Industry Report 2019: Securities Sector in Lao PDR

Lao securities sector is governed by the Law on Securities promulgated in 2012 and is regulated by the Lao Securities Commission (LSC) and Lao Securities Commission Office (LSCO). Established in 2009, LSC is a committee under the direct supervision of the government, whereas LSCO is a secretariat to the LSC for implementing the securities market supervision. LSC and LSCO is correspondent to Securities Exchange and Commission of Cambodia (SECC).

Unlike Cambodia, where the central bank is quite irrelevant in the securities market matter (only a deputy governor of the National Bank of Cambodia serves as a member of the board director of the SECC), Laos designed its governing body of the securities sector in the way that the central bank (Bank of Lao PDR) is deeply involved in such matters. The governor of the Bank of Lao PDR is the vice chairman, while a deputy governor serves as a commissioner, of the LSC. In addition, the Bank of Lao PDR is the majority shareholder of the LSX, owning 51% stake in the exchange. This differs from Cambodia where the CSX is owned 51% by the Ministry of Economy and Finance, and 49% by the KRX.  While LSC and LSCO function as securities market regulator, the platform for securities trading is provided by the Lao Securities Exchange (LSX) that was established in 2010. Launching its first trading day on 11^th January 2011, LSX performs the role of trading, settlement-clearing, depository center for securities of listed companies. LSX is owned 51% by Bank of Lao PDR and 49% by Korea Exchange (KRX).

The LSX was launched in 2011 with the IPO of two state-owned enterprises (SOEs), namely Banque Pour Le Commerce Exterieur Lao Public (BCEL), and EDL-Generation Public Company (EDL-Gen).  Since then, there have been 10 listed companies from various sectors of the economy (See Table 2 below) with a combined total market capitalization of USD 988mn (As of 30 September 2019), compared to the CSX’s USD 782mn (As of 26 September 2019). Only three securities firms have been active, including Lao-China Securities Company Limited, BCEL-KT Securities Company Limited, and Lanexang Securities Public Company.

The Lao stock market has been growing faster—in terms of listed companies, total market capitalization, and trading activities—than its Cambodian counterpart although the bourse began trading just one year earlier. Over the last two years starting from June 2017 when PAS became the fifth company listing on the CSX, there have been five more stocks listed on the LSX, while there has been no IPOs on the CSX during the same period. Meanwhile, the total market capitalization of the LSX had also been many times bigger than the CSX’s, although the gap has been narrowed recently due to deteriorated performance of some stocks on the LSX in contrast to its Cambodian neighbor. In addition, the stock market of Laos has also been more liquid than that of Cambodia. At least until the end of 2018, the trading volume and value on the LSX had been several times greater than the CSX’s (See also Figure 10 for comparison between LSX and CSX). The Lao stock market has been developing more rapidly than Cambodian due to a number of factors. One of these could be the listing of EDL-Gen, which is a sizeable company (with 60% of LSX’s total market cap) that truly represents the Lao economy.

However, LSX index has witnessed a decline in performance recently. In the first eight months of 2019, the LSX index has lost 12.7% compared to the end of 2018. Total market cap decreased by USD 166mn or 14.4%, despite an IPO during the year. Meanwhile, there has also been a fall in trading activity. Average daily trading volume and value dropped 13.2% and 29.1%, respectively, compare to the end of last year.

While EDL-Gen has been driving the growth and liquidity of Lao stock market, it has also been the main reason for the recent decline in the index performance. EDL-Gen, which accounts for about 60% of the LSX’s market cap, closed 26% below the IPO price on 30 September 2019, reflecting its financial result in the first half of 2019, which saw the company posted a net loss of USD 16.7mn leading to the suspension of its dividend payment. According to the company, its net loss was the result of the depreciation of LAK against USD and Thai baht as the company earns revenue in the local currency, but has debt obligation in the foreign currencies[1].

In addition to the stock market, Lao PDR successfully launched its bond market with the issuance of government bond for the first time in 2018. Since then, the Lao government has issued its sovereign bonds 13 times subsequently. This differs from Cambodia in that the Kingdom started its bond market with the launch of corporate bond despite the absence of a sovereign bond.