Downgrade hits Laos bond plan
Bonds Rating action may raise funding costs on Bt7bn issueBY KIT YIN BOEYThe LAO PEOPLE’S DEMOCRATIC
REPUBLIC is considering various
funding options after a rating
downgrade threatened to
push up pricing for a planned
offering of baht-denominated
bonds.
Thai rating agency Tris
Ratings on June 28 demoted
the land-locked country’s
BBB+ grade by one notch to
BBB with a stable outlook on
rising concerns over falling
foreign exchange reserves
and a growing debt servicing
burden. According to data
from the Bank of the Lao PDR,
official forex reserves fell 14%
to US$873m at the end of 2018,
equivalent to just 1.7 months ofimports in 2018. Forex reserves
averaged US$901m during
2014-2018.
Tris is also projecting rising
scheduled debt repayments
over the next three years. The
ratio of debt service to forex
reserves is likely to have hit
78% in 2018, a surge from 34%
in 2017, and external public
debt was estimated to exceed
US$9.76bn at the end of 2018.
“With limited domestic
liquidity and the need to fund
ongoing public investment
projects, we expect the
government’s external debts
will continue rising, though at
a slower pace compared with
recent years,” said the Tris
rating note.
The downgrade had minimalimpact on Laos’s US$1.6bn-
equivalent bonds denominated
in baht, due mainly to the
illiquidity of the notes. As
a result of the downgrade,
however, investors are expected
to request a higher yield on any
new bond offering.
The sovereign has just started
the process of a sale of up to
Bt7bn (US$224m) of bonds
after it received approval from
Thailand’s Ministry of Finance
in April. Banks have submitted
bids for the mandate but no
leads have been appointed yet.
Twin Pine Group is advising Laos.
Laos is now mulling a series
of meetings over the next
two weeks with government
authorities and Thai banks
to clarify its plans and gaugeinvestor interest following the
downgrade. It is not clear if
the sovereign will want to pay
a premium, but bankers said
investor appetite will not be
lacking.
“There have been a number
of sales of Triple B rated bonds
and they attracted healthy
interest, so we are quite
confident there will be demand
for Laos’s bonds,” said one Thai
banker.
Longer-term economic and
fiscal prospects look more
promising, said bankers. They
pointed to a series of natural
disasters as well as a dam
collapse as key factors behind
its economic slowdown to a
growth rate of 6.3% in 2018.
“Going forward, growth
is expected to remain
strong supported by private
investment, electricity
exports, and completion of the
Kunming-Vientiane railwayFour beat tech board targets
Equities New Shanghai bourse offers more flexibility on IPO pricing, deal sizesBY KAREN TIAN, FIONA LAUFour companies priced IPOs
on the Shanghai tech board
last week at a premium to
average industry valuations,
underlining the appeal of the
new board’s market-based
pricing to potential issuers.
YANTAI RAYTRON TECHNOLOGY,
SUZHOU TZTEK TECHNOLOGY, ZHEJIANG
HANGKE TECHNOLOGY and MONTAGE
TECHNOLOGY – which was
previously listed in the US –
are set to raise a combined
Rmb6.35bn (US$924m),
exceeding their targets in
earlier filings.
After the first tech board
issuer, Suzhou HYC Technology,
raised slightly less than its
target a week earlier, the four
IPOs confirm that companies
have more flexibility on the
size of their capital raisings
under the tech board’s market-
based pricing framework.
Yantai Raytron set the IPO
price at Rmb20 per share to
raise Rmb1.2bn, 166% morethan its original target of
Rmb450m.
At the issue price, the 2018
price to earnings multiple is
71.10, which is 133% higher
than the industry average
ratio of 30.58. However, it is
still lower than the respective
P/E multiples of 139.66 and
113.75 of two Shenzhen-listed
comparable companies, Wuhan
Guide Infrared and Zhejiang
Dali Technology.
The issuer plans to offer
60m A-shares or 13.48% of its
enlarged capital. The company
plans to allocate 5% of the
offer each to the sponsor Citic
Securities and a special asset
management plan for senior
executives and core employees.
The rest of the offer will be sold
to institutions (80%) and retail
(20%).
The company specialises in
thermal imaging technology,
and will use the proceeds to
upgrade its production, develop
more products and build an
R&D centre.Suzhou TZTEK, which makes
precision measuring equipment
and automated manufacturing
systems, priced its IPO at
Rmb25.50 to raise Rmb1.23bn,
up from its original target of
Rmb1bn.
The issue price translates
into a 2018 P/E of 52.26, higher
than the industry average ratio
of 31.26. Haitong Securities is the
sponsor.
Both above companies
wrapped up the IPOs on July 4.
In a surprise twist, Galaxy
Securities, which bid for
6.4m TZTEK shares in the
institutional tranche, failed
to subscribe for the shares on
time, earning China’s eighth-
biggest brokerage a six-month
ban from investing in any
A-share IPO.
Rechargeable battery
manufacturer HangKe
Technology set the issue price
at Rmb27.43 per share to raise
Rmb1.1bn, more than double
its initial target of Rmb547m.
This translates to a 2018 P/E of38.4, higher than the industry
average of 31.3.
Sponsor Guosen Securities
bought 4% of the 41m-share IPO.HAPPY HOMECOMING
Chipmaker Montage will
become the first previously
US-listed company to go public
on the Shanghai tech board
after pricing a Rmb2.8bn
IPO at Rmb24.80 per share,
again raising more than the
Rmb2.3bn originally planned.
The company plans to offer
113m A-shares, or not less than
10% of its enlarged capital.
The price values Montage
at 40.12 times 2018 earnings,
higher than the industry
average ratio of 30.93 in the
past month. Books will open for
a day on Monday.
Montage raised US$71m
from a Nasdaq IPO in
October 2013, but delisted
in November 2014 when a
Chinese consortium acquired
the company for US$693m.
Based on its Shanghai IPO price,News