Thailand helps Laos to bond market

http://blogs.ft.com/beyond-brics/2013/01/17/thailand-helps-laos-to-bond-market/#ixzz2PHpKHfgt

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Laos turns to Thai market for first bond

* Sovereign foreign debut will be in baht

* Thailand to become market gateway to Indochina

* Myanmar, Cambodia may be next in queue

The Laos People’s Democratic Republic is poised to sell its first international bond after winning final approval for a deal that will be denominated in Thai baht.

Thanks to a little-publicised change in Thai regulations, the Laotian sovereign finally obtained approval from the Thai government last week to sell bonds of up to Bt1.5bn (US$49.2m). The approval is valid until September 30 2013 and comes years after the idea of a baht bond was first floated.

Although small, the financing marks a significant step for economic integration in South-East Asia and in promoting the Thai baht as a regional alternative to the US dollar. Through the Thai market, Laos will be able to issue smaller amounts, avoid the need for an international rating and benefit from Thai investors’ familiarity with the country.

Indeed, Thai investors are already expressing some excitement over the name, as this will be the first pure foreign sovereign bond to issue in their home currency. A Public Debt Management Office spokesperson said only quasi-sovereign agencies, such as KfW and Japan Bank for International Cooperation, have previously issued in baht.

One local mutual fund manager said his interest was piqued at the opportunity to diversify into a sovereign credit that would either be unrated or rated in the high-yield range. Pension funds and banks could be interested as well, according to a Bangkok-based trader.

REGIONAL INTEGRATION

However, limitations on investment in unrated or high-yield bonds may constrain institutional investors. That could be a reason why Laos and lead TMB Bank chose to start on a smaller scale. Details are still being ironed out, but expectations are for a public issue to the institutional community.

The Laotian sovereign has talked about an issue in Thailand for a number of years, and it was only last year that steps were taken to smoothen the way. The Securities and Exchange Commission of Thailand cleared one barrier for a Laotian Government bond last June, when it approved the sale of unrated paper.

The last hurdle was removed when the Thai Ministry of Finance relaxed a rating requirement specifically for foreign governments or issues with a foreign government guarantee. Previously, only foreign issuers – be they sovereigns or corporates – with an investment-grade rating could apply for the approval.

However, last September, the Thai MoF waived the IG rating requirement for sovereigns or entities wrapped with a sovereign guarantee.

The Thai MoF said it granted approval to Lao PDR to issue baht bonds as a contribution to the Asian Bond Market Initiative, a priority of the ASEAN+3 group countries, and to the blueprint for an ASEAN Economic Community that aims at integrating economic relations in the region.

Thailand also signed up in October for a project linking its stock exchange with those in Singapore and Malaysia as a further step to integrate the region’s capital markets.

A successful debut from Laos will boost Thailand’s rising ambitions to be a regional funding hub and may well set a template for the likes of Cambodia, Myanmar and Vietnam to follow.

All three sovereigns have expressed interest in tapping the Thai bond market, while the first two are unlikely to be able to access to the US dollar market at acceptable levels.

Myanmar, in particular, is only beginning to open its economy to the outside world. Its capital markets are undeveloped and the government may need to find other ways of funding its development.

Meanwhile, braver investors have been seeking ways of getting exposure to virtually untouched – albeit very risky – investment opportunities. For them, it seems, Bangkok is the place to be.

By Kit Yin Boey   |   11 January 2013  |   Reuters News

Vietnam Sauce Maker Gets Infusion From KKR

KKR & Co. has agreed to invest $200 million in Vietnamese sauce maker Masan Consumer Corp., marking the largest investment to date in Vietnam by a private-equity firm.

U.S.-based KKR has been looking to back companies across Southeast Asia with exposure to the region’s emerging affluent class and opened an office in Singapore last year to aid it in its search.

More than 90% of Vietnamese households own a Masan Consumer product, such as fish sauce, instant noodles or instant coffee. The company’s sales have increased from $31 million in 2007 to approaching $500 million forecast for last year. Its third-quarter profit rose 50% to about $36 million from a year earlier.

KKR’s $200 million investment is in addition to the $159 million it invested in Masan Consumer in April 2011.

The private-equity fund will have two seats on the company’s board.

“Doubling our investment in less than two years demonstrates our strong conviction in Vietnam’s growth story,” said Ming Lu, KKR’s Southeast Asia regional head.

Masan Consumer Chief Executive Truong Cong Thang said KKR’s investment will help the Vietnamese company diversify into other fast-growing consumer-goods categories.

KKR’s investment comes as Vietnam economy’s grew last year at its slowest pace in 13 years, while a rising ratio of bad debt in the country has deterred banks from lending.

