The Lao Government has engaged Standard Chartered, JP Morgan, and Credit Suisse for its planned international US dollar bond debut.
In December of 2015, Laos sold US$182m worth of dollar bonds in two tranches to institutional investors in Thailand and regularly issues sovereign bonds denominated in Thai baht, but it has yet to offer a bond to international investors.
“China and Thailand are two of Laos’s biggest funding sources but people in Thailand are getting a bit full with the credit and it may need to look elsewhere,” said financial advisor Victor Rattanavong of Kindersen Raleigh & Associates.
It is not yet known whether the deal will come this year or the following year, and the bonds would first need to acquire international ratings.
“This is potentially good for Laos because of the wider pool of investors, meaning there will be more liquidity for Lao government bonds,” continued Victor Rattanavong.
While Laos does not currently have ratings with any of the three aforementioned international rating agencies yet, Thai rating agency TRIS Ratings changed the country’s BBB+ grade by one level to BBB with a stable outlook on rising concerns over falling foreign exchange reserves and a growing debt servicing burden.
“However, this does not necessarily mean that Laos will be getting the best financing rates. It depends on how the rating agencies rate the sovereign, and the market feedback, etc. Going international just means, yes, there are more potential investors, but at the same time the market will be the judge of what the government pays and there will be more eyeballs watching,” added Rattanavong.
“Take, for example, the country of Ghana: rich in natural resources with similar level of development but its GDP is about two to three times that of Laos yet it is still paying around 8% in an international bond issue in London a few years ago.”
“Laos issued in Thailand and is paying about 4-5%, so the Thai market has always been attractive because it is close and the risks are well understood. This would explain why the Lao cost of financing is cheaper than a potential new international bond issue. But, if the Lao government opens the books more and courts a wider pool of investors, different perceptions come to play and they’ll have many opinions.”
The International Monetary Fund (IMF) wrote earlier in August that Laos needed to follow through on planned public financial management reforms to strengthen its debt sustainability.
GDP growth slowed to 6.3% in 2018 from 6.8% the previous year, due partly to natural disasters that impacted agricultural and industrial production, but the IMF is hopeful in its economic growth forecasts that predict the rate to rise to close to 7% in the medium term.
Laos first announced its intention to register government bonds on the Lao stock market in July last year.