The Lao Democratic People's Republic, rated Caa2/CCC (Moody's/Fitch), is marketing a US$350m five-year bond at initial price thoughts of 10% area.
The 144A/Reg S offering is expected to price on Wednesday. Some of the orders from investors are over US$20m in size, a fund manager was told.
Oppenheimer & Co is sole bookrunner.
Proceeds will be used to repay a US$150m bond due June 30, US$165m-equivalent in Thai baht bonds, and US$35m in commercial bank loans due this year.
The government has committed to maintain at least two sovereign credit ratings from the three major international rating agencies and to hold quarterly investor calls.
Laos had earlier hired Credit Suisse, JP Morgan and Standard Chartered for a planned US dollar bond offering in 2019, but that deal never happened and the sovereign opted to sell 18-month bridge bonds through Oppenheimer in December 2019.
Documentation from the planned offering, seen by IFR, mentions that Laos was in breach of covenants on certain financing agreements, after it created security over royalties from concessional power projects and shares of power project companies without obtaining permission from the lenders. Laos had planned to use the proceeds of the bond deal to pre-pay the loan facilities, but warned that the non-compliance with the loans could be considered a breach of covenants and result in cross-defaults on its other debt.
An investor presentation did not mention anything about these financing agreements, and it was not immediately clear if the government had resolved the matter since then.
Another project is expected to be key to Laos's economic development plans.A Chinese-financed high-speed railway connecting Kunming, the capital of China's Yunnan province, to Bangkok in Thailand and passing through Laos, is expected to be operational by the end of this year. The rail connection is predicted to cut travel time from the Chinese border to Vientiane to three hours from three days currently.
China is Laos's largest trading partner and accounted for 45% of its external debt at the end of 2019. Laos is in discussions with bilateral creditors, including China, over potential debt rescheduling, it said in an investor presentation.
The sovereign plans to sell around US$100m of domestic government bonds this year and around US$200m-equivalent in Thai baht bonds. It signed credit agreements totalling around US$243m in 2020 and expects a similar amount of borrowing from commercial banks this year under the Ministry of Finance's funding plan.
In December, the sovereign marketed US dollar six-year bonds, amortising in equal payments in years four, five and six to give an average life of five years, at IPTs of 10% area, but postponed the deal.
The same month, Laos opened subscription for US dollar-denominated onshore government bonds, with a total offering size of US$32.9m. Yields range from 5% for a one-year bond to 8% for a 10-year, with the five-year tranche paying 7%.
Laos's 2021 dollar bonds were bid at a cash price of 91, according to Refinitiv data, having traded in the low 80s in December.
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