Construction cranes and unfinished high-rise buildings surround the silty marshland where a year from now Cambodia hopes to turn the page on decades of upheaval by opening a stock exchange.

The idea of a Cambodian stockmarket has been floated since the 1990s but has struggled for traction in a country known for a culture of political impunity, chronic poverty and a history of violence, including the Khmer Rouge Killing Fields.

But authorities argue those days are over and plan to sign a deal this month with World City Co Ltd, a South Korean-backed developer, to start building a $6 million, four-storey stock exchange on the waterfront of a new financial district.

We want to do it next year, Mey Vann, director of the financial industry department at Cambodia's Ministry of Economy and Finance, said in an interview. It'll be good timing for us with the economic recovery.

It was supposed to open in September, a target set last year when South Korea's stock exchange operator agreed with the Cambodian government to set up and run a joint stock exchange.

But the global financial crisis intervened, ending an unprecedented boom which saw Cambodia's economy expand 10 percent annually in the five years up to 2008. Foreign investment collapsed, tourist arrivals fell by double digits and garment exports, a mainstay of the economy, shrank by 15 percent.

In recent weeks, Cambodian officials have cautioned against moving too fast, in some cases questioning whether a country whose education system was decimated during Pol Pot's 1975-79 reign of terror is ready to invest in stocks.

We've been waiting for a green light, said Intyo Lee, project director for Korea Exchange, Asia's fourth-largest bourse operator which will own 49 percent of the exchange and is recruiting and training workers for it. Cambodian will own the rest.

We're pretty much ready, he added, but many people say it's too early. The government is trying to build consensus.

STARTING SMALL

The exchange expects to start small with just four or five companies issuing about $10 million worth of shares each, said Lee. That's comparable to neighboring Vietnam's first stock market launched in 2000 with its initial market capitalization of $43 million. Today, Vietnam's market is worth $27 billion.

Yet there are risks to Cambodian investors. In Vietnam, most of the investors were local, often unaware of the risks, and many were burned as the market steered a rollercoaster course. Meanwhile, foreign investors largely sought to dip into the potential high returns of an emerging frontier market while hedging their bets with a highly diversified portfolio.

Like its communist neighbor, Cambodia is giving privatizing state companies priority with a place to sell stock. The Finance Ministry has asked three state-owned companies to list shares: Telecom Cambodia, port operator Sihanoukville Autonomous Port and the Phnom Penh Water Supply Authority.

Some of those companies have a simple question: why do it?

We don't have any financial constraints. I don't understand the reasons we are going to be listed, said Ek Sonn Chan, who runs the Phnom Penh Water Supply Authority, which employs about 600 people, has about $200 million in assets and generates about $25 million in annual revenue. He said the company is profitable.

If we become a public company, maybe we are more responsible, more transparent and maybe we can help the government allocate financial support to our company. But in the meantime, we don't know much about how it happens. It's very new to Cambodia, very new to me, he said.

Others say the timing may not be right for some time. Foreign direct investment nearly halved to an estimated $490 million from $815 million in 2008, according to the International Monetary Fund, which expects Cambodia's economy to shrink nearly 3 percent this year before growing about 4 percent next year.

Most of the disappearing capital had flowed into construction projects, including a $2 billion satellite city on the outskirts of the capital Phnom Penh where the exchange will be built.

Developed by South Korean-backed World City, the two-year-old project known as Camko City aims to create a new financial district by 2018 spread over 125 hectares, complete with glass-walled office towers for stockbrokers, upmarket apartments, securities regulator offices and sleek retail spaces.

But construction has slowed, said Kim Duk-kon, a vice president at World City. Although the first phase is nearly complete with many of the residential villas built and sold, subsequent phases are on hold after capital dried up.

FLOODED SWAMPLAND

The area where the stock exchange will be built is flooded swampland on the edge of Boeung Kak Lake in the heart of the city. The Finance Ministry said the end of the rainy season this month will allow workers to begin building the exchange on the corner of what developers are calling Phnom Penh Boulevard.

Cambodian officials rejected an initial design, saying the exchange's exterior was too modern and not Cambodian enough. It has since been redesigned using traditional Khmer accents.

Vann at the Finance Ministry and Kim said a news conference this month will announce construction of the exchange. A new Securities and Exchange Commission of Cambodia, he added, is drafting market regulations that will be issued soon.

We have a very good team at the Securities and Exchange Commission. They graduated from overseas. They are new blood in terms of enforcement of the law, he said. Our law is very strict in terms of speculation.

Some observers are unconvinced and say authorities need to demonstrate how investors will be protected in a country with a reputation for corruption at nearly every level of the bureaucracy. Some fear speculative gambling by public employees.

David Cowen, deputy division chief for the International Monetary Fund's Asia and Pacific Department, met recently with the new securities regulator and urged its officials to work closely with the central National Bank of Cambodia.

He said the Commission would soon issue operational guidelines on securities firms. The IMF wants to see if those rules are consistent with banking laws and recognize the central National Bank of Cambodia's role as the nation's chief regulator.

(Reporting by Jason Szep; Editing by Megan Goldin)

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