State-owned enterprise Credit Guarantee Corporation of Cambodia (CGCC) signed an MoU on Thursday with GuarantCo for a structured facility that enhances guarantee capacity in the bond market space.

Cambodia is unusual in that its bond market is larger than its equities market when in most countries it would be the other way around. The Cambodia Securities Exchange (CSX) has 23 listed companies – 11 offering their equity shares and 12 offering their bonds. But it’s the bond market that is set to see a boost as five more companies are expected to list, which would take the total number of listed bond players to 17 versus 11 equity players.

CGCC said it has a total guarantee capacity of $200 million. “CGCC had an unusual beginning in that it started right in the middle of Covid. We started guaranteeing loans to SMEs. Today we’ve guaranteed loans amounting to $164 million to 1,928 micro, small and medium enterprises (MSMEs) as we mark three years of operation. But our vision has expanded now and we’ve also set up a Sustainable Green Financing Facility and this bond guarantee scheme for which we hope we’ll have a valuable partner in GuarantCo,” said KL Wong, CEO, CGCC. He added that it would be reassuring to prospective bond investors that their partner GuarantCo is a Fitch “stable” and “AA” rated entity.

With the partnership, speakers at the events said that CGCC would get technical assistance from GuarantCo on navigating the bond issuances and the bond market. GuarantCo could potentially combine its resources with CGCC to enhance its combined bond guarantee capacity. Also present at the event were Hong Sok Hour, the Royal Government Delegate in Charge as CEO of Cambodia Securities Exchange (CSX) and Seang Thirith, Deputy Director General of Securities and Exchange Regulator of Cambodia (SERC).

“At GuarantCo we are keen on enabling sustainable infrastructure in Africa and Asia. So far we’ve encouraged infrastructure development in low-income countries through the provision of credit guarantees that enable infrastructure projects,” said Nishant Kumar, Managing Director (Asia) of GuarantCo, part of the Private Infrastructure Development Group (PIDG).

“And in many countries we work like Nigeria and Pakistan we’ve had to set up a credit guarantee facility from scratch. But, Cambodia already has a credit guarantor in CGCC. An extremely innovative approach by the government that I’m not sure I’ve seen replicated anywhere else in this region,” said Denesh Srishanker, Credit Enhancement Facility Director, PIDG. “We’re more keen on local solutions to help local markets. And we do want to close the infrastructure funding gap in countries like Cambodia,” he added.

Innovation in funding is something the UK Government is keen on, said Dominic Williams, British Ambassador to Cambodia, while citing Britain’s role as Cambodia’s long-term development partner. “Cambodia has traditionally had a model of relying on the government budget and its external/international development partners. But, guaranteeing bonds for investor confidence could ensure the country gets other sources of funding too for its critical infrastructure projects,” said Williams.

GuarantCo Managing Director Kumar also talked about other projects they have done in the country, including providing a $70 million bond guarantee to CamGSM (popularly known as Cellcard) to finance its telecom infrastructure; its $24 million bond guarantee to Royal Railway Cambodia to invest in the national railway system; and $7 million in debt financing to MFI First Finance for building affordable housing for low-and-middle income groups in Cambodia.

“We are keen on credit enhancement, providing technical assistance to CGCC and creating viable opportunities for private investors in frontier markets,” said Philippe Valahu, CEO, PIDG.

On the timeframe of execution, CGCC CEO Wong said that they (CGCC and GuarantCo) are hoping to do their first combined bond guarantee this year. “On tax incentives, we are not the authority to comment. But I can tell you that we have approached the General Department of Taxation (GDT) and made a representation asking if it would be possible for the government to give some sort of tax incentives for bond investors and those keen on green financing,” said Wong.