I. What is an IPO?
An Initial Public Offering (IPO) is the process through which a private company transitions into a public limited liability company by offering its shares to the public for the first time. This allows the company to raise capital to support expansion and accelerate its growth. Through the investment in company’s IPO, individuals will become shareholders of the company. By participating in the primary market, investors can purchase shares directly from the issuer before they are traded on the secondary market. They may benefit from capital gains as the company grows and its market value increases, and they can also receive dividends when the company distributes its profits. While there is potential to earn profits, individuals must also be aware of the risks associated with investing. Fortunately, these risks can be mitigated by obtaining essential information such as company fundamentals information, offering terms and conditions, and market situation.
II. Understanding How to Invest in the Primary Market
To invest in the primary market, investors need to understand the following processes and conditions:
1. Information collection and analysis
In the initial stage, investors who wish to invest in the primary market must:
- follow the official information related to issuance through Securities and Exchange Regulator of Cambodia (SERC), Cambodia Securities Exchange (CSX), securities firms and other dissemination channels.
- Understand the information of issuer regarding: the purpose of the issuance, types of shares, size of the issuance, financial statements, risks and important dates related to the issuance process.
- Understand the terms and conditions of share price calculation and subscription process.
2. The process of buying shares in the primary market
A. Book Building
As part of the process, frequently, the underwriter will conduct a market demand and supply assessment through a procedure known as "book building", this means the company will allow investors to indicate their preferred price and quantity of shares they wish to subscribe. The price range for book building is determined by the issuer with support from the underwriter and shall be approved by the SERC (For example, one share may be priced within a range of KHR 3,500 - 3,900, and investors must select a price within that range).
To participate in the book building process, investors are required to complete an application form as prescribed by the SERC, with the support of licensed securities firm. The application shall attach with the following document: a valid Cambodian national ID or Passport (for foreigner), a valid Investor Identification Number (ID), Trading account Number and a deposit equivalent to 10% of the total value of the shares being subscribed, or another amount as determined by the issuer. The final book building result will be announced to investors after getting approval from the SERC and the disclosure documents are officially registered.
B. Subscription
The subscription, investors may submit applications to purchase shares from the company through its IPO. This generally takes place after the final share price has been determined. To complete the subscription application, investors must prepare the following documents: a valid Cambodian national ID or Passport (for foreigner), Investor ID, Trading account Number, and/or the Book Building Slip.
After submitting the subscription application, investors will receive a slip to confirm the outcome of their participation in subscription process. In addition, investors who were successful in the book building process may subscribe to more shares than originally indicated during book building and they are required to deposit 100% of the subscription value. Meanwhile, investors who were either unsuccessful in the book building phase or did not participate at all may still subscribe shares by depositing 100% of the total value of the shares they wish to subscribe. The subscription results will be announced on the official website of the securities firm. The successfully subscribed shares will then be credited to the investor’s trading account.
3. Risks and rewards in the primary market
Investing in the primary market presents both opportunities for profit and associated risks, which investors should carefully consider. Proper preparation, informed decision-making, a clear entry and exit strategy, and portfolio diversification are key components of a successful investment approach. Additionally, when the share price is determined through the book building method, investors can observe real-time demand during the bidding phase. Strong investor interest at this stage may signal potential price increases once the shares are listed on the secondary market. However, investors should be aware that share prices can experience short-term declines before stabilizing and potentially rising over time. Therefore, investors are advised to avoid making impulsive decisions such as selling out of fear based on short-term price fluctuations.
***Disclaimer: This article has been compiled solely for informative and educational purposes. It is not intended to offer any recommendations or as investment advice. The Securities and Exchange Regulator of Cambodia (SERC) and Post Media Co Ltd are not liable for any losses or damages caused by using it in such a way.
Prepared by the Securities and Exchange Regulator of Cambodia, Department of Research, Training, Securities Market Development and International Relations
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Telephone៖ 023 855 611
