Via Emerging Frontiers blog, a detailed look at Laos:

Overview

Laos has 6,586,266 people dispersed unevenly across a country that covers 236,800 sq km. The country borders Myanmar and China in the north, Vietnam to the west, Thailand on its eastern border, and Cambodia in the south. Following a period of conflict and civil war, coupled with the fall of Saigon and Phnom Penh to communist forces in 1975, the King relinquished his throne and the communist Lao People’s Democratic Republic (LPDR) party established control. In 1986 the government shifted away from a Soviet-style command economy and began to introduce market reforms that helped cultivate private sector activity. Since economic decentralization, the forces of globalization and regionalization have further driven Laos toward a market-driven economy. The country’s GDP was $1.75 billion in 1984 compared to $7.29 billion in 2010. GDP grew at an average rate of 6.2 percent over the period from 1986 to 2010.

Government

Laos has a one-party political system with active central planning by the government. The only legal political party is the LPRP. In spite of enacting a number of political reforms in recent years, the country is still primarily governed through the issuance of decrees. Many policies are designed to bring Laos into compliance with the World Trade Organization (WTO) requirements, as Laos attempts to become a member in the near future.

The LPRP remains a strong grip on power. In spite of occasional outbursts of low-level violence aimed at the ruling regime since the end of the Indochina Wars, these flashpoints have for the most part subsided in recent years. There were no credible reports of clashes in 2010 or 2011.

Economy

The economy of Laos is essentially a free market system with active central planning by the government, similar to the Chinese and Vietnamese models. GDP grew at an average rate of 7.1 percent a year from 2001 to 2010 and is expected to increase at an average rate of 7.6 percent from 2011-2015. Since the 1986 reforms, the country per capita income has grown from $474 to $1176 in 2010. Today the Laotian economy is primarily driven by agriculture and tourism.

Construction is expected to become another major force for economic development in Laos. Hydroelectric dams and road projects are beginning to gain traction, and foreign investment in hydropower and mining has increased. Vientiane has pinned its greatest hopes on the sale of hydropower generated electricity to an increasingly energy hungry region. Laos will also benefit from growing demand for minerals as global commodity prices rebound.

Many factors hinder Lao’s ability to reach its full economic potential. The Laotian labor force lacks many primary skills and there is a dearth of capital in almost all industries. Laos also suffers from inadequate infrastructure; Laos has only a primitive roadway system, limited telecommunications, no railroads and reliable electricity is only available in urban areas.

Future growth prospects

Laos aims to graduate to middle-income country status by 2020. This implies that Loas will remain dependent on aid from the International Monetary Fund (IMF) and other international donors for only a limited time. In the long-term however, Laos has many advantages. It shares borders and common interests with Thailand, Viet Nam, Cambodia and China and will look to piggy-back off of the economic growth of its neighbors while continuing to capitalize on its natural resource base.

 

Laos Securities Exchange (LSX)
The Lao Securities Exchange (LSX) began operations in January 2011 and is the first and only stock exchange in Laos. Technical and financial support is provided by the Korea Exchange (KRX), which owns a 49% stake in the exchange.

History

September 2007
• The Bank of Lao PDR (BOL) and Korean Exchange (KRX) sign a Memorandum of Understanding (MOU) to establish a securities exchange in Laos.

July 2009
• The Securities and Exchange Commission Office (SECO) is formed. A Joint Venture Agreement is signed by the Bank of Lao (BOL) (51% stake) and KRX (49% stake)

January 2011
• The Lao Securities Exchange (LSX) is officially opened with two initial public offerings (IPOs).

The Laos Securities Exchange (LSX) started trading with two listed stocks: EDL-Generation (EDL), a state?owned power company and Banque Pour Le Commerce Exterieur Lao (BCEL), a state?owned bank. Both companies successfully launched their IPOs and raised a combined US$140mn. Share offerings have attracted significant international and domestic investor interest with oversubscription of 25% for EDL and 15% for BCEL. Foreign investors from over 20 countries invested in EDL’s IPO. Total funds raised by these two Laotian companies are approximately three times larger than all of the capital raised for IPOs (US$50mn in total) on the Mongolian Stock Exchange (MSE) over the last six years.

