Banking (Cambodia Style)
November 7, 2010
A Way To “Play” Mongolia?
November 19, 2010

Dead End (For Now) In Cambodia

No entry visa? No problem. I was at the airport in Siem Reap, Cambodia. No one said anything previously about an entry visa, but for $20, one magically appeared in my passport. Over the years, I’ve sent documents, photos and my passport to all sorts of third world nations. After a few anxious days (losing your passport is like losing your freedom), the passport would be mailed back, often minus my visa. There’s nothing like a clerical error to set back your whole travel plan. I have to say, Cambodia’s system is practical. It would be better to do away with visas, but this was a French colony after all. There is a proud tradition of inefficiency.

Even with a bit of renovation going on, Angkor Wat is stunning.

Former French colonies are all alike; stifling bureaucracy, endemic corruption and the French culinary tradition—decent food and atrocious service. At least the people are friendly. It does make you wonder how an ethnically homogenous country could descend into the anarchy of the Khmer Rouge. Killing off a quarter of your country’s population must be some sort of record—at least as far as genocides go. In typical American form, we chose the bad guys and supported the Khmer Rouge. The simple logic was that the murderous thugs were our murderous thugs. Besides, they didn’t care much for Vietnam who we just finished a war against. Your enemy’s enemy is your friend right? The worst part was that when Vietnam finally decided to invade Cambodia and eject Pol Pot, we went to the UN and protested. Fortunately, most of the population was born a decade after the genocide and they do not harbor a grudge. In fact, they seem to like us quite a bit. The violence has been forgotten—Cambodia is now focused on economic growth.

For the past six months, I’ve heard vague rumors that Cambodia was setting up a stock exchange. Google searches turned up little more than a few press releases. If I wanted the facts, I had to go to the source. First, I wanted to get some tourist time in. You can’t invest in a country unless you understand the culture and history is what drives the former. I’ve always dreamed of seeing Angkor Wat. Now I had an excuse to go. What can I say besides stunning? If you haven’t gone, you need to. A thousand years ago, the Angkor Wat region was the largest congregation of people in the world. It retained that title for nearly two hundred years and left behind some very impressive architecture. They are still extracting the ruins from the jungle. While the more prominent temples are fully restored, there are dozens that are little more than vines and jumbled stones waiting to be explored. It takes weeks to see it all—unfortunately, I had three days.

After sweating my way through jungle temples, it was time for business in the capital, Phnom Penh. On the five hour drive through tropical poverty, I considered the mission ahead. While politicians like to think that a stock exchange is a panacea for economic malaise, they are mistaken. A stock exchange is merely a place for entrepreneurs to finance their dreams, assuming that there is capital for those dreams. That’s where I hoped to come in. Nascent exchanges come in all forms. Quite frequently disclosure is abysmal, liquidity is minimal and valuations are all over the place. Naturally, this sounds like the sort of environment where a guy like me should thrive.

The first step was to tease out information on the exchange. We met with the largest broker, which is sort of a misnomer really. If you don’t broker anything, are you actually a broker? At least, he was an intelligent guy in a nice office who publishes research reports. Unfortunately, he was a bit despondent. He had little confidence in the July 1 deadline for trading. It seems that deadlines have come and gone in the past. Three years later, his firm was strong on potential but with little actual work to do.

We repeatedly tried to contact the newly formed securities commission, but never had success—I guess bureaucrats are the same everywhere. It’s hard to have an exchange without investor interest. I was an interested investor—likely one of the few. I thought they’d have a welcoming party—or at least give me another hat for my shelf of financial souvenirs.

I had five days in Phnom Penh—no exchange, no worries. I figured I’d at least meet the first three companies that intended to list—all of them were government entities. I didn’t expect much, I got even less. Here’s how one meeting went.

Me:  Can you show me your financials?

CEO:    No.

Me:    Uhhhh… Well, do you intend to personally purchase your shares when they list?

CEO:  Of course not. We don’t think we want to have profits.

Me:   Huh?

CEO:   I think it would be better to use our income for charity or something else.

Me:   I’m confused. Aren’t you a business?

CEO:  We have loans from donor countries at one basis point.

Me: So?

CEO: We have $80 million in debt and we pay $8,000 a year in interest on it. We want more loans. If we had profits, the donors would expect us to pay market rates and eventually pay back the loans. (Maybe he was an entrepreneur after all)

Me: Should my firm invest in your company?

CEO:  Of course not.  (At least he’s honest.)

I think we were some of the first investors to visit. In fact, the CEO of this company was positively baffled about why we were in his office. At least there were no greasy investor relations guys trying to massage the truth.

Driving on the roads is complete chaos.

When countries get popular, hedge fund guys swarm them and companies tire of finance guys in suits. The good thing about Cambodia is that we were some of the first investors to visit. We were able to meet with senior management at the biggest companies in the country. I wanted to learn more about Cambodia; they wanted to learn more about modern finance. We met with whoever we wanted—all great business minds. I was wowed by banking (Cambodian style). Actually, there are entrepreneurs everywhere. Once you leave the clutches of government controlled businesses, you see lots of potential. Everyone told us the same story. Cambodia is where Vietnam was a decade ago and where Thailand was thirty years ago. I’m not sure if it’s exactly comparable, but if it is, there’s a lot of money to be made buying into Cambodia. How?

I looked at real estate, but prices are into the stratosphere. I looked at making investments in some of the larger companies, but they weren’t interested in outside investors. No one is in a hurry to go public. I looked around a bit more and decided it was in the too hard department. If they actually open a stock exchange, I will get interested. Maybe I’ll buy a few shares and hope that managements eventually consider profitability. Otherwise, I’m content to get back to Miami. The real opportunity is when some of the private businesses list their shares. That’s still years into the future. Sometimes your information is incorrect. A few press releases from a regulatory group doesn’t create an exchange. You need companies that want to list and you need a business case that makes investors want to invest. Tricking NGOs into investing in infrastructure isn’t a business plan. I go down lots of dead ends before I find something interesting, its part of my job. I now have a mental image of the country. There will come a time to invest–I was too early. At least I got to see Angkor Wat.

I spent over a week in Cambodia. So far, my favorite business plan came from one of our drivers. Gasoline in Vietnam is subsidized. In Cambodia it is at market rates. Our driver knows someone in customs who is willing to look the other way as tankers of gasoline drive past. It sounded quite lucrative and I wished him luck at finding an investor. Unfortunately, it doesn’t seem like the sort of investment that my fund should be involved in. Like I said, the Cambodians are entrepreneurial. I think the country will be a huge success story, but rumors of a stock exchange are just that—rumors.



I had a few extra pictures. Hope you enjoy…

I’m normally a pretty deft negotiator, but these two had a unique hustle. They put their pet tarantulas on your head and then tried to sell you bananas. $2 for a bag suddenly seemed like a good bargain… The normal price was 50 cents a bag. I should know, by the end of each day, we often had a dozen bags in our car. I like to support young entrepreneurs wherever I go….

Photo By Mili Martinez

This kid’s mom was so busy trying to sell us something that she didn’t realize that the pet snake was strangling her kid.

Photo By Mili Martinez

Another kid, another pet snake….

Thankfully I’m a vegetarian….

Categories: Travels
Positions Mentioned: none

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