to raise significant amounts of capital based on their potential without having to make interest payments to shareholders.
Obtaining funds this way can repay business loans and meet additional requirements by balancing operations within a company.
And financing through the issuance of securities benefits not only businesses, but also the national economy as a whole.
In particular, financing through the stock market contributes to society and the national economy in the following ways.
Increased domestic employment: When businesses raise capital through the stock market, they are able to invest in new projects and expand their operations. This creates jobs and boosts the economy.
Increased domestic productivity: Publicly traded companies are incentivised to perform well financially, which encourages greater productivity, leading in turn to economic growth benefiting society as a whole.
Strengthened regional competitiveness: A well functioning stock market can help attract and retain businesses, and by making companies more attractive to investors through giving them access to capital, a strong securities sector is essential for regional competitiveness.
With many financing options available, business owners need to carefully consider which one is best for the long-term health and success of their company.
Loans are one way of supporting the operations and development of a company, while the securities market can provide a source of capital that can serve as a catalyst for business development to the point of exponential growth.
And as well as offering almost unlimited long-term resources, trading on the securities market enhances a company’s transparency, accountability and sustainability.
The securities and banking sectors are complementary and indispensable sources of financing that not only support the sustainable growth of companies, but also drive the growth of the national economy as a whole.
Prepared by: Cambodia Securities Exchange (CSX), Listing and Disclosure Department.
Email: [email protected].
Tel: 023 95 88 88 / 023 95 88 85.