Despite the slowdown, Vietnam’s Ministry of Planning and Investment said last week that it is targeting total foreign direct investment pledges of $13 billion to $14 billion this year, compared with $13.01 billion last year.

KKR’s $200 million investment into Masan Consumer would be the largest private-equity investment in Vietnam on record, according to data provider Dealogic.

Other significant investments include the purchase by Japan’s Mizuho Financial Group Inc. of a 15% stake in Vietcombank for $567 million in 2011.

Masan Consumer is part of one of Vietnam’s largest private-sector conglomerates, Masan Group. Masan Group’s shares are up about 30% since April 2011, when KKR first invested in Masan Consumer.

KKR has invested about $5.2 billion across the Asian-Pacific region, just under 20% of which has been plowed into Southeast Asia. So far, the firm has invested in four companies across Southeast Asia.

Acquisitions by private-equity firms have been growing across the Asian-Pacific region, climbing to $28 billion last year from $26 billion in 2011, according to Dealogic, recovering from a trough of $13.6 billion in 2009 in the wake of the global financial crisis.

KKR’s investment in Masan Consumer will be one of the last investments by the private-equity firm’s first pan-Asian fund, a person familiar with the matter said.

The firm is expected to finish raising a $6 billion fund for further Asian investments in coming months, people familiar with the situation said.

By Alison Tudor   |   8 January 2013  |   The Wall Street Journal

China backs Cambodia’s refinery

PHNOM PENH: Cambodia gave the green light to construction of its first oil refinery, a multi-billion-dollar Chinese-backed project, as the kingdom looks to tap its untouched offshore reserves.

Cambodia’s oil and gas regulator approved a deal to allow SINOMACH China Perfect Machinery Industry Corp and Cambodian Petrochemical Co jointly invest US$2.3bil in the plant in the southwest of the country. – AFP

29 December 2012  |   AFP

Cambodian, Chinese firms unveil 1st oil refinery project in Cambodia

Cambodian Petrochemical Company and Sinomach China Perfect Machinery Industry Corp jointly announced on Friday to build the first oil refinery in Cambodia and the construction is expected to be completed at the end of 2015.

Zhang Sugang, president of Sinomach China Perfect Machinery Industry Corp, said the oil refinery will cost 2.3 billion U.S. dollars and it will take 36 months to be constructed on the 80- hectare area within the boundary of Preah Sihanouk province and Kampot province.

“When the construction is completed, the plant will be capable to produce 5 million tons of oil a year,” he said after a signing ceremony here.

He said the firm’s decision to invest in Cambodia was thanks to well-developed relationship between China and Cambodia, and Cambodia’s potential for oil industry.

“We believe that when the project comes to fruition, it will greatly contribute to developing Cambodian economy,” he said.

During a signing ceremony on Friday, the Cambodia government signed to grant an oil refinery license to Cambodian Petrochemical Company to build the factory.

The agreement was inked between Cambodian Deputy Prime Minister Sok An, Chairman of Cambodian National Petroleum Authority, and Siv Kong Triv, president of Cambodian Petrochemical Company.

Also, there was a contract signing between Siv Kong Triv and Zhang Sugang on the engineering procurement construction for the factory.

The ceremony was also witnessed by Chinese Ambassador to Cambodia Pan Guangxue.

Mao Chetra, administration chief of Cambodian Petrochemical Company, said the firm would build an oil refinery with the high- and-latest technology that has not been used in Southeast Asian nations.

“The would-be plant will help boost the development of Cambodian economy, increase state’s revenues and generate thousands of jobs,” he said.

Speaking after the ceremony, Sok An said the oil refinery project reflected the progress in developing Cambodian oil and gas sector.

“This also mirrors local and foreign investors’ trust in Cambodian business and political situation,” he said. “When the project is completed, it will greatly contribute to developing economy and reducing poverty in Cambodia.”

Sok An said that currently, Cambodia’s oil demand is more than 1 million tons a year, but the demand will reach 3 or 4 million tons a year in coming years thanks to a steadily growing economic size.

According to the figures recorded by the Ministry of Commerce, the country spent 1.33 billion U.S. dollars to buy 1.35 million tons of oil from Vietnam, Thailand and Singapore in the first ten months of this year.

The country’s seabed is believed to be rich in oil and gas, but exploitation is not made yet.

Sok An said that U.S.’ Chevron has invested about 150 million U. S. dollars for oil and gas exploration in Cambodia’s offshore Block A and it is estimated that the firm needs to invest another 600 million U.S. dollars to exploit oil and gas from the Block.

“But, now, the negotiations between the government and the company have not yet completed on the issue of tax payment,” he said.

Cambodian Government expects that it will earn tax revenues of 200 million U.S. dollars a year from oil and gas sector when oil production begins.

3 January 2013  |   CBRE Cambodia Market View