The planned opening of the Yangon Stock Exchange next year could attract many of the country’s leading corporations to be listed, say advisers.
However, authorities plan to keep the operation modest in the early stages while they gauge the response from businesses and investors alike. Only five companies are expected to take part in the launch scheduled for October 2015.
Isolated for decades but rich in natural resources, Myanmar has seen a major increase in foreign investment since the military junta gave way to a more reform-minded government in 2010. Opening a stock market to accommodate demand among businesses seeking to raise funds is part of the liberalisation process.
Yasuhide Fujii, managing partner of the accounting group KPMG in Myanmar, said potential candidates for listing on the stock market included locally based companies in banking, agriculture, consumer goods, infrastructure, construction, manufacturing and real estate.
But while more than 200 public companies have been registered in Myanmar, the aim is to start with just a handful when the bourse opens, said Dr Maung Maung Thein, deputy minister for finance.
“We have received applications from six local public companies and approved two. We know several corporations are qualified but to ensure quality and compactness of the stock exchange, we have decided to go with a few,” he said at a recent briefing.
Myanmar will be the last country in the CLMV (Cambodia, Laos, Myanmar and Vietnam) group to open a stock exchange, although only Vietnam’s stock market has enough liquidity to attract investor’s interest. The Phnom Penh exchange in Cambodia has just two companies listed and the Lao Securities Exchange in Vientiane only one, and trade on many days is inactive.
Officials in Myanmar began studying a stock market in 2011 with executives from the Tokyo Stock Exchange (TSE) and Daiwa Securities of Japan. The TSE and Daiwa entered an agreement with the Central Bank of Myanmar in May 2013, but it was not until September 2013 that the government and parliament approved the Securities Exchange Law with the aim to open the bourse by October 2015.
The Yangon Stock Exchange will begin with investment capital of 32 billion kyats (about 1.1 billion baht). Japan Exchange Group Inc (the successor to the TSE) and Daiwa together will hold a 49% stake in the venture.
In fact, Myanmar already has a rudimentary stock market, though few people are aware of it and trading activity in shares of the two listed companies is minimal.
The Myanmar Securities Exchange Centre (MSEC) was formed in 1996 as a joint venture between Daiwa Securities and state-owned Myanmar Economic Bank — which was recently given the go-ahead from Washington to do business with US companies.
KPMG’s Mr Fujii believes that the candidates for listing on the new bourse include Asian Green Development Bank and Myanmar Agribusiness Public Corporation [Mapco], the first agriculture-based public company.
Asia Green Development Bank is owned by tycoon Tay Za, while Mapco is owned by Ye Min Aung.
“Companies that have undertaken thorough preparation for an initial public offering will be in the best position to benefit from a listing on the Yangon Stock Exchange,” he said.
Mr Aung of Mapco says that human resources and technical issues will be major challenges for local public companies seeking to list.
“We need to create understanding with our board of directors, all of them are new to this arrangement, and we need to educate our staff. They have no experience and exposure, and time is so limited,” he said recently.
Mapco is a wholly owned non-government public corporation, established in 2012. It was formed to mobilise public savings and to foster broader investment in agriculture and agro-based industries in Myanmar.
“I had observed that foreign direct investment in this agriculture sector was very little, so Mapco was founded as the first agribusiness public company in Myanmar” he said. “Now we’re working with an international adviser and preparing for the stock exchange.”
Shinsuke Goto, the director of Daiwa Securities Exchange Group, agreed that the lack of trained personnel will be a major challenge for the stock market.
Asian Green Development Bank has not yet offered any shares to the public as its board of directors is expecting to see higher prices next year as investor demand picks up closer to the debut of the new bourse.
The bank recently increased its capital to 30 billion kyats to strengthen its balance sheet and it has ample room to raise more, as the government allows public companies to have registered capital of up to 100 billion kyats.
“There is also a large amount of detailed information that a company needs to diligently go through in order to become a quality listed firm,” Mr Fujii said.
Various advisers including KPMG have been holding forums to help companies prepare for possible listings in the future. Issues covered include assessing a company’s group structure, international accounting standards, the internal risk environment, financial reporting practices, and strategic planning from the reporting and risk perspective.
KPMG says companies will need to be certain that internal controls, compliance procedures, corporate governance policies and accounting systems will meet the demands of the exchange and applicable regulations. All of these issues can be considered part of a pre-IPO test that every company needs to pass.
“An optimal operating structure combined with sound corporate governance and transparency will enhance shareholder value, mitigate risk and ultimately provide investors with confidence in the Yangon Exchange,” the firm said in a statement.
Myanmar’s only other experience with a stock market was the Rangoon Stock Exchange which operated in the 1930s and was later closed down due to World War II. Stock trading was revived in the late 1950s but abandoned after Ne Win seized power and turned the country away from the outside world.