With regard to the Jonathan Rogers article in The Asset Thailand encourages a dangerous addiction to debt in Laos; 7 November 2016, we at the financial advisory firm Twin Pine feel strongly that the piece was both factually inaccurate and unfair. Mr Rogers cherry-picked information and misrepresented both the Lao debt market and our firm (we found it all the more surprising, given that you gave us a special mention on stage at your awards ceremony earlier this year). 

Some of the information cited in the article was outdated; some of the information was simply erroneous. The debt issuance that we did for EDL-Generation was in dollars and baht, which was ultimately swapped to dollars. It was mostly for investment in power generating plants and working capital. The vast majority of the revenues of EDL-Generation are linked to dollars (electricity sales to EDL and exports to Thailand). Those deals are naturally hedged; there is no mismatch risk.

More recently we have issued debt for the government of Laos, some of it in baht, some in dollars.  

Mr Rogers claims that our just-completed US$314 million issue “exposes Laos to currency and tenor mismatch”. First the tenor mismatch claim—the issuance spans tenors of three, five, seven, 10 and 12years. Given the spread of the maturity schedule, we can’t see significant risk of tenor mismatch. Some ofthe funds raised will be used to refinance short-term debt, some to pay for imports of public capitalgoods.  

Now the currency mismatch claim—the kip is NOT a convertible currency and it will take some time before it is a genuine national currency (even a lot of domestic transactions in Laos use the baht or the dollar, rather than the kip). Nor does the country have a deep pool of indigenous capital to draw from. The government has to pay for imports and those imports are priced in hard currencies, not kip. Similarly to every other country at Laos’s stage of development, in order to pay for imports, it must find funds in foreign-denominated currencies.  

Mr Rogers’ assertion that: “Laos should look to develop a domestic bond market from scratch” is fatuous, given the current level of Laos’s financial industry and regulatory infrastructure. In 5 years’ time, the story is likely to be different. But let’s argue that point in 5 years’ time.

We at Twin Pine disagree strongly with Mr Rogers’ opinion that the average coupon of our most recent issue of USD Libor +340bps “look[s] onerous from the get-go”. Loans from Thai banks to the Lao government carry all-in interest of more than USD Libor +400bps with shorter tenors and amortizing repayments. Syndicated loans arranged by Taiwanese banks carry all-in interest of more than USD Libor

+440bps with only four year tenors.  

Furthermore, during the same period when the Lao Ministry of Finance launched the 10- and 12-year FRNs, Sri Lanka (B1/B+/BB-) issued US$1,500 million 10-year notes at a coupon of 6.85% and Fiji (B1/B/-) issued US$200 million in 5-year notes at a coupon of 6.625%. At the time of the issuance, the Lao PDR’s 10-year FRNs has an equivalent fixed rate of 5.40% and the 12-year FRNs an equivalent fixed rate of 5.60%.  

Indeed, if Mr Rogers had chosen to compare Laos with two somewhat more developed countries (one of which has a much bigger population, both of which have much more developed economies), he would have seen that Laos is actually paying significantly less for its debt than either Sri Lanka or Fiji.    

And given that Sri Lanka’s economy is manifold bigger than that of Laos and has a much larger pool of relevant financial expertise, we would like Mr Rogers to explain to us why Sri Lanka has not only failed to “develop a domestic bond market from scratch” but has to pay more to borrow in foreign currency than does Laos.

We also take exception to Mr Rogers’ point that “in June, Malaysia's RAM ratings placed the country's credit rating outlook on a negative footing, citing its deteriorating external position and the increasing risk of financial instability.” What financial instability? So why is a domestic Malaysian agency with no regionalexpertise rating the sovereign debt of Laos? Did anyone from RAM even visit Laos on a commercialfooting? Have they been officially engaged and had access to the most updated information?

On 9 June 2016, TRIS Rating, a domestic Thai rating agency, issued a report affirming the government of Laos at BBB+/Stable. Why did Mr Rogers choose to cite the RAM rating and ignore the TRIS rating?

Mr Rogers states in the article that in the Lao banking industry “NPLs have risen 400% in 2016 on a year-on-year basis to 8%”, but he doesn’t name any source. The Lao central bank hasn’t yet released NPL statistics for 2016. The official NPLs/loans ratio for year-end 2015 was 3%.

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