Laos rights issue first analysed

Author: Ashley Lee | Published: 30 Aug 2012
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EDL-Gen’s LAK 1.6 billion ($200 million) rights issuance was a first for the nascent Laos Securities Exchange. But deal counsel had to first overcome complexities relating to the company’s shares in four independent power producers (IPPs).

Power generator EDL-Gen is a subsidiary of Electricite du Laos (EDL), a state-owned enterprise that owns 75 percent of EDL-Gen’s shares.

One of two companies listed on the LSX, EDL-Gen has spearheaded some important LSX market firsts, including its first IPO in December 2010 and now its first rights issuance.

Deal counsel said a share swap with EDL for its shares in four different IPP projects, as a payment in kind for the EDL-Gen capital increase, complicated the transaction.

LS Horizon’s Khemajit Choomwattana, who advised EDL-Gen in the deal, said that EDL had various levels of ownership in the four IPPs. This meant that he and his team had to deal with shareholders and lenders in relation to each IPP.

LS Horizon senior associate Kidhanan Choomwattana said this capital increase involved so many parties, it was a challenge to deal with different groups of lenders, different shareholders and various government authorities to make the capital increase in a short period of time.

Another EDL-Gen rights issue is unlikely in the short-term due to the large size of this offering. But counsel said that more fund raising, either in equity or debt offerings, is expected to acquire more IPPs in the future.

LSX development

The Lao government is keen to make sure that the LSX is a success. Sources predict that more state-owned companies will list to attract investors. “The LSX is trying to find the right companies in the public and private sectors to list and add liquidity to the exchange,” said Choomwattana.

Because the exchange only has two listings — EDL-Gen and Laos’ largest bank, Banque Pour Le Commerce Exteriur Lao — that are both considered strong assets, there is little incentive for investors to sell shares and add liquidity to the market.

But lawyers remain optimistic about the success of LSX due to the Lao government’s pipeline of state-owned companies that are listing possibilities. William Greenlee, DFDL’s head of Laos and China said the Lao government’s ownership of companies with good assets was possibly an advantage over neighbours like Cambodia, whose government may not own comparable assets.

Greenlee said he was quite bullish on the LSX in the long-term, and predicted that it could become a very good small regional exchange, specialising in resource-oriented companies.

However, he warned that there were still investment limits on foreign investors: the majority of investors on the LSX are currently Lao-based investors. Chinese investors are the largest group of foreign investors on the LSX.

More foreign investors are expected to become involved once the Laos Securities Act is promulgated. Current regulations provide a degree of IPO procedures and reporting requirements, but counsel would prefer more guidance, especially as more instruments such as debt offerings are introduced to the market.