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Myanmar Investments International LTD
Leading the charge into Asia’s Final Frontier
April 01, 2015
Myles McNulty
Research
020-3328-5663
[email protected]
This document is a marketing communication which has been produced by Allenby Capital Limited. It is non-independent research and has not
been prepared in accordance with legal requirements designed to promote the independence of investment research. Accordingly Allenby
Capital Limited is not subject to any prohibition on dealing ahead of the dissemination of this document.
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CONTENTS
INVESTMENT OVERVIEW
BUSINESS OVERVIEW
4
6
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COMPANY HISTORY
6
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THE MANAGEMENT TEAM
6
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INVESTMENT MANDATE AND INTENDED STRATEGY
7
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SUPPORTIVE SHAREHOLDER BASE
8
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FINANCIALS: CURRENT STATUS
9
MYANMAR: ASIA’S FINAL FRONTIER
10
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COUNTRY PROFILE
10
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1900S: A CENTURY OF RICHES TO RAGS
11
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A NATION NOW IN TRANSITION
16
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STEPS BEING TAKEN TO STIMULATE ECONOMIC GROWTH
18
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A WEALTH OF UNTAPPED NATURAL RESOURCES
20
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MYANMAR: THE INVESTMENT THESIS
23
FIRST INVESTMENT: JVA IN MICROFINANCE SPACE
26
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MYANMAR FINANCE INTERNATIONAL LTD: JVA OVERVIEW
26
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MICROFINANCE IN MYANMAR
26
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MFIL: CURRENT STATUS AND SHORT TERM TARGETS
27
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MFIL: OPTION AGREEMENT WITH NORFUND
28
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MFIL: LONGER TERM GROWTH PROSPECTS
29
DISCLAIMER
MYANMAR INVESTMENTS INTERNATIONAL LTD (MIL.L) 1 April 2015
Allenby Capital
31
3
INVESTMENT OVERVIEW
LONDON’S FIRST INVESTING COMPANY EXCLUSIVELY FOCUSSED ON MYANMAR
Raised $6.1m at IPO in June 2013...
...With a further $3.8m raised in December
2014
Myanmar Investments International Ltd (‘MIL’ or ‘the Company’) is an investing
company that was established and listed on AIM in June 2013. MIL’s Investment Policy
dictates that management focuses exclusively on identifying and investing in businesses
operating in, or with business exposure to, the Republic of the Union of Myanmar (also
known as Burma). To our knowledge, it is the only listed company on the London Stock
Exchange with such a focussed geographical mandate. The Company raised $6.1m gross
upon IPO: in August 2014 it announced its first investment, a majority stake in a
microfinance business. In December 2014, MIL raised a further $3.8m in order to
finance further investments.
MYANMAR: DECADES IN ISOLATION HAS RESULTED IN A SEVERELY UNDERDEVELOPED ECONOMY
Myanmar: resource rich but has a severely
underdeveloped economy
Myanmar is a sovereign state in Southeast Asia. Having gained its independence from
British rule in 1948, the nation’s attempt at democracy was short-lived as a military
coup in 1962 was followed by a near pan-industrial nationalisation scheme known as
the ‘Burmese Way to Socialism’. Compounded with the economic woes that WW2
brought about and the substantial decline in the price of rice – the country’s staple
export in previous decades – Myanmar rapidly declined into one of the most
impoverished nations in the world. Under military rule until 2010, Myanmar suffered
from abysmal macroeconomic management, with all of its sectors remaining woefully
underdeveloped. Brutal oppression by the military of the people’s political, economic
and social rights resulted in Western based nations and organisations placing economic
sanctions on Myanmar, which drastically reduced Foreign Direct Investment (‘FDI’).
BUT NOW THE COUNTRY HAS THE CHANCE TO TRANSFORM INTO ASIA’S NEW TIGER ECONOMY
Military has relinquished power after 50 years..
...With a nascent, civilian democratic
government now in place
Official military rule ended in 2010 with a parliamentary election, although the military
backed Union Solidarity and Development Party (‘USDP’) won a majority of seats.
