JAKARTA/KUALA LUMPUR — Myanmar’s licensing of foreign banks brings it a step closer to an initial sovereign bond sale to help fund $80 billion of power, transport and technology projects through 2030, according to the Asian Development Bank.
A pedestrian holds an umbrella near a Siam Commercial Bank advertisement in Yangon on Oct 14, 2014. (Bloomberg photo)
The Manila-based lender estimates that Myanmar, which is emerging from five decades of economic isolation, will need that amount of funding to support annual expansion that it sees reaching 9.5% by 2030, said assistant chief economist Cyn-Young Park.
A debut bond sale is possible in the next five years, she said. Growth will average 8.25% in “the next few years,” the International Monetary Fund predicts.
Myanmar granted licences to nine overseas lenders this month including Oversea-Chinese Banking Corp, Australia & New Zealand Banking Group Ltd and Malayan Banking Bhd, a move that Moody’s Investors Services described as supporting the unrated country’s creditworthiness by improving access to capital.
The nation could follow the example of Laos, which sold its debut sovereign notes last year in Thailand, where foreign issuers aren’t required to have a credit rating.
“Myanmar is trying to establish a legal framework for capital markets but initially what’s important is to strengthen the banking sector,” Ms Park said in a phone interview from Manila yesterday. The difficulty in obtaining funding is a “major constraint” for local businesses, she said.
Central bank
Improving access to credit will help raise Myanmar’s gross domestic product per capita from $876 to a forecast $5,000 by 2030, according to the ADB. Laos has a GDP per capita of $1,646, Indonesia’s is $3,475 and the ratio is $5,779 in Thailand, World Bank data show.
The Central Bank of Myanmar, which has sold debt since 1993, allowed secondary-market trading of the local-currency notes in April 2013. There was 2.8 trillion kyat ($2.8 billion) of the securities outstanding as of February, 37% more than a year earlier, central bank data show. No pricing information is available.
Norway’s $835-billion sovereign wealth fund, the world’s largest, lifted its ban on investing in Myanmar debt in January. That followed reductions in economic sanctions on the country by the US and the European Union after authorities began a transition toward democracy by allowing elections in 2010. Companies from Ford Motor Co to Yum Brands Inc have flocked to the country, lured by its population of 62 million.
Stock exchange
“Myanmar is very attractive because it’s one of the last frontier markets in this part of the world, with a big population and geographically it sits right in between India and China,” Gundy Cahyadi, a Singapore-based economist at DBS Group Holdings Ltd, said in an Oct 21 phone interview. There is some concern the country is trying to push through too many capital-market reforms in too short a time, he said.
Myanmar plans to set up a stock exchange next year with assistance from Japan Exchange Group Inc and Daiwa Securities Group Inc, Japan’s second-largest brokerage. That deadline is at risk after the approval of a capital markets bill was delayed, Koichiro Miyahara, executive vice-president at Japan Exchange, said in September last year.
The Ministry of Finance and Revenue has yet to form a securities regulator and shares are currently traded over-the-counter through the Myanmar Securities Exchange Co.
The country’s finance ministry didn’t respond to e-mailed questions.
The next step for the authorities is to improve the central bank’s capacity to regulate and supervise the capital markets, the ADB’s Park said.
Big expectations
“At this point, I really don’t see them being able to issue debt in the foreseeable future,” Toru Nishihama, an economist covering emerging markets at Dai-ichi Life Research Institute Inc in Tokyo, said in an Oct 22 interview. “There are a lot of expectations for Myanmar but there are so many things the government has to do before issuing bonds.”
The country scrapped a 35-year peg to adopt a managed float for the kyat in 2012 and allowed banks to maintain foreign-currency accounts.
The kyat has weakened 1.4% to 1,000.595 per dollar this year, following a 13% drop last year. That compares with a decline of 1% for the Philippine peso in 2014 and a 1.3% gain for the baht, data compiled by Bloomberg show.
Myanmar has 26 local lenders and 42 representative offices of foreign financial institutions. Nine of these — from China, Japan, Thailand, Singapore and Australia — were granted 12-month preliminary permits to satisfy commitments made in their requests for the licences, the central bank said in an Oct 1 statement.
The entry of the overseas lenders “will burden nascent supervisory capacity and challenge monetary and exchange-rate management,” the IMF said in an Oct 6 statement.
‘Gradual process’
Southeast Asian companies are also seeking a bigger presence in Myanmar. Thailand’s oil and gas company PTT Exploration & Production Plc plans to invest $3.3 billion in the country through 2018, while Philippine property developer Ayala Land Inc and Indonesia’s Lippo Group are considering opportunities in the nation.
“Myanmar’s got all the ingredients from demographics to potential for urbanisation to resource development,” Vishnu Varathan, an economist at Mizuho Bank Ltd, one of the nine lenders that received licences, said in an Oct 21 phone interview from Singapore.
“But the challenges in the near term are that it needs to be a gradual process. The opening up of the financial sector has just begun.”