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FX-indexed (Exchange risk hedged) bonds to be issued to the public for the first time in Cambodia

LOLC (Cambodia) Plc., one of the leading microfinance deposit-taking institutions, obtained an approval letter on its corporate bond issuance from the National Bank of Cambodia (NBC) on Feb 22, 2019. LOLC is to raise KHR 80 billion through the issuance of its first corporate bonds on the Cambodia Securities Exchange (CSX).

The bonds will have a tenor of three years and the final coupon rate of the bonds will be determined before the subscription period.
Mr. Sok Voeun, CEO of LOLC, said, “We are so glad that we’ve obtained approval on our first bond issuance from the NBC, and that we are able to introduce a new product, FX-indexed bonds, to the market.”
“Diversifying our sources of funding, particularly long-term funding, will ensure the institution’s future growth as well as improve its capital base,” he added.

LOLC’s upcoming bond issuance is unique, unlike previous corporate bonds, as LOLC offers investors not only fixed-coupon bonds but also FX-indexed bonds. The FX-indexed bond is typically designed to provide investors with an embedded tool to hedge the future exchange risk and it will be introduced by LOLC for the first time in the market.

Both fixed-coupon and FX-indexed bonds are fully in line with the government’s policy of promoting the use of local currency as they are both denominated in KHR. The payment of bond interest and principal will also be made in KHR.
Managing Director of Yuanta Securities, KT Han (the institution’s advisor and underwriter for the bond project), said the issue has already been oversubscribed. FX-indexed as well as inflation-indexed features were so common in Latin America and greatly contributed to their bond market development in the late 1980s until early 2000s. During that period, they almost exclusively issued both government bonds and corporate bonds with such features.

“We believe the FX-indexed bonds are a particularly useful product for Cambodia in this transitional period whereby the market will achieve two goals: the promotion of KHR and attracting both KHR and USD investors to the local capital market,” he said.

The listing date for the bonds is expected to be in late March.

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