Whilst this was dismissed as fraudulent by much of the Western world, the 2012 byelections were more favourably received by the global audience: the lead opposition
party, the National League for Democracy (‘NLD’) led by Aung San Suu Kyi, enjoyed an
overwhelming success. With the nation’s political backdrop drawing the world’s eyes,
economic liberalisation has started to follow. The country is strategically located
between India to the west and China to the north-east, and has vast and untapped
natural resources at its disposal. Myanmar has a large and youthful workforce and a
near-unified national will for drastic social, political and economic development.
RAPIDLY GROWING ECONOMY OFFERS A VAST ARRAY OF INVESTMENT OPPORTUNITIES
Economy forecast to quadruple in 20 years to
2030
The Asia Development Bank is forecasting GDP
growth of circa 8.3% over each of 2015 and
2016
The McKinsey Global Institute (‘MGI’) published a report in 2013 that predicted
Myanmar could more than quadruple the size of its economy by 2030, from $50bn in
2010 to over $220bn in 2030. 1 This forecast was based upon the assumption that the
nation’s seven key sectors of its economy will expand rapidly. These are comprised of
the Manufacturing, Agriculture, Infrastructure, Energy & Mining, Tourism, Financial
Services and Telecommunications sectors. FDI, a key driver underlying the assumption,
is set to increase substantially as democracy takes shape, with trade embargoes having
been lifted by Western powers: FDI grew from $1.9bn in 2011/12 to $2.7bn in 2012/13.
MIL – BUILDING A LEADING, DIVERSIFIED INVESTMENT VEHICLE
Myanmar constitutes ‘Asia’s Final Frontier’ for
investors
The opening up of ‘Asia’s Final Frontier’ has drawn the eyes of investors across the
globe seeking high growth, emerging market opportunities. However, there remains a
concern that the official surrendering of its power by the military junta in 2010 and the
establishment of a democratic state is in reality merely a façade to secure international
legitimacy and to encourage increased FDI – whilst the military in fact retains control of
1
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Myanmar’s moment: unique opportunities, major challenges, McKinsey Global Institute, 2013
Company’s intention to become a leading,
diversified investment vehicle in Myanmar
Enjoys first mover advantage
the country through the USDP. With no stock market foreign institutional investors have
limited direct opportunity to make investments. MIL is in effect leading the charge for
international investors into Myanmar. Without a recognised stock exchange in the
country or a stable banking system, MIL intends to establish itself as a leading,
diversified investment vehicle: it will source attractive opportunities across a diverse
range of sectors and act as a proactive investor throughout the life of the investments.
MANAGEMENT HAS AN IMPRESSIVE TRACK RECORD OF OPERATING IN THE REGION
Investment companies are about backing
management. Each member of the Company’s
management team has an impressive track
record within financial services in SE Asia
The Company has taken a 55% stake in a
microfinance institution formed under a JVA
with an already established player in the
market
An initial capital contribution of $4.8m has
been pledged by the JV partners
The Company’s Managing Director is Aung Htun. Mr. Htun is half Burmese and an
engineering graduate from Imperial College, London. In 1987 he founded and was CEO
of Seamco Securities, a diversified corporate finance company, which he took public on
the Stock Exchange of Thailand in 1995. In 1999, he founded Thai Strategic Capital, a
Bangkok based private equity fund manager. Michael Dean, a chartered accountant, is
MIL’s Finance Director. Mr. Dean has extensive experience working in Southeast Asia,
having headed up private equity and investment banking divisions for Credit Lyonnais
Securities Asia and Prudential Plc. The Executives are backed by three British NonExecutives who each have extensive experience in Asia’s capital markets. MIL has also
hired a team of Investment Executives with experience in private equity and venture
capital in Southeast Asia.
