Global Witness’ flawed report on Hun Sen’s family

[Published by the Khmer Times on 19 July 2016.]

The Global Witness report Hostile Takeover: The Corporate Empire of Cambodia’s Ruling Family was provided well in advance to selected media, to allow them to describe it without rushing.

This would also have been an opportunity for journalists to check on the reliability and accuracy of the report, and to consider whether its charges were sufficiently documented. Unfortunately, it does not appear that reporters for any of the English-language Cambodian papers used that opportunity.

Contrary to most of the publicity surrounding it, the report does not at all prove the existence of “vast holdings” or a “business empire” belonging to Hun Sen’s family.

Capital confusion

Global Witness (GW) provides a table (Annex 1) citing the registered capital of companies with which relatives of Hun Sen have some connection. The total registered capital of these companies (aside from 16 of the 114, for which GW could find no information) was something over $200 million.

That provided a handy figure for biased and/or lazy journalists to cite as a minimum for the wealth that Hun Sen’s family had supposedly accumulated. But it’s nonsense.

The first error, which necessarily raises doubts about the overall competence of GW’s researchers, is that they don’t understand the difference between listed capital and registered capital. Indeed, they do not even seem to recognise that there is a difference.

The listed value of a company is the value of one of the company’s shares on the country’s stock exchange, multiplied by the number of such shares. So, if corporation A’s shares are selling for $15 and there are one million A shares in existence, the listed capital value of the company is $15 million. This is also often referred to as a corporation’s “market capitalisation”.

The GW report, and the numerous media reports mindlessly repeating it, refer frequently to the “listed share value” of companies “linked” to members of the Hun family. This is simply impossible.

The Cambodian stock exchange is very new, and there are only three listed companies in Cambodia: the Phnom Penh Autonomous Port, Grand Twins International (Cambodia) Plc and the Phnom Penh Water Supply Authority. The “listed share value” of the companies cited in the GW report does not exist (unless the company is listed on Wall Street or some other foreign stock exchange). GW doesn’t understand what it is talking about.

What does exist, and what the GW report sometimes mentions as though it were the same thing, is the registered capital of a company, also called the authorised capital. In Cambodia, the registered capital is the value of the shares a company can issue, which must be no more than the amount invested by the shareholder(s).

As time passes, it is quite possible for the actual value of a company to diverge from the value of its registered capital because of favourable or unfavourable events. (This happens to listed capital only rarely over the long term, because a company’s share price tends to rise or fall with its successes or setbacks.)

If a registered company is doing well, its owners may decide to increase its registered capital, which they can do, for example, by reinvesting some of the company’s profits; they can then sell some or all of the shares corresponding to the increased capital.

But if a company is losing money, there is no incentive for the owners to reduce the registered capital: doing so would only reduce their chances of recovering their investment.

Its registered capital therefore doesn’t tell us much about how well or poorly a company is doing. A company may really be worth either more or less than its registered capital. But there are likely to be more companies that are worth less than their registered capital than there are companies worth more than their registered capital.

The largest item in GW’s claimed “$200 million empire” is the (partial) ownership by Men Pheakdey of the D&M Special Economic Zone in Bavet. She’s described as mother-in-law of two of the prime minister’s children, which hardly qualifies her as a “Hun family member”. The company is listed in the report as having a value of $52 million – that is, more than one-fourth of the entire “empire”.

The company and its registered capital were recorded in 2007. Following on the internet what happened after that was difficult, which may be why GW didn’t bother. I tried for a bit longer and developed a strong suspicion that the D&M SEZ doesn’t actually exist as anything more than legal permission to create an SEZ on a designated piece of land. After further, non-internet, inquiries, it emerges that the D&M SEZ is still only someone’s dream. D&M may still have a legal permission and some land, but those could not possibly be worth more than a fraction of the $52 million registered capital.* Yet the full $52 million still shows up in the report’s table.

Spreading illusions

A second major flaw in GW’s report is that its figures for the registered capital owned by members of the Hun family are grossly exaggerated. As in most spreadsheets, these figures are totalled at the bottom, coming to $201,223,668. This is the number on which most of the media coverage of “Hun family wealth” is based. But its only real meaning is that this is the maximum possible ownership by the people listed if they owned totally all the companies listed – which of course they don’t.

For instance, Hun Sen’s daughter Hun Mana is described as a shareholder in Viettel, the Vietnamese company that owns Metfone. The registered capital of Viettel, entered in GW’s table, is $44,877,168. So the $44.9 million value of Viettel appears, to the unwary, as part of the supposed $200 million of Hun Sen’s family. Thus the Phnom Penh Post article writes of “Mana’s 6 per cent stake – valued at $44 million – in Viettel Cambodia”.

