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Laos regulator expects companies to raise $8 billion
Laos, Southeast Asia’s smallest economy, expects private companies and state-run enterprises to raise at least $8 billion in equity and bond sales in the next five years to fund investments, the market regulator said.
The communist country opened a stock exchange today, aiming to integrate with the global economy and join the World Trade Organization. The bourse started trading two stocks, one off limits to foreigners, and may add three others this year, said Vathana Dalaloy, the acting secretary general of Laos’s Securities and Exchange Commission.
Resource-rich Laos is seeking to replicate the success of neighbors such as Vietnam and China by developing its capital markets to facilitate growth and create jobs for Asia’s youngest population. The country’s total trade in 2009 amounted to $2.9 billion, 42 times less than Vietnam and more than 700 times below neighboring China.
“Laos’s financial system is vulnerable and imbalanced as domestic businesses rely entirely on short-term financing from bank loans,” Vathana said by phone on Jan. 8 from the capital Vientiane. “The new stock exchange will reduce that problem by offering companies new sources for long-term capital.”
Copper and gold mining, hydropower and tourism are the biggest sources of income in a country where most people survive on subsistence farming, according to government data. Companies such as Rio Tinto Group and Electricite de France SA have invested in mines and power plants to tap into the nation’s rivers, minerals and precious metals.
Joint Venture
The bourse in Vientiane, a venture between the government and Korea’s stock exchange, started trading of EDL-Generation Pcl, a unit of state-owned power producer Electricite du Laos, and Banque Pour Le Commerce Exterieur Lao Pcl, a state- controlled lender known as BCEL. The two companies raised about $140 million in initial public offerings last month.
Shares of EDL-Generation rose 9.3 percent to 4,700 kip at the close, according to the Laos Securities Exchange’s website. BCEL surged 45 percent to 8,000 kip from the initial public offering price of 5,500 kip, according to the bourse.
“Laos has a vast opportunity with its untapped natural resources,” said Sopawadee Lertmanaschai, secretary-general of Thailand’s Government Pension Fund, which oversees about 480 billion baht ($15.6 billion) of assets. “There is a good opportunity for a good return to invest at this early stage.”
Market Reforms
Ruled by communists since 1975, Laos began market reforms in the 1980s. The country’s 7 million people, 40 percent of whom are under 15 years old, earn $2.6 per day on average, according to statistics from the Association of Southeast Asian Nations.
Laos’s economy may grow 7.5 percent this year, boosted by electricity sales to Thailand and higher prices of copper, gold and silver, the Asian Development Bank said in a report on its website. That would be the fastest pace among the 10-member Association of Southeast Asian Nations, it said.
Overseas investors will be limited to a cumulative 10 percent stake in EDL-Generation and cannot buy shares in the bank, Vathana said. Stocks will trade between 8:30 a.m. and 11:30 a.m., with prices quoted twice a day.
“We have a very favorable outlook on Laos,” said Ken Stevens, chief investment officer of Leopard Capital, which bought about 2.3 percent of EDL-Generation shares offered in its IPO. “The country has undergone many reforms for investment and provides attractive investment privileges.”
EDL-Generation sold stock in December at 4,300 kip (53 U.S. cents) a share, or about 6.8 times this year’s estimated earnings, according to Bloomberg’s calculations based on data in the company’s prospectus. That compares with 11.7 times earnings for the MSCI Frontier Markets Index.
Bonds, Equities
The exchange will facilitate trading of government and corporate debt under its five-year plan, allowing bonds and equities to replace bank loans as the biggest source of capital for local companies, Vathana said. About $15 billion will be needed to fund government and private sector investments by 2015, she said.
Bond sales will decrease the country’s reliance on foreign aid, which amounted to $420 million in 2009, equivalent to 7.5 percent of gross domestic product. China’s aid was $1.13 billion in 2009, or about 1/5,000th of its GDP, and Vietnam received $3.74 billion, or about 3.8 percent of GDP.
The stock exchange will also help the country develop along the lines of neighboring Thailand and Vietnam, said Kenneth Ng, chief executive officer at Bangkok-based NTAsset (Thailand) Co.
“It’s probably going to be a while before it’s hitting the radar screen of foreign investors,” said Ng, whose firm manages about $170 million of assets. “It’s better than not having one, but it’s a learning process also for them.”
Korea Exchange
Korea Exchange Inc. is helping to develop stock exchanges in Laos and Cambodia after successfully assisting Vietnam, according to Shin Gil Soo, senior vice president of the company’s global business development team. Korea Exchange owns 49 percent of the Laos Securities Exchange, he said.
“Usually, it takes about three to five years for a newly established exchange to be able to break even,” Shin said.
In neighboring Thailand, 478 companies are publicly traded on the main board of the nation’s bourse while Vietnam’s Ho Chi Minh City Stock Exchange has 275 listed stocks, up from two when it opened in 2000.
Laos has several state-owned companies with “pretty good assets” that may list, said William D. Greenlee, Jr., country managing director for DFDL Mekong, a regional law firm.
“Laos has a good shot at having companies list that people want to buy stock in,” he said by phone from Vientiane. “The stock exchange may end up being a very successful regional boutique exchange.”
Mekong River
Last year, Laos considered selling its first foreign- currency bonds to overseas investors backed by royalties from hydropower plants. Laos has proposed building 10 hydropower plants on the main stream of the Mekong River to export electricity to neighboring countries.
Ratchaburi Electricity Generating Holding Pcl, Thailand’s biggest private power producer, said on Aug. 16 its joint venture plans to spend about $877 million to buy a hydropower plant in Laos. Electricite de France, Europe’s biggest utility, and its partners operate a 1,070-megawatt hydro power plant in Laos, the country’s largest.
Bloomberg
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