Financial Market

First local credit rating firm to spur capital markets

Cambodia has issued an operating licence to its first locally-owned credit rating firm, Rating Agency of Cambodia Plc (RAC), which will offer credit rating services on the securities sector and financial institutions.

The licence, issued by the Securities and Exchange Regulator of Cambodia (SERC) on July 12, is an important milestone for the development of capital markets in the country, RAC said in a statement obtained by The Post on July 18.

“By improving the quality of available information, it will increase the participation of investors as they will have more choices to achieve their investment objectives,” it added.

In the meantime, bond rating will enhance the liquidity and depth of the bond market, while encouraging companies to issue more bonds, which will enable them to diversify their sources of funding.

“This would accelerate investment and employment for the benefit of the Cambodian economy,” it said.

Besides its primary business of bond rating and bond pricing, the company provides institutional ratings for different sectors, risk management solutions, investment analysis, industry and financial research and analysis.

RAC executive director Sisowath Chakara told The Post on July 18 that investors in capital markets are at a disadvantage vis-a-vis issuers because they have less information than insiders, seen as an “information asymmetry” issue.

He said credit rating agencies address some of these problems by offering access to improved information.

It would improve the quality and quantity of information in the capital market for the benefit of investors.

Owing to the fact that Cambodians are less familiar with financial markets, there is a need for RAC to educate the public and train companies and financial institutions.

“The objective of RAC is to bring benefit to investors and borrowers in the capital market, thus the availability and quality of information is key. Academic literature has shown that investors demand a higher premium to offset information asymmetry.

“This results in a higher cost of funding for borrowers. RAC can help lower the cost of funding and increase participation in the market by improving the information available in the market,” Chakara said.

SERC director-general Sou Socheat told The Post on July 18 that RAC is a game changer for the capital market and the financial sector.

“When our local companies, such as banks or corporate bond issuers, require credit ratings on their business operation, they would normally seek foreign firms.

“However, we have a local company that is credible enough to provide ratings. The firm need not only limit itself to the securities market but can also expand to the financial industry,” he said.

Almost all countries in the world have their own ratings firm, Socheat said, noting that Cambodia has its own now too.

RAC was established in February as a joint-venture between Royal Group of Companies Ltd and 3E-Fii Capital, a member of 3E-Fii Group.

Due to Cambodia’s fast growing economy, there is a need for more rating services, Chakara said.

“We are optimistic about Cambodia’s growth prospects. As such, there will be strong demand in financing the expansion projects of Cambodian companies.

“We hope they will be increasingly attracted to the capital market as another source of funding which will sustain their development in the medium term,” he added.

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