Legal and Tax Updates

Issue: No. 004P/23 – 22 March 2023

OVERVIEW

The first ever bond issuance in Cambodia can be traced back since 2018. As of now, in the early of 2023, there has recently been the first ever green bond issuance in Cambodia. Bond means

an instrument issued by a legal person in accordance with the laws that evidences indebtedness of that person with respect to the money lent to, or deposited with, or otherwise owing by, that person whether secured over other property or not.

Based current regulations, bond consists of (1) Plain Bond, (2) Secured Bond, and (3) Guaranteed Bond; and any person who wishes to issue any bond shall comply with,

• Law on the Issuance and Trading of Non-Government Securities;
• Sub-Decree on the Implementation of the Law on the Issuance and Trading of Non-Government Securities; and
• Prakas on Debt Securities Offering to the Public, or Prakas on Debt Securities Offering to Qualified Investors, and shall comply with other regulations in force of the Kingdom of Cambodia.

To apply for the submission for the bond issuance, the issuer shall submit (1) the application form, and (2) the Disclosure Document, to the Securities and Exchange Regulator of Cambodia (“SERC”), along with (3) other supporting documents, as per the requirements of the laws and regulations in force.

WHAT IS GREEN, SOCIAL, OR SUSTAINABLE BOND?

Green, Social, or Sustainable is another label given to one of the above bonds, which reflects about how a proceed from bond issuance will be used.

According to a recent guideline from SERC, any person who wishes to issue green, social, or sustainable bond, shall submit (1) a green, social, or sustainable bond framework and (2) an external review report by an independent reviewer, along with the application requirements for the issuance of bond, as required under the above law and regulations, to the SERC.

The external review report by an independent reviewer can be in accordance with the ASEAN Green Bond, Social Bond, and Sustainable Bond Standards or with other international standards in force for the issuance of such bonds.

Definition Given under SERC’s Guideline:

• Green Bond: a debt security issued by an issuer and the proceed obtained from such issuance is used for the financing or refinancing of green projects or assets. Example – The development of wind or solar energy power plant, the purchase of land or equipment for the production of wind or solar energy, the manufacturing of electric vehicle, etc.
• Social Bond: a debt security issued by an issuer and the proceed obtained from such issuance is used for the financing or refinancing of any project that give positive impact to the society. Example – The provision of facility for SMEs used to support social economy and promote employment, development of education project, rural clean water and sanitation project, public health project, etc.
• Sustainable Bond: a debt security issued by an issuer and the proceed obtained from such issuance is used for the financing and refinancing the project that is a hybrid between a green and a social project that has positive social and environmental impacts. Example – The development of waste recycling project that has positive impact to the environment and society, the development of public transportation project that reduce the use of personal vehicle, the development of air purification project, etc.

REQUIREMENTS FOR THE ISSUANCE OF GREEN, SOCIAL, OR SUSTAINABLE BOND

Along with legal requirements and application requirements for the issuance of a corporate bond, an issuer shall submit a green, social, or sustainable bond framework and an external review report by an independent reviewer as follows:

1. Bond Framework:

An issuer of a green bond, social bond, or sustainable bond shall prepare a framework which elaborate the information of such bond to be labelled as green bond, social bond, or sustainable bond, focusing on the 4 (four) core principles as follows.

• The Use of Proceed: The issuer shall clearly determine the purpose for the use of the proceed from the issuance of the bond in accordance with the implemented standard or framework in relation to the Green Bond, Social Bond, or Sustainable Bond (i.e. ASEAN Green Bond, Social Bond, and Sustainable Bond standards or international standards in force).
• The Evaluation Procedure and Selection of Project: The issuer shall have appropriate mechanism and internal procedures for the evaluation and selection of the type of project or asset for the issuance of the Green Bond, Social Bond, or Sustainable Bond.
• The Management of Proceed: The issuer shall properly manage the proceed from the issuance in accordance with the purpose of the bond.
• The Reporting: The issuer shall report to the investors on:
• The distribution of the proceed obtained from the issuance to the specified project or asset.
• Compliance to the requirement for the Green Bond, Social Bond or Sustainable Bond in accordance with the implemented standard or framework.
• Positive and negative impacts in relation to the project implemented or use of asset in accordance with the implemented standard or framework.

