The finance ministry on August 25 announced that Cambodia’s inaugural issuance of sovereign bonds, worth about $300 million, will start in September, as a new financial instrument geared specifically for institutional investors such as the National Social Security Fund (NSSF), insurance companies and banks.

The Ministry of Economy and Finance noted in a statement that the 1.2195 trillion riel sovereign bond would be issued with a par value of one million riel each, and coupon payments every six months.

The ministry noted that investors would benefit from a 50 per cent reduction in withholding tax on the interest earned from holding and trading the sovereign bonds, denominated in the local currency, and an exemption on capital gains tax on the purchase and trade of the securities for three years.

The statement said the bond will be available in one-, three- and five-year terms with new issuances every four weeks, adding that a total 200 billion riel worth of one-year and five-year bonds, each, would be auctioned in two batches, and a total 800 billion riel worth of three-year bonds would be auctioned in four lots.

Cambodia Securities Exchange (CSX) CEO Hong Sok Hour told The Post that when the CSX instituted the initial marketing process, there were plans to start with sovereign bonds because they are deemed “easy to issue” and attract a lot of interest from large-scale investors.

However, due to various regulatory frameworks that make it impossible for the government to issue securities, the bourse started out with stocks, he said.

He added that the sovereign securities are still in demand from large-scale investors, both domestic and foreign, as investment opportunities for institutions such as insurance firms, pension funds, the NSSF and banks, which need to invest in high-security bonds at reasonable interest rates.

“For the first sovereign bond issuance next month, we expect to be able to attract investors who have been lacking in our market in the past – both local and foreign institutional investors,” Sok Hour said.

Speaking at a May 16 national conference on the CSX, finance minister Aun Pornmoniroth commented that sovereign securities would enable the state to raise funds for economic development.

“Government bonds are expected to be popular on the Cambodia Securities Exchange, and provide benchmark data for corporate securities trading and financial analysis, as is the case in countries with a growing securities sector,” he said.