Laos set for baht bond issue

The Laotian government will issue baht bonds in Thailand worth Bt1.5 billion with a term of three years and an interest rate of 4.5 per cent per annum. The bonds will be issued through private placement  tomorrow. Twin Pine Consulting Co has been appointed financial adviser.

Adisorn Singhsacha, partner and managing director of Twin Pine Consulting, said Laos was interested in raising capital to finance the country’s continuing development, but had never entered the international capital market before. 

The government used to raise funds from various sources such as borrowing from overseas banks or international organisations and issuing kip-denominated bonds. After Twin Pine stepped in to help analyse the country’s borrowing capabilities, it found that Laos could diversify its borrowing to keep financing costs low and less dependent on traditional sources. 

The External Finance Department of the Laotian Ministry of Finance has therefore collaborated with Twin Pine to work out a plan to mobilise funds according to international standards, primarily in the capital market.

The ministry has approved the first project to issue baht-denominated bond, confident of its capabilities and raising its profile among regional and international investors. 

Many factors are conducive to the launch of the bond, Twin Pine says. First, part of the government revenue is already in baht, thus matching debt and income, and eliminating currency risk that may arise from fluctuating exchange rates. Second, Thailand has a policy to support the development of capital markets in the region. 

Although Laotian government bonds have not previously been rated by credit agencies, the Thai Finance Ministry has provided an exemption to allow Vientiane to raise funds in the bond market. At the same time, the Thai Securities and Exchange Commission has issued new regulations allowing accredited investors to purchase non-rated instruments. This led the Laotian Finance Ministry to issue baht-denominated bonds for the first time. 

The amount of the first batch of bonds was designed to test investors’ appetite. A total of Bt1.5 billion of bonds with tenor of three years will be issued with a 4.5-per-cent coupon rate. The bonds will be issued through private placement to institutional investors such as domestic commercial banks, insurance companies and other large companies with interests in Laos. TMB Bank is the lead arranger.

Adisorn said the bonds were receiving solid demand from investors, as the coupon rate of 4.5 per cent reflects a premium of almost 2 percentage points over Thai bonds with a similar term. Laos has a steady record of a high growth, with gross domestic product expanding by 6.2-8.3 per cent in each of the past 10 years (2002-2011), with target growth of 8 per cent per year from 2011-2015. 

“The first lot of Laotian bonds in Thailand is the first cross-border fund-raising activity. It marks a new era of the Thai capital market becoming a preferred choice of fund-raising in the region. More important, the success of Laotian bonds will set a precedent for [other] countries in the Mekong region such a Myanmar and Cambodia to consider raising funds in Thailand as an alternative source of financing,” Adisorn said.