MYANMAR INVESTMENTS INTERNATIONAL LTD (MIL.L) 1 April 2015
Allenby Capital
FIRST INVESTMENT ALREADY MADE: A SIGNIFICANT STAKE IN A MICROFINANCE JVA
In August 2014, MIL announced the signing of a joint venture agreement (‘JVA’) with a
microfinance company, Myanmar Finance Company Ltd (‘MFC’), to create a newly
incorporated foreign company in Myanmar, named Myanmar Finance International Ltd
(‘MFIL’). Microfinance is the provision of finance to people on low incomes who
otherwise would not have access to borrowings: it has an important position in the
economy of Myanmar owing to the chronic deficiency and lack of faith in the country’s
banking system. The initial capital contribution of the two partners into MFIL will total
$4.8m, with MIL’s portion amounting to $2.75m for a 55% equity stake.
Norway’s Development Finance Institution,
Norfund, has signed an Option Agreement to
take up to a 25% stake in MFIL
OPTION AGREEMENT IN PLACE FOR NORFUND TO SUBSCRIBE FOR UP TO A 25% STAKE IN MFIL
The microfinance industry is integral to
Myanmar’s economy owing to the weak and
distrusted banking system. At present, demand
for microfinance far outstrips supply
THE MICROFINANCE INDUSTRY – SUBSTANTIAL GROWTH PROSPECTS
In January 2015, MIL and MFC entered into an option agreement with The Norwegian
Investment Fund for Developing Countries (‘Norfund’) whereby Norfund secured the
option to subscribe for up to a 25% stake in MFIL. Norfund is Norway’s Development
Finance Institution and has funds under management of circa $1.6bn.
As a result of the weak banking sector, demand for microfinance in Myanmar drastically
outstrips supply. A 2012 report by UN Capital Development Fund puts this demand at
US$1bn. Recently, the government increased the $500 loan limit that microfinance firms
are allowed to lend to any one single client to $5,000. This has unlocked a new core
group of customers for microfinance institutions, namely the SMEs. Ultimately, we feel
that MIL will aim to transform MFIL into a fully fledged bank.
SUPPORTIVE SHAREHOLDER BASE
Nine cornerstones investors have backed
management at the time of IPO and in the
subsequent funding round
Since its IPO, MIL has raised $9.9m from a group of experienced Asian investors based
in London, Hong Kong and Singapore. It is the Company’s deliberate strategy to raise
funds to match its likely deployment requirements.
CONCLUSION: INVESTMENT THESIS BUILT ON BACKING MANAGEMENT TO SEIZE OPPORTUNITIES
There remains significant risk that the steps being made in Myanmar in addressing the
deficiencies on the political, social and economic fronts might all come to nothing.
Nevertheless, we are, in line with the majority of economic commentators, cautiously
optimistic that positive reform across all fronts will continue and that the economy will
maintain its exciting growth rate. We feel that MIL offers a unique play on London’s
public markets to capitalise on ‘Asia’s Final Frontier’ opportunity, and that its healthy
pipeline of deal flow that has been carefully built up will shortly begin to bear fruit.
5
BUSINESS OVERVIEW
COMPANY HISTORY
June 2013: listed on AIM, having raised $6.1m
MIL listed on AIM in June 2013. It had no trading business and was classed as an
investing company under AIM rules. The Company raised $6.1m gross by the issue of
new equity at a placing price of $1.05.
Management team is well connected within
Myanmar and the wider SE Asian region
Microfinance: a crucial aspect of Myanmar’s
economy
July 2013: MIL hosts breakfast meeting in London with the President of Myanmar
On 15 July, the Company hosted a private breakfast briefing for his Excellency President
U Thein Sein of the Republic of the Union of Myanmar in London, during his two day
state visit. The breakfast was also attended by five Union Ministers, two deputy Union
Ministers and a number of senior representatives of British industry. We believe that this
meeting aptly demonstrated the Company’s significant relationships with key personnel
even within the highest echelons of power in Myanmar.
