How bond gridlock in Laos speaks to global problems
Laos has twice postponed a bond that it badly needs to issue. A small country with few financing options, hit by Covid, downgraded and in debt to China – its problems are not unique.
In this most yield-hungry and liquidity-rich era, there were reasons for optimism for the Lao Democratic People’s Republic when it set about marketing $350 million of bonds in December. Laos is among the lowest rated of all Asian sovereigns, at Caa2/CCC with Moody’s and Fitch, but it was prepared to pay 10% for its money.
But the deal was postponed, then curiously put on ice while the government decided there was more that it needed to disclose to investors, the detail uncertain. And this matters considerably for a representative of a bigger and increasingly common problem: that of a debt-heavy small nation, downgraded, in hock to the Chinese for bold new infrastructure and with most of its economic levers jammed by a global pandemic that just won’t end.
“Laos looks like it’s in trouble,” says Charles Robertson, global chief economist at Renaissance Capital. “It’s at high risk of debt distress.”
And its story touches on a number of themes with resonance far beyond the landlocked southeast Asian state.
Battery of southeast Asia
Laos suffers from the fact that much of its economic direction is beyond its control.