Thai ‘backdoor’ listings for Myanmar companies proposed

Myanmar companies seeking to raise funds for projects in their country’s fast-developing economy might be able to manage “backdoor’’ listings in Thailand, a recent conference in Kuala Lumpur heard.

Myanmar experts based in Thailand were the key speakers at the “Invest Myanmar 2012” conference organised by the training and conference management firm Solomon Wise.

Robert Fernstrom, CEO of Bangkok-based Emerging Asia Capital Partners, gave examples of how financing structures used for deals such as Electricite du Laos and Tanayong in Thailand could be used to raise money for businesses in Myanmar.

“Backdoor listings on the Thai stock market are an interesting idea since Myanmar needs capital and does not have a stock market. Thailand is going to be an important investor and model for Myanmar due to many factors,” he said.

“It’s not that they don’t have any wealth but they don’t have an organised capital market.

“People ask me what their M&A strategy should be for Myanmar, and while there may be plantations that can be acquired and need to be rebuilt, most ventures will be startups.

“One attractive business is financial services. Look at other emerging countries such as Vietnam and the first privatisations are of the state banks. And investors pour money into the banks.”

He explained that Myanmar had a potential market capitalisation of $107 billion based on the size of its economy.

“If Myanmar follows the example of what has been tried in other countries it can ‘leapfrog’ and will not take 20 years to get to where Thailand is,” said Fernstrom. “Today there are also country funds that are waiting to invest and it is a different world.”

He added that the majority of large international projects would be carried out in conjunction with the Myanmar government.

He also cited major projects as the Shwe Gas development, Mandalay Airport, and Italian-Thai Development’s 75-year concession for the Dawei Special Economic Zone. A massive project, its industrial estate is 10 times the size of Map Ta Phut in Rayong and the port will be five times the size of Laem Chabang Port.

Apart from energy, Fernstrom sees property development as a high-potential area.

Andrew J. Delaney, an Indochina legal consultant with more than 20 years of experience in Myanmar, spoke on Myanmar’s new Foreign Investment Law, the legal and business environment and joint venture formation.”

He said that the new Foreign Investment Law (FIL) signed on Nov 2, 2012 provided greater clarity and increased incentives for foreign investors. It supersedes the former FIL which was enacted in 1988. Among its many features, the new law:

 allows for 100% foreign-owned companies;

 increases foreign ownership of JVs from 49% to 50%;

 increases the tax holiday from three years to up to five years from start of commercial operations;

 allows parties to decide on their own dispute resolution mechanism (as opposed to domestic arbitration only);

 increases lease periods for real estate from 30+5+5 (40 years) to 50+10+10 for a total of 70 years (Myanmar does not allow foreign land ownership).

According to Delaney, the law also codifies what was generally understood that foreign investment proposals have to go through the Myanmar Investment Commission (MIC) in Nay Pyi Taw. The MIC will review foreign investment proposals and has the power to make exceptions for restricted activities and to provide additional tax incentives. The commission may also submit “large projects” to the Union Parliament.

The present MIC is made up of 16 members.

If a proposal is approved by the MIC, the Directorate of Investment and Company Administration issues a “permit to trade to the investor” and the company can be incorporated.

“Myanmar has a population of 60 million people, borders five countries, and is rich in natural resources. It has the world’s 10th largest supply of natural gas at 90 trillion cubic feet. The Yadana pipeline is a vital source of energy to Thailand,” he said.

“More than 91% of the population is literate which is the highest in the region, and English is widely spoken.

“Energy (oil and gas and power) accounts for 88% of foreign investment now. However there is potential for every type of business including the garment industry, which used to be flourishing but which was wiped out by US sanctions in 2003 costing the loss of 100,000 jobs.”

Speaking on understanding the risks of investing in Myanmar, Kiranjit Singh, business group director of Ipsos Business Consulting Malaysia, said that while Myanmar was a new market for the West, “countries in Southeast Asia like Malaysia have been doing business with Myanmar for years.”

All three speakers recommended that now is the time for investors from Southeast Asia to start doing business in Myanmar and to get in on the ground floor there.

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Writer: U So Myint