Laos set for capitalist leap into stock market

  @ibtimes on June 03 2010 8:32 AM

Isolated for decades behind Asia's bamboo curtain, communist Laos will soon take a great leap into the global capitalist marketplace with the launch of a stock exchange to fuel a quiet mining and hydro-power boom.

Government officials in one of the world's few remaining communist countries say economic liberalization will not affect the regime's hold on power in a country with ambitions to emulate China's market-based authoritarianism.

But they hope the bourse, due to be opened later this year, will pull the nation of six million people out of poverty by injecting much-needed capital into the economy, in particular hydro-power and mining, which are seeing a wave of foreign investment as commodity prices rebound.

There is huge potential in development but limited sources of financing, said Vathana Dalaloy, deputy secretary general of the country's newly formed Securities and Exchange Commission, which is setting up the bourse as a $20-million joint venture with Korea Exchange, Asia's fourth-largest bourse operator.

Plans for the exchange also cast a spotlight on one of the world's last remaining hermit economies where annual gross domestic product (GDP) growth has averaged more than 7 percent over recent years, according to the Asian Development Bank (ADB).

GDP was worth about $6 billion in 2009, according to World Bank data, with GDP per capita of nearly $900 compared with $4,000 in neighboring Thailand.

With numerous rivers flowing through its misty, forest-clad mountains, Laos wants to become the battery of Southeast Asia, selling power to its energy-hungry neighbors. Its jungles are also rich in minerals, attracting miners.

China's Minmetals Corp is expanding annual production at its Sepon copper mine in Savannakhet province to about 80,500 tonnes of cathode by next year from about 65,000 tonnes last year. Vietnam's top coal miner Vinacomin said in January it planned to carry out exploration in Laos this year.

Padaeng Industry Pcl, Southeast Asia's only zinc producer, said in April it plans to close a northern Thailand mine and focus on developing new mines in Laos. Other players include PanAust, an Australia-listed mining company that runs the Phu Kham copper-gold mine.

HYDRO AND MINING

Hydro-power and mining companies were expected to be the first to list on the stock exchange, along with telecommunications and manufacturing firms, Vathana said.

Electricite du Laos, one of the largest state-owned companies, has announced plans to sell a minority stake to cover costs of new power plants in rural areas.

A government power development plan calls for 55 large dams, including seven now under construction, but foreign investors are needed to help fund such big projects.

If you want to open your country, you have to make an access road. If you want to connect with the global market, you have to create your own stock market, said Industry and Commerce Minister Nam Viyaketh.

Foreign investors, drawn to one of Asia's most exotic markets, are taking interest.

Banpu, Thailand's largest coal miner, announced this year plans to spend $255 million over the next six years in its 40 percent-owned Hongsa power plant -- a $3.5 billion project that will be the country's largest power plant when complete.

That follows this year's completion of the $1.45 billion Nam Theun 2 hydro plant, a 1,086-megawatt dam stretching 200 km (125 miles) along the Nakai Plateau in mountainous central Laos that stoked environmental concerns when it began operating in March.

Environmental group International Rivers said the dam was preventing access to clean water and destroying critical food sources without providing compensation, but that hasn't stopped the flow of investment.

Thailand's Electricity Generating Pcl, a partner of Hong Kong's largest power utility, CLP Holdings Ltd, said this year it was keen raise its 25-percent stake in Nam Theun by another 10 to 15 percent.

A MISTAKE

Earlier generations of Lao communists, who joined forces with comrades in neighboring Vietnam to battle French colonial forces and later U.S. troops, might bristle at such deals.

But Nam, the Industry and Commerce Minister, said lessons had been learned since the communists took over in 1975 at the end of the Vietnam War. We denied private property. We said 'everything belongs to the government'. We nationalized everything.

It was a mistake.

Realizing its policies were stifling development, the government decided in 1986 to take steps toward liberalization including opening up to tourism, which at the time was beginning to boom in neighboring Thailand.

Tourism has since become the second-largest sector of the Lao economy, with the number of visitors more than doubling from 894,806 in 2004 to more than 2 million last year, according to the National Tourism Administration.

In 2006, the government formally recognized the private sector as the engine of economic growth, said Christopher Hnanguie, an economist with the Asian Development Bank who observed Vietnam launching its stock exchange in 2000.

Cambodia, the third of the former French Indochina colonies to become communist at the end of the Vietnam War, plans to hold a launch ceremony for the exchange on October 10, although trading won't begin until next year.

Vietnam launched its bourse in 2000 with initial market capitalization of $43 million. Today, Vietnam's market is worth nearly $33 billion.

Hnanguie said risks for the Lao exchange include insider trading and capital flight, noting Vietnam's stock market had a rocky start with allegations of insider trading and unrealistically high expectations of quick returns.

When immediate profits did not materialize, many people pulled their money out. Most initial investors were Vietnamese who had returned home after making money overseas.

There could be parallels in Laos, he said.

It's the expat Lao who have the capital, said Hnanguie. If they feel the stock market is not appropriately being managed or if there is insider trading, they'll take their money and go.

But Hnanguie said he was more positive than negative about the bourse's prospects. Those who want to take risks, put money right away and take it out after eight months. Those who do not want to take risks, wait for two years, he said.

(Editing by Robert Birsel and Lincoln Feast)

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