August 2014: first investment made in microfinance business
In August 2014, MIL announced that it was making its first investment by entering into
a JVA with a microfinance institution in Myanmar. The Company will invest a total of
$2.75m in stages for a 55% stake in a newly formed entity, named Myanmar Finance
International Ltd (‘MFIL’). The partner in the JVA, MFC, was established in 2012 by a
prominent and respected Myanmar businessman who is also the Honorary Consul for
Norway. MIL intends to assist in developing MFIL firstly into a leading microfinance
provider in the nation and ultimately into a fully fledged bank.
December 2014: secondary placing of $3.8m to pursue further opportunities
In December 2014, through an equity placing the Company raised a further $3.8m,
again at a price of $1.05.
THE MANAGEMENT TEAM
Investing companies: based on management’s track record and backing
Naturally, the future prosperity of a company that exists purely as an investment vehicle
is largely dependent on the management team that is responsible for the vehicle.
Shareholder funds are entrusted to a management team because its members are
considered capable of and experienced in successfully sourcing, making and exiting
investments that comply with the investment mandate of the vehicle.
A strong Executive team with extensive experience in Southeast Asia...
MIL has been able to attract the high calibre of investors that it has (see p.8) largely as a
result of the quality of its management personnel. On p.5, we noted the extensive
experience in venture capital, private equity and the wider financial services industry of
Managing Director Mr. Htun and Director Mr. Dean (who have worked together since
2000 when Prudential Plc had a strategic partnership with Mr. Htun’s private equity
business). It should also be noted that both men have been directors of companies
operating in a wide range of sectors beyond finance including shipping, waste
management, hotels and car services industries, amongst others. In addition to providing
‘on the ground’ experience to MIL’s management team, these previous tenures also bring
with them extensive contact lists across an array of sectors in Southeast Asia.
...Supported by three experienced Non-Executives
The three British Non-Executives, Chairman William Knight and Directors Craig Martin
and Christopher Appleton, all have substantial experience working in the financial
services sector in Southeast Asia. Mr. Knight arranged emerging market investment
6
funds whilst working for Lloyds Banking Group, including the first London-listed fund
for Thailand and the first fund for Vietnam. Amongst other accomplishments, Mr.
Martin was a senior executive in the Private Equity division of Standard Chartered Plc
that invested in India and Southeast Asia, and latterly moved on to head the Private
Equity division of Prudential Vietnam. Mr. Appleton has lived in Asia since 1984,
having enjoyed a career in sales and equity research, working for such firms as Salomon
Smith Barney, Swiss Re and HSBC.
Directors held 11.4% of issued share capital at
time of IPO, and currently hold 9.7%
Interests of Directors aligned with those of shareholders
The Directors hold significant equity interests in MIL. Moreover, all of the Directors
hold potential additional equity interests through unexercised options issued with
exercise prices set at a premium to prices paid by investors, and all also possess sizeable
holdings of warrants. Finally, Mr. Htun and Mr. Dean both deferred half of their
salaries from the date of listing until MIL had fulfilled its investing policy in accordance
with AIM Rules, which was achieved on 1 September 2014. Consequently it is clear that
the Directors’ remuneration packages have been structured so as to ensure that they
remain focussed on enhancing shareholder value.
EXHIBIT 1: DIRECTORS’ INTEREST ALIGNED WITH SHAREHOLDERS
Name
Ordinary Shares
Aung Htun (MD)
373,000
Michael Dean (FD)
223,000
William Knight (Chairman)
28,000
Craig Martin
195,000
Chris Appleton
148,000
Total:
967,000
Share Options
242,000
198,000
20,000
30,000
40,000
Warrants
123,000
98,000
3,000
145,000
98,000
530,000
467,000
MYANMAR INVESTMENTS INTERNATIONAL LTD (MIL.L) 1 April 2015
Allenby Capital
Source: Company data
INVESTMENT MANDATE AND INTENDED STRATEGY
EXHIBIT 2: MIL EXCLUSIVELY FOCUSSED ON MYANMAR
Exclusive focus upon Myanmar
As its name suggests, the Company’s investment mandate defines its geographical scope
of any potential investment to businesses, projects and assets located or operating within
Myanmar. As far as we are aware, MIL is the only investment vehicle listed in London
with such a mandate.
