Cambodias Challenge: Accessing Capital Markets

Years ago I first came across something taken completely for granted in many Asian countriesnamely the practice of keeping two sets of books. Mind you this variety of accounting occurs globally, with the vast majority of the worlds companies being family run affairs, the books for the business are easily controlled, held and manipulated by the founders and/or owners. There exists the set of books for the tax man and then those that are the real set. Ive personally seen this in some of the largest, most sophisticated operations, not just mom and pop shops. In some instances there are even 3 sets! One expects it in SMEs (small and medium enterprises), but I admit to being a bit shocked the first time I saw it in a very substantial Thai company, operating on a nationwide basis. I was perplexed at how they could continue to obtain working capital when even I knew what was going on..?

Accessing smallish amounts of capital from Uncle and Auntie is not a problem when one has two sets of books. However, soliciting capital from the public, a PE fund or VCs adds another layer of complexity and necessary transparency. Outside investors are more removed from the management than family, and therefore trust is of greater concern. This is where an equity market can help to level the playing field (for the most part). Moving into the publicly-listed equity space changes the game 180 degrees. Its not nearly as easy to have those two sets of books any longerat least not without some serious potential repercussions. This is of course unless you are operating in the United States or most of Europe, where today it is apparently OK to defraud anyone and everyone, especially the lowly tax payer, as long as you have the right friends!

While I certainly dont agree with keeping two (or more) sets of books, I am in favour of any setup which puts more power, capital and control in the hands of those who know how to allocate it best. This by definition does not include (any) government. While we ourselves dont partake in or advocate the practice, cheating the (corrupt and there is no other kind) tax man is in many parts of the world considered a patriotic act. Starve the beast! I believe that Asia in general is as wealthy as it is today, which is to say vastly wealthier than a mere two or three decades ago, due in no small part to its citizens keeping much more of their earnings than their counterparts in Europe, and many of the other Western democracies where socialism has run amok. Fortunately there are still places left in the world where corruption and regulations are being reduced, and the business environment is being made more hospitable. This most often is the case in the frontier markets we like to focus on. Take Cambodia for example; the country is growing fast, and many of its enterprises are moving into the stage where, in order to continue their growth, they require outside financing. The Cambodian stock exchange (CSX), currently the worlds smallest, was opened in July of 2011 to provide a platform for this to occur. The first listing, Phnom Penh Water Supply, took place in April of last year. The issue was wellreceived, moving up substantially its first week of trading. As a result, there are a squadron of others wishing to follow suit, and about a half dozen on the short list. At this (early) point in the game both the business owner and the investors are heavily reliant on a robust legal system developing, which ensures transparency and protections for investors. Frontier countries like Cambodia, Mongolia, Myanmar and others are busy trying to structure a better system, while the West seems hell-bent on destroying their existing ones. Foreign investors are naturally reluctant to invest in any business where the numbers are unknown, or are (obviously being) misrepresented. Companies wanting to list their shares publicly in Cambodia are learning that there are challenges and thresholds that need to be addressed when they make the decision to go public. These challenges scare off many investors, which is unfortunate. It doesnt phase us, and if youre reading this hopefully it doesnt phase you either
http://capitalistexploits.at/2013/01/cambodias-challenge-accessing-capital-markets/