Reed Smith Client Alerts

Authors: Matthew Gorman

2016 was a somewhat muted year for the world’s capital markets and this story was mirrored across ASEAN. Spread across two client alerts we take a brief look at the capital markets of each of the ASEAN members, how they fared in 2016 and the outlook for 2017. In this first alert we consider the markets of the wider Mekong region.


Following a disappointing year in 2015 when there was only one IPO, the Laos Securities Exchange (LSX) continued to struggle in 2016 with no IPOs in the calendar year. As a result there are still only five companies listed on the market, which is now entering its seventh year of operations.

However, there was some positive news on 20 October 2016 when UDA Import-Export Public Company announced that it had submitted initial public offering documents to LSX. At the time of writing the listing has not yet taken place.

Away from the equity markets, the profile of Laos’ capital markets did, however, continue to rise as a result of continued activity in the bond space. As reported in last year’s round-up, 2015 witnessed successful bond issues in Thailand by the Lao Government and LSX-listed EDL Generation Public Company (EDL). In 2016 both repeated the exercise: in September EDL issued bonds with a value of approximately US$312 million (the largest ever FX bond transaction offered in Thailand) and in November the Lao Government offered a sovereign bond of US$310 million. In both cases Bangkok-based advisory firm Twin Pine Consulting acted as financial advisor to the issues.

There were also some other developments in 2016. Bangkok Bank, Vientiane Capital was appointed as the first custodian bank in Laos and LSX also amended its minimum trading unit from one share to 100 shares with the aim of improving market management and moving towards international standards.

Ultimately, 2016 did not bring about the surge in LSX activity which some were hoping for. However, there were still continuing signs of development and 2017 may bring a year of increased activity.


In common with LSX, progress on the Cambodia Securities Exchange (CSX) in 2016 was largely thwarted by a lack of listings. There was only one IPO in 2016 with Phnom Penh SZE plc, operator of the national capital’s special economic zone, listing in May. TY Fashion (Cambodia) plc had posted a notice of its intention to list in November 2015; however, this listing has not yet come to fruition.

The inability of CSX to grow more aggressively can be attributed to a number of factors including a lack of technical infrastructure, a limited supply of suitably developed companies, and an economy that is heavily reliant on agriculture. Cambodia also has the added limitation of a smaller middle class than in some of its ASEAN neighbours. Consequently, there are fewer sophisticated investors who can assist with the liquidity so badly needed by a fledgling bourse.

So, whether the trickle of listings which we have seen in 2015 and 2016 will continue into 2017 remains to be seen, but with the economy averaging growth of around 7 per cent in the last six years, thanks in part to lower oil prices, strong garment exports and a buoyant construction sector, there are still reasons for optimism.


The Yangon Stock Exchange (YSX) was launched on 9 December 2015 and started trading on 25 March 2016 when First Myanmar Investment Co Ltd became the market’s first participant. This was subsequently followed by the IPO of Myanmar Thilawa SEZ Holdings Public Ltd in May 2016 and Myanmar Citizens Bank Ltd in August 2016. In addition, First Private Bank Ltd is due to launch its IPO later this month.

YSX is currently a wholly domestic affair accessible only to local issuers and local investors, although it has been heavily supported by Japan in the shape of Japan Exchange Group and Daiwa Securities Group. It is hoped that the market will be opened up to foreign investors in the near future –particularly given the significant levels of FDI that Myanmar hopes to attract in the future – although this issue should not detract from the achievement of launching YSX and the success of obtaining three listings within a year, with another one to follow shortly.

It will be interesting to see whether YSX continues to grow at the same rate during 2017. It was initially speculated that Asia Green Development Bank would list during 2016. However, this listing did not take place then and so it may occur during 2017. Perhaps the key measure of how well YSX does will be whether it can translate the initial exuberance which was seen in 2016 into a substantial number of listings with sufficient weight behind them in order to avoid the problems that Laos and Cambodia have experienced. With a strong start to YSX, a significantly larger population of around 53 million and the headwind provided by the popular election result in November 2015, commentators remain quietly optimistic.


