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Taking stock in Vientiane

Posted by pakin On July - 7 - 2015

Having been open since October 2010, the slow-moving Lao Securities Exchange (LSX) is looking to raise the number of listed companies to about 25 by 2020 from the six that are now trading.

“Our aim is to have a least 25 companies listed by 2020 and we are looking at encouraging many state-owned enterprises and private-sector companies to be on the market,” Vanhkham Voravong, the LSX chief executive officer said during a recent seminar held by Post Publishing Plc and various partners.

The LSX and its counterpart in Cambodia have both struggled to attract companies to list their securities given the bourses’ lack of financial depth, and the strict disclosure requirements that many companies doing business in the two frontier markets are unable or unwilling to meet.

The LSX, said Mr Vanhkham, was also looking at ways to allow dual listings of companies that are operating in Laos and other countries, be it Thailand or others in the region.

Thailand, which has one of the most developed capital markets in the Mekong subregion, has been instrumental in helping develop the capital market in Laos. As a result, LSX hopes that some Thai companies operating in Laos, in electricity generation and other fields, would participate in the listing on the local bourse.

Tourism, conventional and alternative energy are the key sectors that LSX is looking to attract, apart from food and beverage producers including the growers of coffee for which Laos is becoming increasingly well known.

Laos has set a target to have 20% of its energy supply derived from alternative sources, such as solar or biomass. Currently, most of the electricity generated in the country that has branded itself the “Battery of Asia” comes from hydropower plants.

Mr Vanhkham says his aim is not just to increase the number of listed companies trading on the local bourse but also to increase the products offered, such as bonds or other financial instruments.

He along with other Lao officials agree there is a need to increase the country’s competitiveness and one way to do so would be to improve technology and know-how in the financial market.

In this regard, Thai companies and the Stock Exchange of Thailand, which is celebrating its 40th anniversary this year, can help.

“We have to acknowledge that our weakness is the technology, and the product offerings we have. That is the reason why we have to expand the depth of the market,” he said.

One way is to offer incentives to small and medium-sized enterprises (SMEs) and allow them to look at listing as an option to gain greater access to financial markets and more credibility.

Laos as a country has great potential to attract investments from across the region as it provides a land link to China from the rest of Asean. This coupled with annual gross domestic product (GDP) growth of 7%, should make the capital market more attractive in the near future.

“We need to tap more foreign investors, especially Thai, and with the various tax breaks and incentives we offer it could be an attractive,” said Mr Vanhkham.

Currently, companies that list on the LSX receive a reduction in their corporate tax rate to 19% from the normal 24% for four years.

There are many more benefits than just the tax break, which pales in comparison to those of other countries, said Chanthone Sitthixay, a director at Petroleum Trading Lao, which listed on the LSX in December last year.

“When we listed there were many issues that we had to deal with, there were obstacles for sure such as disclosure and approvals. But think of it this way: earlier I had to get permission from my wife to do anything in the company but now that duty has shifted to seeking permission from the board of directors,” he said with a hearty laugh.

Mr Chanthone said his aim was to list his company from the day he started it because he wanted to prepare it to be a regional company. With the Asean Economic Community (AEC) around the corner, companies that have good transparency and are listed would have an edge, he said.

As well, he said, listing has helped his company get its cost of funding down as having the books audited by two large international auditors and listing on the bourse has brought down the interest burden to about 5-6% from the nearly 13-14% that non-listed companies pay.

“A lot of people think it is not good to list and it is scary to list on the stock market, but in my view it is something like thinking that if you switch off the light you will see a ghost but if the lights are on, the probability of that is very low,” he said. “What we need to do is switch on the lights in our brains to see the benefits.”

Chanitr Charnchainarong, the former head of Thailand’s Market for Alternative Investment and now offering advice to SMEs in Laos, has urged those that are ready to be courageous and take the step to list. Once listed, companies and their owners can capitalise on the value that is generated apart from being able to easily raise funds in case they need to do so, he said.

“A lot of the companies that you see in Thailand today that are big were once SMEs, be it the likes of Land & Houses or Banpu, who started off very small when they took to the markets in the initial stage,” he said.

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