But the Post has been misled by the way GW presents its figures. She has only a 6 per cent shareholding. Six per cent of 44.9 million is approximately 2.7 million, not 44 million. The Hun family’s supposed fortune has just decreased by $42 million. This is only the largest such example.

In fact, GW identifies only 16 companies of which it claims to know both the company’s registered capital and the size of the shareholding of a member of the Hun family. Here are the figures:

Investments by prime minister’s extended family, including immediate in-laws, where both percentage shares and registered capital of companies are documented by Global Witness. Percentage shares and capital held by in-laws of children are at bottom of table.

Person

Company (percentage held)

Registered

capital

Share of registered capital

1. Sok Puthyvuth (SIL)

Soma Energy (100%)

10,000,000

10,000,000

2. Hun Mana (daughter)

Viettel (6%)

44,877,168

2,692,630

Kampuchea Thmey (100%)

5000

5000

Moon Media (51%)

5000

2550

Bayon CM Organizer (25%)

5000

1250

Sub-total for Hun Mana

2,701,430

3. Hun Kimleng (niece)

Eastern Cambodia Int’l Investment (49%)

5,000,000

2,450,000

Worldwide Investment Corp (100%)

25,000

25,000

HD Rock Cafe & Shop (75%)

5000

3750

Sub-total for Hun Kimleng:

2,478,750

4. Hun Seng Ny (sister)

Attwood Investment Group (50%)

1,000,000

500,000

5. Hun Maly (daughter)

Decampharma (10%)

50,000

5000

6. Yim Chhay Lin (DIL)

Sovannaphum Mine Exploration & Development (50%)

10,000

5000

7. Pich Chanmony (DIL)

Brands Management (5%)

20,000

1000

8. Hun Chea (nephew)

PSZ Trading (10%)

5000

500

TOTAL

61,007,168

15,691,680

In-laws of children

1. Men Pheakdey

(MIL of two children)

D&M Bavet SEZ Co (60%)

52,000,000

31,200,000

CVI Resorts (30%)

5000

1500

2. Yim Leang

(brother-in-law of son)

Khum Sea Import Export Co (10 %)

2,000,000

200,000

TOTAL

54,005,000

31,401,500

As can be seen, by listing the full registered capital rather than the part owned by a family member or in-laws of Hun Sen’s children, GW overstates the value of their holdings in these 16 companies by almost $68 million. (And that is without any deduction for the likely reduced value of the D&M SEZ.) GW’s report doesn’t document the value of any further holdings by the Hun Sen family or its more distant in-laws.

GW argues that an additional 30 companies should be regarded as belonging wholly to the family, because they were registered as a “single member private limited company”, which means they are entirely owned by one person. GW says: “Hun family members are listed as company directors or chairs in all 30 of these cases, therefore it is highly likely that a member of the family is the sole owner of the majority, if not all, of these companies”.

That seems a reasonable deduction, but GW seems reluctant to draw any further conclusions, or allow readers to do so. GW’s table, which is labelled “Our Findings in Full”, doesn’t really report everything GW knows, because it does not identify those 30 companies. Since it is able to count them, GW obviously knows which companies have a single owner, but it doesn’t tell the reader. I can think of a logical reason for this strange lapse, but it doesn’t reflect well on GW.

If GW’s research found that a member of the Hun family chaired a single-owner company that had a registered capital of $1 million, or $5 million, or $10 million, it would have been much more evidence of family wealth than most things in the report: surely GW would have told us.

That it didn’t identify any of the 30 companies suggests that most or all of them are not very big. And of the companies listed in Annex 1 about which the only information is the name of the chair or director and the registered capital, more than 30 have a registered capital of only $1000 to $5000.

So, if we give GW the benefit of the doubt and say that members of the family own 30 companies, each with a registered capital of $5000, that adds $150,000 to the total of the family’s holdings. Adding up the numbers, we get a shareholding of the Hun Sen family more or less documented by GW as $15.84 million. Or, people who are willing to be held responsible for the actions of their own children’s in-laws, can argue that the total is $47.24 million. Both numbers are a long way from the trumpeted $201 million.

Both are also a very small percentage of Cambodia’s GDP of more than $18 billion. It is nonsense for GW to say that either amount “underpins the Cambodian economy” or amounts to “significant control across most of its lucrative industries”.

_____

* A Google search for land offered for sale in the neighbourhood of Bavet indicates an asking price of around $60,000 per hectare. D&M owns 118 hectares, so its land would be worth approximately $7.08 million.

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