The number of companies on Cambodia's stock exchange doubled on Monday - to two.
The debut by a Taiwan garment maker is an important baby step for the bourse, but the firm's long road to listing and a lack of clarity on the number of companies to follow underscore just how far Cambodia has to go before it becomes a hot frontier market.
While neighbouring Vietnam has seen around 660 companies go public since the opening of its first bourse in 2000, both Cambodia and Laos, which has three listed firms, have failed to live up to early expectations that came when their exchanges opened for business in 2011.
Many Cambodian firms are unwilling to commit to transparency by providing financial statements or to comply with taxation laws, brokers and investors in the country say. Red tape and listing rules more suited to a developed market only compound the problem.
"We find it a very bureaucratic market to invest in, and they are shooting themselves in the foot with listing requirements that are too strict," said Thomas Hugger, manager of the Asia Frontier Capital fund.
That the newly listing company - Grand Twins International (Cambodia) Plc, a major clothing manufacturer in the country - is not Cambodian but Taiwanese only serves to highlight local corporate reluctance. As does the two-year gap since Cambodia's first listing.
Grand Twins, which counts Adidas and Reebok among its clients, had initially planned to list last year. It says it decided it would fare better in Cambodia where the textile industry is a pillar of the economy rather than electronics-focused Taiwan.
But its $19 million IPO was pushed back due to delays in getting paperwork done - a problem which resurfaced even after the offering was completed with its listing date postponed twice, sources with direct knowledge of the matter said.
Companies planning to list must provide three years of financial statements, have made a profit for three years and fulfil potentially onerous requirements to have a variety of shareholders.
The Cambodia Securities Exchange, a joint venture with Korea's bourse, initially announced plans to list three state-owned companies by the end of 2012 but so far only the Phnom Penh Water Supply Authority has made it to market.
And there is not a whole lot of turnover, with no shares changing hands in one in three trading days last month. The trading floor was empty and computers sat switched off when a Reuters reporter visited in June.
While some 100 people, mostly media, were in attendance for the ringing of the bell for Grand Twins, it was a subdued debut with the stock falling 5 percent in extremely thin trade.
Hong Sok Hour, CEO of the exchange, has said around 10 companies are exploring a listing and there would likely be one more before the end of the year, but noted preparing financial statements continued to be a challenge.
"We can't know when they are ready," he told a news conference earlier this month.
Frontier markets, a subset of emerging markets but which are more illiquid, less stable and carry more risk, have increasingly found favour with investors and without change, Cambodia has much to lose in potential capital.
The MSCI frontier markets index is up almost 15 percent so far this year, against a 5 percent rise in the MSCI emerging markets index.
Vietnam's benchmark index was Southeast Asia's best performer last year, rising 22 percent and while it took a bit of a knock last month on tensions with China, it is still up 14 percent for the year to date. It has a market cap of $47 billion, though that still pales in comparison to emerging markets like Thailand whose benchmark has a market value of around $400 billion.
Lack of action from Cambodia and Laos mean they risk being eclipsed by Myanmar, says Asia Frontier's Hugger.
Myanmar, which has enacted sweeping political and economic reforms since 2011, is drawing huge foreign investor interest with some of that beginning to bear fruit. Gap Inc, for example, just announced plans to open two factories in Yangon.
Myanmar, which currently has two listed firms, plans to open a brand new exchange in October next year with Japanese help. It says half a dozen companies will list in the early stages including Myanmar Agribusiness Public Corporation and Asia Green Development Bank.
While experts say that both Cambodia and Laos do have well run companies that would be attractive investment targets, there needs to a change in mindset as business tycoons have yet to be convinced about the benefits of listing.
Pervasive corruption has also fostered a sense of distrust that is hindering the development of a local institutional base, despite most of the necessary regulatory framework being in place.
"Foreign investors and, to my surprise, even quite a number of local investors are still questioning the trustworthiness of local companies' financial statements," said Han Kyung-tae, head of Southeast Asia investment banking at Tongyang Securities (Cambodia) Plc, who worked on the first Cambodian IPO.
The Cambodian government could benefit by taking a leaf out of the books of other frontier markets such as Bangladesh, said Douglas Clayton, CEO of frontier market fund Leopard Capital.
Public companies in Bangladesh pay 27.5 percent tax, while most private companies must pay 37.5 percent. Cambodia could, for example, cut corporate taxes in half for three to five years for listed companies, he said.
"The greater transparency this would bring might actually increase tax collections over the long term," he added.
Also key will be convincing bigger companies to list - a factor far more important than quantity. Vietnam's market only took off from about 2007 after the government pushed more large firms to list and lifted a cap on foreign ownership.
Most of investor attention in Vietnam is occupied by only a handful of stocks, said Adrian Cundy, managing director at Ho Chi Minh City-based VinaSecurities. Among companies with a market value larger than $500 million, just 11 have more than $1 million worth of trade a day.
"Cambodia needs to find three or four companies that can trade at those levels, such as a bank, a telco or a power company," he said.