1. External Evaluation Report by an Independent Reviewer:

For any issuer to have its bond be qualified as Green Bond, Social Bond, or Sustainable Bond issuance, they shall obtain an external review from an independent reviewer base on the implemented standard or framework of ASEAN Green Bond, Social Bond, and Sustainable Bond Standards, and/or other international standards in force.

An external review means the review and evaluation on the compliance of the project or asset of the issuer in accordance with the implemented standard or framework. The issuer may obtain the evaluation on the type and the project or assets of the Green Bond, Social Bond, or Sustainable Bond issued by an independent reviewer.

• Who can be independent reviewer?

An independent reviewer shall be independent from the issuer.  The reviewer has the duty to evaluate the type of project or asset that the proceed obtained from the green bond, social bond or sustainable bond will be used for. Such independent reviewer may be an expert in environment, society, or any other specific expertise.

• Forms of External Review: An issuer may inquire for an external review in 4 (four) different forms as follows:
• Opinion of a Consultant or Specialized Institution: An opinion from a consultant or specialized institution that is independent from the issuer which evaluate on:
• compliance on the guideline for Green Bond, Social Bond, or Sustainable Bond;
• purpose, strategy, policy, and/or progress in relation to the green, social, or sustainability of the issuer;
• type of project with green, social, or sustainable character to be financed with the proceed obtained from the issuance of the bond.
• Certification of Green, Social, or Sustainable Bond: it refers to a certification on the compliance with the standard or determination of green, social or sustainable bond recognized by the independent reviewer.
• Verification of the Bonds: It is a verification by the independent reviewer on the progress of the business and/or on the criteria for the type of green, social, or sustainable bond. Such verification may be focused on the compliance with ASEAN Green Bond, Social Bond, and Sustainable Bond Standards and other international standards in force.
• Grading or Ranking of the Bonds: The green bond, social bond, or sustainable bond, or the framework of such bonds of the issuer may be evaluated as green, social or sustainable bond by a third party who has appropriate qualification including rating agency or other institutions that is accredited by the SERC.

We hope that the above legal compliance alert is helpful for your investment and help you to invest more confidently.

Disclaimer

The article is merely for general information purposes. It does not constitute a legal advice on the subject matter. If you have any question or need any assistance, please feel free to contact us:

	SON Sokeng, Partner, Managing Director sokeng.son@sithisak-lawoffice.com +855 12 885 870	He has more than 10 years of professional experiences in corporate, commercial, investment and capital market sector in Cambodia. He has leaded a legal counsel team to advise and assist Royal Railway Plc., Golden Tree Plc., one of the biggest commercial bank in Cambodia and one of the biggest telecommunication service provider in Cambodia in conducting legal due diligence and restructuring for their proposed bond issuance: plain, guaranteed and green bond issuance and listing; He also advised and assisted Phnom Penh Autonomous Port, Acleda Bank Plc., DBD Engineering Plc, one holding company in real estate sector and two other companies in their proposed listing at Cambodia Securities Exchange (CSX) through IPO.
	NOEUM Sokvichhai, Partner, Head of Corporate, Commercial and Investment Practice Group sokvichhai.noeum@sithisak-lawoffice.com +855 12 826 785	Sokvichhai has more than 6 years of experiences in labour, corporate, commercial and investment advisory in Cambodia. He actively advices and assists various businesses in commercial, tax, and labour registration, business licensing, products registration & distribution, business recapitalization & restructuring, and mergers & acquisitions transaction. He also has particular experiences in advising collective investment fund and trust business, investment incentives & qualified investment project, and labour & employment related issues.

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