New opportunities for law firms as Laos' economy seeks to diversify

Singapore

WHILE the legal sector in Laos has a long-established focus on hydropower projects, it has seen growing demands from sectors like solar energy, real estate and tourism.

This, as the Lao government pursues a more sustainable economic growth by relying less on resource-intensive industries and improving the country's business and investment climate.

It's a distinct shift for the country. Laos' economy has traditionally relied heavily on hydropower and mining due to its rich natural resources. As such, its legal market has long enjoyed a strong appetite for legal services from hydropower projects.

Even as the Lao economy seeks to diversify, demand for legal services relating to hydropower projects is expected to remain high.

Hydropower generation, transmission and distribution infrastructure are expected to draw more investments with the government's plan to make Laos the battery of South-east Asia, observed Lee Hock Chye, the managing partner of Rajah & Tann (Laos).

The Lao News Agency reported in 2017 that the Lao government plans to operate 100 hydropower plants by 2020.

Laos hopes to export 85 per cent of the power generated to its main markets like Thailand and Vietnam, and newer markets like Singapore.

"We are seeing some diversification into other types of power, such as solar," noted Sarah Wilson, partner at Allen & Overy. "Given the developed nature of the Lao power market, we also expect Laos to follow the wider regional Asean trend of increased merger and acquisition activity in the power market."

The Lao government pledged in 2011 in its Renewable Energy Development Strategy to increase small-scale renewable energy production, such as solar and wind power, to meet 30 per cent of its total domestic consumption by 2025.

Allen & Overy has been active in Laos since the mid-1990s, and has advised from its Bangkok office on major hydropower and infrastructure projects in Laos, such as the Nam Theun 1 cross-border hydropower project.

The Vientiane Times reported in February 2019 that the government has unveiled a new national development vision, which aims to restructure economic bases and improve business climate to ensure a sustainable economic growth.

This carries implications for the legal industry.

For example, Laos has stepped up legal reforms in the business area to further liberalise its economy, leading to rising needs for legal services on investment and business laws, Ngoc Son Bui, an assistant professor at the Chinese University of Hong Kong Faculty of Law, told The Business Times (BT).

This is because the Lao government has a strong incentive to promote foreign investment to stimulate the economy.

China, Thailand and Vietnam were the top three foreign investors in Laos in 2018, according to statistics from the Ministry of Planning and Investment in Laos.

"We continue to see Lao companies and the Lao government looking to the capital markets in Asean to raise funds, in particular to Thailand," said Allen & Overy's Ms Wilson.

She attributed it to Thailand's less-stringent regulatory requirements, sufficient liquidity in the market, and the sense of familiarity between the two countries thanks to frequent business interactions.

"For Laos, it particularly makes sense (to raise funds in Thailand), given the familiarity of Thai investors and banks with the country - almost all the hydropower work we do is offtaken by the Electricity Generating Authority of Thailand (EGAT)," Ms Wilson added.

Investopedia defines offtake agreements as agreements where a purchaser buys parts or all of the manufacturer's future production.

"Although probably not a major reason for using the markets, linguistically the two countries are quite similar. Most Laotians doing business speak Thai, and so raising funds in Thailand - for example, dealing with Thai underwriters - will be easier."

Separately, an influx of Chinese investment and financing into Laos has led to "more demand for cross-border legal services with China", said Aristotle David, managing partner, ZICO Law Laos, as he noted a growth in Chinese law firms or China desks being prioritised to capture the Lao market.

An established player in the Lao legal market, ZICO Law Laos is "highly recommended" by Asialaw for its practice in banking and financial services and general business law.

It is also recognised by the Legal 500 Asia-Pacific in 2019 as one of the "leading firms" in Laos.

China has been pouring money into Laos, especially since the inception of the Belt and Road Initiative, as Laos shares land borders with five other Asean countries, giving it the potential to become a regional transport hub.

Market players noted growth opportunities in the real estate and tourism sectors, thanks in part to the Laos-China railway proposed under the Belt and Road Initiative.

"The construction of the nearly US$7 billion high-speed rail from Kunming in China to Vientiane in Laos, when completed in 2021, is expected to generate new investments in industrial parks, hotels and tourism business in the coming years," said Rajah & Tann's Mr Lee.

"I have seen big hotel chains from Thailand, South Korea and China come to invest with local partners in Laos," Sivath Sengdouangchanh, managing director, Sivath & Associates, told BT. "The legal services include incorporation of project companies, licensing and regulatory compliance, contract management during the construction and business operation."

Restructuring and refinancing of local companies are also gaining traction in Laos, according to Mr Sengdouangchanh.

"Most of (the) existing companies in Laos are family-owned and state-owned enterprises. They have to restructure because the founders have to pass the management of the companies to their children or professionals, and state-owned enterprises have to introduce proper corporate managements to the entities," explained Mr Sengdouangchanh.

This is because when local companies seek to attract shareholders, potential investors will typically require these companies to have "proper corporate structures, financial disciplines and good technical teams and technical capabilities," he said.

"(When) they have to get access to bank loans to invest in big projects, banks will require them to improve the management structure as well," Mr Sengdouangchanh added.

Mr David of ZICO Law Laos further said there is a growing demand for investors to engage with law firms on a longer-term basis to support legal compliance and corporate governance, as "this assures investors of the reliable and prompt legal services required by their businesses".

However, the seemingly rosy prospects offered by the Lao legal market should be approached with caution.

"If we are talking about cross-border investments in hydropower, mining, and land concessions, the Lao market is more developed, but (only) for top international law firms from Australia, US, UK, or affiliate firms of those international law firms," said Mr Sengdouangchanh.

"(But other than that) we should know that Laos is a country with only about seven million people and more than 80 per cent still live in rural areas. Most local businesses are family-owned or state-owned enterprises. That means only specialised law firms that target particular areas of practices will succeed in Laos," he pointed out.

The market is also plagued by intense competition over limited legal talents and case runners who provide consultation services similar to lawyers, said Mr Sengdouangchanh.

Mr David said dissemination and implementation of law remain a problem in Laos despite accelerating legal reforms, as legal reform is a lengthy process that requires coordination among different branches of the legal system and can only produce some tangible benefits over time.

"(But) we see this as an opportunity to provide more comprehensive legal services to capture the investment potential for clients," he added.

The growing potential in the Lao legal market continues to attract law firms to expand operations there.

In October 2019, Rajah & Tann (Laos), a member firm of Rajah & Tann Asia, formed an alliance with the Laotian conglomerate Phongsavanh Group (PSVG).

Mr Lee told BT that the partnership will allow Rajah & Tann (Laos) to offer its legal services to more companies by leveraging PSVG's extensive network and expertise.

PSVG is primarily involved in banking and finance, petroleum trade and oil distribution, and logistics, among other sectors.