July 14, 2017 / 2:10 AM / a month ago

Laos' Kolao explores Thailand bond debut

* Laos-based company mulls onshore US dollar bond issue

By Kit Yin Boey

SINGAPORE, July 14 (IFR) - Kolao Holdings, the biggest automotive dealer in Laos, is exploring a potential bond issue in Thailand, highlighting the appeal of the kingdom’s financial market as a regional funding hub for Indochina.

A successful trade would be the first in Thailand from the Laos private sector, following early deals from the Lao People’s Democratic Republic’s Ministry of Finance and state-owned EDL-Generation.

The Laos government is in the midst of finalising plans for its annual issuance, which is expected to take place at the end of the third quarter or early fourth quarter.

Kolao, which is listed on the Korea stock exchange, holds the Laos franchise for Kia and Hyundai and produces its own vehicles. It receievd a BBB- rating from Thai rating agency Tris in early July with a stable outlook.

Although there is no mention of a bond issuance in the rating report, two Thai banks Kasikornbank and Krungthai Bank are believed to be working with Kolao on a potential issue. A deal is unlikely to materialise in the near future as Kolao, as a foreign borrower, will need to apply for approval from Thailand’s Ministry of Finance to raise funds in the country. The next borrowing window for applications from foreign issuers closes this month.

Kolao has an outstanding bond that is due to mature in August. The three-year S$60 million ($43.6 million) 2 percent bond, sold in Singapore, came with a guarantee from the Asian Development Bank’s Credit Guarantee and Investment Facility (CGIF).

Kolao has a market capitalisation of around $250.6 million, and is majority-owned by Korean individual Oh Sei-Young.

Its maiden bond in Thailand will test demand among Thai investors for a privately-owned credit. Thai investors have previously shown robust appetite for bonds sold by the Laos government and EDL-Generation, but confidence in higher-risk local credits took a knock recently after a spate of defaults on bills of exchange.

“Some of these companies are rated in the Triple B band, and this could have undermined some of the appetite in this rated band of credits,” said one Thai banker.

The most recent prominent default came from Energy Earth , which was rated BBB- by Tris before it defaulted on 717.5 million baht ($21.2 million) debt in early June. The company also failed to redeem 160 million baht of bills of exchange due in June.

Nevertheless, recent issues reflected healthy demand even for unrated, albeit small-sized, bonds. Property Perfect managed to sell close to 1.2 billion baht of unrated bonds while TPI Polene, rated BBB+, raised 4 billion baht in two and three years in the first week of July.

Another hurdle facing Kolao is Thailand’s rule that foreign issuers cannot take the proceeds of a baht-denominated bond offshore. But the company, which reports its financial results in US dollars, is expected to issue in US dollars, where the rule does not apply.

This strategy was applied by the Laos government to circumvent the Thai MOF’s rule when it printed a maiden $182 million onshore bond in Thailand in December last year.

The Laos government is however expected to issue in baht when it returns to the market. It will use the proceeds to repay short-dated loans denominated in US dollars extended by Thai commercial banks, a move that will keep the bond proceeds onshore.

Laos has a 1.794 billion baht three-year 4.76 percent bond due in October. (Reporting by Kit Yin Boey; editing by Daniel Stanton and Steve Garton)

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