Two categories of investments
The Company will be making investments that it will put in one of two categories:
Core investments are considered to be those investments that the Company will hold
for the long term, ideally long after the investee company has listed on a stock exchange.
Such investments would typically be capable of being built into leading franchises within
the country, operate in industries with medium to high barriers to entry, and play key
roles in the domestic economy.
Source: Allenby Capital
Financial investments will be structured as ‘private equity’ investments which offer the
potential for capital gains and liquidity. These financial investments should have a
realistic and credible exit plan. A portion of the Company’s funds allotted to this
category of investment may be deployed in smaller venture capital style investments in
high growth potential acquisitions.
As stated in the Admission Document, MIL will also consider establishing an advisory
and fee earning business.
Over time, it is possible that the Company could evolve into something akin to an
Investor AB or Jardine Strategic Holdings model.
7
Forms of investment
The Company’s mandate enables it to invest in all forms of permitted investment
mechanisms, including equity, quasi-equity and debt. Investments might come in the
form of minority or majority shareholdings, as buyouts or as the provision of expansion
capital, and also be by way of JVA or via a trust structure.
Investment mandate of Company is
comprehensive, enabling management to
structure any investment as best suits the
Company
Funding: either equity or debt
The Company’s AIM listing will enable it to raise capital as and when further funds are
required to make investments. Additionally, management has the option of paying for
investments by issuing new shares in the Company to the vendor. Debt financing is also
an option for management, although preferably at the subsidiary level.
Owing to Myanmar’s underdeveloped economy and the small sizes of businesses, the
Company’s flexible investment mandate gives it the advantage of being able to select the
most efficient structure for each investment case and scenario.
SUPPORTIVE SHAREHOLDER BASE
Nine Cornerstone Investors
The Company is supported by nine Cornerstone Investors that are predominantly
experienced Asian investors based in London, Hong Kong and Singapore.
EXHIBIT 3: HOLDINGS (AT IPO AND CURRENT) OF NINE CORNERSTONE INVESTORS
Investor
Ordinary Shares at IPO
% of Issued Capital at IPO
Crystal Consultancy Services Ltd
Pachira Holdings Ltd
Red Oak Operations Ltd
Incagrove Ltd
LIM Asia Special Situations Master
Fund Ltd
Presnow Ltd
G.K. Goh Strategic Holdings Pte.
Ltd
Value Regain Ltd
Hansabay Pte Ltd
Total
Ordinary Shares (present)
% of Issued Capital (present)
500,000
500,000
500,000
450,000
7.9%
7.9%
7.9%
7.1%
976,000
976,000
976,000
926,000
9.8%
9.8%
9.8%
9.3%
620,000
9.8%
620,000
6.2%
500,000
7.9%
500,000
5.0%
450,000
7.1%
450,000
4.5%
450,000
450,000
7.1%
7.1%
450,000
380,000
4.5%
3.8%
4,420,000
69.7%
6,254,000
62.8%
Source: Company data; Allenby Capital
MIL has the option to invite the Cornerstones to
co-invest alongside MIL in projects or
businesses
Co-investment rights
For three years after the IPO date, the Cornerstone Investors have been granted coinvestment rights whereby MIL, at its sole discretion, can invite them to co-invest in an
investment target or existing investee company alongside MIL. Such a scenario might
arise when MIL feels that it has itself achieved a maximum investment level, but further
investment into the target or existing investee company is welcome or required. The
participation amount per Cornerstone Investor will be in proportion to its initial
investment at IPO into MIL.
These rights effectively enable MIL to call upon assistance in order to drive the
development of attractive projects when otherwise it would not have been able to
because of lack of capital or excessive exposure.
