What went wrong with Lao World?

The company’s IPO further diminishes the fragile credibility of the Lao stock exchange

Originally published on 30 May 2014

Lao World Public Company completed its initial public offering in December of last year, becoming only the third stock to list on the three-year old Lao Securities Exchange (LSX). At the time, it looked like meaningful progress for the stock market in Laos, which was suffering from a lack of liquidity, and looking to expand the number of listed companies and increase revenue after posting a loss every year since it opened in 2011.

In its first year, the exchange saw average daily volume of about 165,000 shares. By 2013, this had dropped by more than one-third, to around 105,000 per day. Despite the trend, LSX CEO Dethphouvang Moularat said last November that he hoped daily volume would reach 1 million shares by 2015.

Lao World operates Lao International Trade Exhibition and Convention Center (Lao-ITECC) in Vientiane, the single largest venue in the nation with a total area of approximately 30,000 square metres. The facility has hosted several prominent international conferences, including an ASEAN summit meeting in 2004. Lao World holds a concession from the government of Laos to operate Lao-ITECC through 2093. In addition to Lao-ITECC, the company manages exhibition venues in Champassak and Savannakhet provinces.

Lao World began trading on the LSX on 25 December 2013. During its first eight trading sessions, about 27,000 shares worth around 288 million kip (US$35,000), less than one-tenth of one percent of the company’s market capitalisation, changed hands. Then, from 10 to 21 January, not a single share was bought or sold.

Sparse trading resumed in late January, with fewer than 5,000 shares exchanged over the final eight trading days of the month, as the price of Lao World slumped to a low of 8,150 kip per share, more than 20 percent below the IPO price of 10,200 kip.

While the stock price has since rebounded, Lao World’s trading volume hasn’t. After fewer than 20,000 shares traded during February and March, the stock virtually stopped trading on the LSX. Only 702 shares changed hands in April and, through Thursday, only 600 in May.

From January through March, Lao World shares represented between 1 and 2 percent of the total value of shares traded on the exchange. In April, that shrank to a meagre .08 percent.

If Lao World was meant to fuel investor interest and boost liquidity on the LSX, it hasn’t succeeded. Average daily volume on the exchange has plunged to fewer than 70,000 shares in the first five months of 2014.

What happened? LIR contacted a number of stock market participants for their perspective. Some declined to discuss Lao World, but others said that the company’s IPO was ill-conceived and poorly executed.

An early warning sign was the hurried nature of the IPO announcement in December, which allowed only two weeks for potential investors to review the prospectus. Those who did have time to read it learned that Lao World isn’t really a Lao company. The third company to list on the LSX, which was established to provide a means for Lao businesses to raise capital and as a path to equitisation for state-owned enterprises, is actually registered as a foreign owned entity, established in 2004 by the family of Thai businessman Sackchai Wongmalasith.

One observer said Lao World simply doesn’t have the reputation of Banque pour le Commerce Exterieur Lao (BCEL) and EDL-Generation Public Company (EDL-Gen), the two other listed stocks on the LSX, which are prominent Lao companies with important government connections. Lao World also lacks their scale, with a market capitalisation about one-third that of BCEL, and one-twentieth that of EDL-Gen.

We also heard that Lao World’s liquidity has been hampered because only 10 percent of its shares were made available in the IPO. Many subscribers were relatives of management or company employees, and few have sold shares since the offering.

Another market analyst complained that information in the prospectus was limited. No biographical details, other than names, were provided about the board of directors, and the lack of detailed financial information made it nearly impossible to value Lao World’s property and rental rights.

One topic the prospectus did address was the company’s dividend policy:

“Lao World will pay dividend to its shareholders at no less than 50 percent of the net profit of the Company after deducting statutory/legal reserve fund and other reserve funds (if any). However, the dividend payment will be depended on the consideration and approval from the shareholders’ meeting.”

But investor sentiment was further dampened in March, when the board elected to withhold the 2013 dividend, citing the company’s “recent listing by the end of 2013 at Lao Stock Exchange and new investment intensive venture in a 9-floor commercial building.”

Since that decision was disclosed on 31 March, fewer than 1,500 shares of Lao World have traded.

Lao World isn’t making much of an effort at public communication. The company doesn’t have a corporate website or an investor relations contact, and LIR’s email inquiries to Lao-ITECC went unanswered. KT-ZMICO, an equity research firm in Bangkok that covers BCEL and EDL-Gen, currently offers no recommendation on Lao World shares.

Would the LSX permit another company with Lao World’s profile to list? We don’t know, because exchange officials didn’t respond to our request for comment. What is clear is that the Lao World IPO has further diminished the already fragile credibility of the Lao stock exchange.