Laos set for capitalist leap into stock market
Jared Ferrie
Thu Jun 3, 2010 6:26am EDT
http://www.reuters.com/article/idUSTRE6521S020100603
 
VIENTIANE (Reuters) - 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)