Warrants in issue have the potential to raise up
to a further $7.1m
8
Warrants issued in tandem with placings could raise up to a further $7.1m
All shareholders who invested at IPO and the subsequent placing were granted 1
warrant, exercisable at $0.75, for every 1 ordinary share subscribed for or placed. If
exercised in full, these warrants will provide MIL with a further $7.09m. All warrants
may be exercised at any time from 21 June 2015 to 21 June 2018.
Allenby Capital
Annual operating costs of circa $1.2m
MIL obliged to contribute a further $1.24m to
MFIL in latter tranches of first funding round
Operating costs of $1.2m pa
The Company employs two Executive and three Non-Executive Directors. It operates
out of a head office located in Yangon, Myanmar. Annual operating costs are budgeted
at $1.2m in the current set up. With senior management and other staff now in place,
we anticipate that this cost base will not materially increase for the foreseeable future.
Cash investment of $1.51m to date into microfinance JVA
In September 2014, the microfinance JVA was completed, and MIL paid $1.1m in cash
into the newly formed MFIL. In February 2015, MIL paid $0.41m of the $0.75m second
tranche. Under the terms of the JVA, MIL is bound to commit a final $1.24m cash
(bringing its total funding commitment to MFIL to $2.75m) as part of the final tranche
of Phase 1 funding (which amounts to $4.8m). This is due at some point in 2015.
However, if Norfund exercises its option and takes up the maximum 25% stake under
the agreement, MIL will only be bound to commit a further $0.41m to Phase 1 funding.
As MFIL is at an early stage in its growth cycle, is currently loss making and is a private
company with an opaque peer group, MIL’s investment will be valued at cost until such
time as it is feasible to evaluate it in a reliable manner.
MYANMAR INVESTMENTS INTERNATIONAL LTD (MIL.L) 1 April 2015
FINANCIALS: CURRENT STATUS
NAV of $6.4m; NAV per share of $0.64
We estimate that MIL’s cash balance is circa $5.0m. The Company holds no debt. We
calculate that the Company’s net asset value (‘NAV’) is $6.4m.
EXHIBIT 4: COMPANY NAV
Asset
NAV ($)
NAV per share ($)
Investment in MFIL, held at cost
Estimated cash reserves as at 30/03/2015
1,412,500
5,000,000
0.142
0.502
Total:
6,412,500
0.644
Source: Allenby Capital. Shares in issue as at 30/03/2015: 9,959,619
Shares trading at a 75% premium to NAV: the justification
At the current price of $1.13, the shares are trading at a premium of 75% to NAV.
Whilst this might be considered steep, we are of the opinion that the premium is justified,
owing to three core reasons:
i)
Quality of management
The management team that has been assembled has an extensive and
excellent track record of investing in Southeast Asia across a range of
sectors.
ii)
High risk / reward profile of the Myanmar investment thesis
Whilst there is considerable risk in investing in ‘Asia’s Final Frontier’, it is
widely acknowledged that there are fantastic returns to be made as
Myanmar’s underdeveloped industries open up to the outside world.
iii)
First mover advantage
MIL was one of the very first activist investors ‘on the ground’ in
Myanmar, having had a presence there for well over a year. As such, it
has been able to form key relationships with, and gain the trust of,
businessmen, politicians and people of social import.
Significantly more capital required to develop pipeline of opportunities
From a standing start, we believe that MIL has built a pipeline of opportunities across
an array of sectors, and will likely require significantly more capital in the near future to
develop them. As and when the Company does return to the market – as per its strategy
– its market cap. will expand and liquidity in trading of the shares should increase.
9
MYANMAR – ASIA’S FINAL FRONTIER
COUNTRY PROFILE
EXHIBIT 5: COUNTRY FACT FIND
Area
Population
Capital
Largest City
Official Language
Government
President
GDP (2013 est.)
