In December last year, the Asian Development Bank (ADB) signed an agreement to lend 3.9 billion baht (US$110 million) to Thailand’s Energy Absolute to buy up to 1,200 electric buses.

The package for the renewable energy company comprised loans of 1.3 billion baht each from the ADB, the Japan International Cooperation Agency and the Export–Import Bank of Thailand.

With additional funds from private investors, the total cost of the project – expected to cover almost half of Bangkok’s bus routes – was estimated at up to 6 billion baht.

“We aim to be Thailand’s leading clean energy innovation company,” Energy Absolute’s deputy CEO Amorn Sapthaweekul said at the time. “We will achieve this through advanced and environmentally friendly technology for the benefit of all, and through the confidence and mutual investment of our partners.”

By July this year, however, confidence in Energy Absolute was shattered. After a plunge of almost 40% in Energy Absolute’s share price, the Securities Exchange of Thailand (SET) accused Amorn and CEO Somphote Ahunai –  a former securities trader who founded the company – of fraudulent activities.

The SET suspended trading in Energy Absolute’s shares but lifted the suspension after the CEO and deputy CEO resigned. A new board was named, but after trading resumed, the rout in the share price accelerated, falling by nearly a third.

Negative outlook

Thai rating agency TRIS Rating, an affiliate of S&P Global Ratings, downgraded Energy Absolute from “BBB+” to “BB+” and assigned a negative outlook. “The downgrade reflects heightened liquidity risk the company is likely to face in the near term,” it says. “Due to the uncertain market appetite on its new debenture issue, the company’s contingency plans heavily rely on bank financing, which could also be a tough challenge given the perceived governance issue.”

Laos, according to the International Monetary Fund (IMF), now faces a related challenge with a planned government sale of hydropower production that would have raised US$300 million this year and up to US$700 million next year.

Under the plan announced in May, the Lao government was to set up a joint venture (JV) with Energy Absolute known as Super Holding Company. The government would hold 65% with the Thai company taking up 35% in exchange for a payment of around US$1 billion. 

Energy Absolute was expected to add value to the hydropower assets and develop capacity to transition to electric vehicles. Over the medium term, Super Holding was supposed to be listed abroad.

“However, there are open questions as to the financing of the asset sale,” the IMF says in an annex to its latest annual assessment of the Lao economy.

External shareholders in projects to be transferred to Super Holding, the IMF notes, “do not appear to have been consulted on the sale, which may invite legal challenges, further delaying the deal”.

Moreover, the regulatory scrutiny of Energy Absolute is “likely to impact its capacity to raise the needed financing”.

So, the IMF “does not assume” that the initial sale of shares in Super Holding or the on-sale of the company will take place. “Given this, staff estimates there will be a shortfall of around 2% of GDP,” the IMF points out. “The difference is assumed to be met with a combination of domestic commercial and central bank lending.“

But, even if the deal went ahead, the IMF notes, the “planned asset sales would only temporarily ease difficulties and increase later financing needs.”

Moreover, it estimates that the sale of profitable assets for US$1 billion would reduce government revenues by about US$150 million a year (amounting to about 1.2% of GDP assuming a commercial discount rate of 15%).

Severe challenges

The questionable government asset sale is just a microcosm of what the IMF staff describe as “severe challenges” facing Lao authorities with an economy beset by escalating debt, currency depreciation and high inflation.

“Without active measures to ease pressures on the exchange rate, inflation and debt revaluation are likely to intensify, with a significant drag on growth over time,” concludes an October staff report following a visit to Laos earlier this year.

Fuelled by exchange rate depreciation, headline inflation peaked at 41% in February last year. Although it has since plateaued at around 25%, the report says, inflation is expected to increase in 2025 and 2026 and ”remain elevated”.

“Firms report that prices have not yet caught up with increases in import costs and that labour costs are increasing for qualified workers,” the report adds. “In addition, anecdotal reports indicate that inflation expectations are becoming entrenched, adding to inflation pressures.”

Increasing dollarization

Against this backdrop,  “there are signs of increasing dollarization, consistent with other countries’ experiences of high inflation and persistent exchange rate depreciations. Invoicing and settlement are increasingly in foreign currency. The share of FX [foreign exchange]-denominated bank credit and deposits have notably increased since 2022.”

In concluding its annual consultations with Laos earlier this month, the IMF executive board in Washington noted that “the economic situation remains very challenging” –notwithstanding solid growth of 4.1% expected for this year.

According to the board assessment released on November 8: “Important progress has been made on many fronts: a primary fiscal surplus has been sustained, the current account balance has improved substantially, and inflation has fallen from its peak in 2023.

“Nonetheless, the economy continues to face challenges: pressures on the exchange rate remain, inflation is still high, public debt is assessed to be unsustainable, and FX reserves remain low. Growth is expected to be substantially below pre-pandemic levels over the medium term.

“Against this difficult background, directors urged the authorities to press ahead with coordinated, ambitious, and comprehensive policies to stabilize the economy and boost potential growth while avoiding scarring effects.”