The Government Decree on Securities and Exchange
The procedures for an IPO in the Lao PDR are generally similar to those in other countries. The issuing company must first obtain approval from the SEC. After which a prospectus for potential investors must be prepared and publicly advertised within 60 days from the issuance of the SEC’s approval in order to issue securities. Securities may then be issued for sale by SEC licensed brokers. A share offering must not exceed 10 times the company’s registered capital. To be listed, companies have to be profitable for at least one year, demonstrate transparency and sound management, and have a solid business plan.

Licensed Brokers
BCEL-KT Securities Co. Ltd. is a joint venture between the Banque Pour Le Commerce Exterieur Lao Public and the Bangkok-based KT-Zimco Securities Co., Ltd. The company is licensed by the Lao Securities Exchange and SEC to carry out four types of securities services; financial advisory, underwriting, dealing and brokerage businesses.

Lanexang Securities Public Company is a joint venture between the Sacombank Securities Joint Stock Company and the Lao Development Bank. Its focus is currently structured into three core areas: brokerage, corporate finance advisory, private equity, and research.

Current Publicly Traded Securities

Electricite du Laos Generating Co. (EDL)
EDL is currently the largest listed company on the LSX. EDL-Gen operates seven hydropower dams totaling 387 MW. EDL acquired an additional 210 MW in 2011 and expects to grow to 1096 MW by 2016.

The Company was established in 2010 to acquire 7 power plants that were 100% owned by EDL. EDL-Generation Company Limited operates as a subsidiary of Electricite Du Laos. The Government of Laos established the Company as a vehicle to raise funds to invest in additional power plants and assist in the development of Laos’ power sector. A secondary goal was to establish the Company as the first publicly traded company on the LSX in attempts to help develop the country’s capital markets.

EDL-Gen plays a significant role for the government’s plan to establish Laos as ‘the Battery of Asia’. Laos’s hydropower resources will be aggressively developed to export power to the rapidly expanding neighboring countries of China, Thailand, and Vietnam.

In the future, the Company also plans to pursue revenues from clean development mechanism sales (carbon credit), project development services and operation and maintenance services. However, at present there are no revenues from these sources.

Initial Public Offering
EDL-Generation offered 25% of its shares for purchase to the public, with 10% of its initial shares (86.9 million shares) going to foreign investors and the remaining 15% (119.4 million shares) to domestic investors. EDL will maintain a 75% holding. Thailand’s Ratchaburi Electricity Generating Holding PCL is the largest single minority shareholder with a US$43.3 million holding in the company. The company offered about 10.9 million shares to employees at $0.50 per share.

Proceeds from the listing were used to fund working capital, develop new power projects, invest in (or acquire) existing power projects and maintain the Company’s current generation assets. The adviser and foreign underwriter was KT Seamico Securities, a regional investment bank with headquarters in Thailand.

EDL – Share Price Performance

EDL – Valuation Report from BCEL-KT and KT-ZMICO

Banque Pour Le Commerce Exterieur Lao Public – (BCEL)
BCEL is the country’s largest commercial bank. Following the banking reforms of 1989, BCEL was granted autonomy from the state and has been transformed into a full commercial bank governed by the law of the Bank of Lao PDR and the Decree concerning the management of commercial banks.

BCEL’s activities continue to grow gradually and strengthen in various fields including size of assets, deposits, loans and number of clients. Internally, there are 18 branches, 20 Service units, and 10 foreign exchange service offices. BCEL has over 100 correspondent banks worldwide.

Banque Pour Le Commerce Exterieur Lao has become one of the state commercial banks. Its main objective is to benefit its customers and support the economic policies of the government by improving, developing, modernizing and expanding its services domestically and abroad. BCEL services currently include managing deposits and loans, issuing of bank guarantees, making internal and international payments, and issuing and servicing BCEL’ s ATM and credit cards. Future projects the bank is projected to undertake include a bill payment system to enable people to pay electricity and water bills through ATMs, and a banking self-service system to allow customers to make deposits and withdrawals themselves. The bank will also develop its private and corporate banking arms.

Initial Public Offering
During BCEL’s IPO, the company offered 27.32 million shares (20%) to the public. Of total shares, 75% were allotted to Lao citizens and 25% to BCEL’s staff. Foreign investors were later eligible to purchase shares but prohibited from partaking in the IPO. After the IPO, as part of the privatization plan, the government signed an MOU to sell 10% of total BCEL shares to a foreign strategic partner, Cofibred, a subsidiary of France’s second largest bank.

BCEL Share Price Performance

BCEL – Valuation Report from BCEL-KT and KT-ZMICO