GDP per capita
Currency
677k km
51.4m
Naypyidaw
Yangon
Burmese
Presidential Republic
U Thein Sein
$56.4bn
$869
Kyat
Source: Company data, Allenby Capital, IMF
Geography
The Republic of the Union of Myanmar (formerly known as Burma before it was
renamed in 1989 by the ruling military government at the time) is a nation located in
Southeast Asia. It is 677,000 km² (about the size of France). Approximately one third of
its border (the south-west perimeter) is comprised of coastline, running in an unbroken
stretch along the Bay of Bengal and the Andaman Sea. From north-west to south-east,
Myanmar is bordered by Bangladesh, India, China, Laos and Thailand.
The capital city is Naypyitaw, located in the centre of the country. It was founded on
greenfield land in 2005: it is essentially being built from scratch into a new, state-of-theart city. According to national statistics, the city’s population has already exceeded 1m.
The nation’s largest city (and former capital) is Yangon: it has a population of over 5m
and continues to be Myanmar’s most important commercial centre.
Demographics
A census in 2014 revealed a population of circa 51m and a household number of circa
11m. 29.6% of the population, according to the census, constitutes urban dwellers. The
nation has one of the lowest population densities in the Southeast Asian region.
EXHIBIT 6: COUNTRY LOCATION
The nation is ethnically diverse: over 130 distinct ethnic groups exist in Myanmar and
are officially recognised by the government, although the top eight of these constitute
circa 95% of the population. By far the largest of the ethnic groups is the Bamar people,
who make up approximately two thirds of the population.
Similarly, various religions are practised in Myanmar. There is no official state religion,
although Buddhism is practised by circa 89% of the population. Christianity and Islam
are both thought to be practised by circa 4%, Hinduism by circa 2%, and other
religions by the remaining 1%.
Economy
The economy lags behind its ASEAN peers due to decades of isolation: despite its large
size and population and abundance of natural resources, in 2011 the country’s GDP of
$50.4bn only amounted to 0.2% of Asia’s total GDP.
Myanmar’s economy is heavily dependent on its agricultural sector. In 2010, the sector
contributed 42% of the nation’s total GDP and employed circa 60% of the workforce.
GDP per capita is the lowest of the ASEAN members. In 2010, the figure was $804;
neighbouring Thailand’s was over five times as high.
The economy is now in a unique position to develop rapidly and for all of its sectors to
expand. Having been isolated from the rest of the world and insulated from the effects
of globalisation for half a century, it is now – with a newly installed civilian government
– in effect at a fresh beginning. Improving equalities on the social and political fronts,
coupled with increased involvement and assistance from the international community
(crucially, in the form of FDI), will be the catalysts in driving the anticipated economic
growth.
Source: Company data
10
In the following five pages (pp.11-15), we first examine Myanmar’s social, political and
economic failings over the past half century. In the subsequent four pages (pp.16-19), we
explain how each of the specific failings has been, or is in the process of being, addressed;
and ultimately how these changes will stimulate economic growth and encourage
increased FDI.
Allenby Capital
Annexed by Britain on 1 January 1886
Burma becomes the ‘rice bowl of the world’
Burma’s economy flourishes under British rule...
Following the Anglo-Burmese Wars (1824 – 1885), Burma was annexed by Britain on 1
January 1886. Although resentment for the British was strong, the nation’s economy
thrived in the first quarter of the twentieth century.
The British recognised the potential of the rich soil in the flats surrounding the Irawaddy
Delta. Having cleared the dense forestry in the region, huge swathes of land were used to
cultivate rice. An entire population shift rapidly occurred as Burmese seeking labour
moved from areas of the country to the Irrawaddy Division (the low expanse of land
jutting out into the Bay of Bengal and the Andaman Sea). By the 1930s, the nation had
become the largest exporter of rice on the planet dispatching as much as 7m tonnes per
annum, and had become known as ‘the rice bowl of the world’.
Under British rule other natural resources such as forestry (especially teak), oil, gas and
precious gemstones were also extensively tapped.