There were around 30 IPOs in Vietnam during 2016. In light of the lacklustre performance on a number of the other exchanges discussed in this article, it seems somewhat churlish to suggest that this was a disappointing outcome. However, when one considers that there were 37 IPOs in 2015 and that the Vietnamese economy has rebounded strongly over the last couple of years, 2016 does represent something of a slowdown in IPO activity compared with 2015 (and 2014, when there were 44 IPOs).

That said, while the number of new listings has been slightly disappointing, 2016 has seen strong performances from a number of companies which were already listed. Prior to the lifting (for the most part) of the foreign ownership limits on public companies, which were previously capped at 49 per cent for most sectors, the growth prospects of a number of listed companies had been somewhat curtailed by an inability to raise sufficient capital. However, following the lifting of these restrictions a number of companies, particularly in the pharmaceutical sector, saw large rises in the value of their stock in 2016. For example, DHG Pharmaceutical JSC’s stock price has risen by over 40 per cent.

There are currently two stock exchanges in Vietnam – the Hanoi Stock Exchange and the Ho Chi Minh City Stock Exchange. In perhaps the most significant development of the year, it was announced in October 2016 that the Hanoi and Ho Chi Minh exchanges will merge, with a target completion date of 2018. There are two main drivers for the merger. Firstly, it is hoped that it will result in increased publicity and a more prominent profile for Vietnam’s capital markets sector generally and, secondly, it is anticipated that a larger exchange will give Vietnam a competitive edge over its ASEAN neighbours, which have smaller exchanges – particularly those of Thailand and the other CMLV countries (namely, Cambodia, Myanmar and Laos).

The slowdown in Vietnam’s IPO market in 2016 came as a surprise to some. However, there is potential for the buoyancy of the market to increase in 2017. PC3 Investment Joint Stock Company has already listed in 2017 and the economy continues to do well, with GDP increasing by just over 6.6 per cent during 2016 and forecast to grow by 6.4 per cent in 2017. Furthermore, the value of the fast-growing pharmaceutical industry in Vietnam is expected to increase from US$4.2 billion in 2015 to US$7.2 billion by 2020. Given that such companies traditionally require significant levels of growth and expansion capital, it is hoped that this will lead to additional IPOs and fund raisings in the near term. As such, there is room for continued optimism for 2017.


2016 was a slightly slower year for the Stock Exchange of Thailand (SET) compared to previous years. There were a total of 27 IPOs on SET in 2016 (Main Board – 14, Market for Alternative Investment (mai) – 13), down on 2015 which saw an aggregate of 41 IPOs (Main Board – 28, mai – 13). However, this is still a solid number and there are eight listings on SET pending (as at 4 January 2017) and five listings on mai pending (as at 23 December 2016), which augurs well for a strong start to 2017.

As in 2015, the pluses outweighed the minuses and SET continues to be envied by a number of its ASEAN rivals for its consistently strong levels of retail investor participation and related liquidity. SET’s average daily trading volumes have been the highest in ASEAN in recent years and research suggests that US$10 billion of investment liquidity is generated by the Thai economy annually.

2016 also saw Thailand continue with its ongoing efforts to attract foreign issuers and diversify itself. Such efforts continue to be successful; for example, in September 2016 China’s Trina Solar and Malaysia’s KNM Group won approval to sell baht-denominated bonds, and were given a nine-month period in which to sell these bonds.

SET is also currently considering introducing a medium-term note programme or a note issuance programme. International issuers are extremely familiar with such programmes; therefore, their introduction is likely to make Thailand an increasingly attractive investment opportunity for them. This move is further evidence of Thailand’s ambitions to become a funding hub for the greater Mekong region. Indeed, the recent success of the Lao sovereign bond issues in 2015 and 2016 (see above) has drawn the interest of the Cambodian Government, which is reportedly working towards a similar sovereign bond issue in 2018.

SET was arguably the region’s best performing bourse of the year in 2016 and goes into 2017 with further reason to be positive. The number of listings which are pending is hugely encouraging. The Thai economy continues to be less exposed to the depressed commodity sector than most of its ASEAN peers and with increased interest from the wider Mekong region and a commitment to attracting foreign issuers, the indicators look good.

Client Alert 2017-029