Decline in price of rice damages economy
...Yet benefits were only reaped by the British and the Indians
Prior to 1937, Burma had been treated by the British as an Indian state (it was
subsequently made a crown colony). Indians from an array of social strata migrated over
to supply both cheap labour and credit to the Burmese workers, as the British were
unwilling to. When the global price of rice plummeted in the 1930s, the Indians were
thus in a position to snatch vast land parcels as Burmese workers defaulted on debts.
MYANMAR INVESTMENTS INTERNATIONAL LTD (MIL.L) 1 April 2015
1900s: A CENTURY OF RICHES TO RAGS
WW2 further ravages economy
WW2 resulted in Japan occupying the nation for three years, before Britain liberated its
colony. During the period, the country’s nascent industries were largely destroyed by the
fighting, through both indiscriminate bombing and acts of self-sabotage.
British rule ends in 1948
Burma given independence and becomes an independent republic
On 4 January 1948, Burma became an independent republic, and immediately embarked
upon a policy of nationalisation. Owing largely to macro economic mismanagement, the
military staged a coup d’état in 1962.
Burmese Way to Socialism disastrous for
economy
1962: Military coup d’état brings economy to its knees for almost 50 years
With the military in control, the economic situation in fact deteriorated further: the
‘Burmese Way to Socialism’, an economic scheme to nationalise all industries with the
exception of the agricultural industry, was put into effect and had soon transformed
Burma into one of the world’s poorest nations. In 1989, the military junta renamed the
country, ‘the Republic of the Union of Myanmar’.
Economic growth lags far behind that of ASEAN
neighbours
Although the military did ease its stance on socialism from the ’90s onwards, allowing
expansion of the private sector, the economy of Myanmar grew at a far slower rate than
those of its ASEAN (‘Association of Southeast Asian Nations’) peers. Before we analyse
the actual economic issues it faced, it is important to appreciate how political and social
matters during the period impacted, directly or indirectly, upon the economy.
Political / Social concerns:
i)
Political oppression
The suppression of the lead opposition party, the National League for
Democracy (‘NLD’), provides a prime example of the military junta’s strictly
anti-democratic stance. The NLD’s founder and figurehead, Aung San Suu Kyi
– Nobel Peace laureate and daughter of General Aung San, the assassinated
hero who negotiated Myanmar’s independence from the British – was put
under house arrest for 15 out of 21 years between 1989 and 2010, making her
11
one of the world’s most renowned political prisoners. Her party won a
substantial majority in the 1990 general election, yet the military junta did not
recognise the victory. Again, in 2010, the NLD was effectively banned from
entering the election.
EXHIBIT 7: AUNG SAN SUU KYI
Here is not the place to resume the debate of whether capitalism and
democracy can operate efficiently without the other: nevertheless, it is suffice
to say that, in this case, the complete oppression of democracy has undeniably
prevented the thriving of capitalism in – and ultimately the economy of –
Myanmar.
Source: geonice.com
ii)
Ethnic conflict
Ethnic rebellions have been chronic since Myanmar gained its independence
from Britain in 1948. Whilst some ethnic groups fight for regional autonomy
(e.g. the Kachin), others merely seek the implementation of a federal
government structure (such as the Karen people). In either case, fighting at the
frontiers has clearly inhibited economic growth in those regions and caused
deep-rooted resentment. In addition, the harrowing tactics utilised by the
government on a number of these ethnic groups resulted in other nations
putting in place various economic sanctions with Myanmar.
iii)
Corruption and cronyism
Owing to the military in essence having complete control of government and
the public institutions for a half century, corruption and cronyism have
unfortunately become synonymous with Myanmar. In 2012, for example, the
global watchdog Transparency International ranked the nation 172 out of 176
surveyed for its Corruption Perceptions Index.
iv)
Censorship
Freedom of Speech is considered to be a cornerstone for any democratic state.
Up until 2012, the military effectively censored every single publication in the
country, from newspaper articles to cartoons, via the Ministry of Information’s
Press Scrutiny and Registration Division. In 2010, another global watchdog,
Reporters Without Borders, in its Press Freedom Index ranked Myanmar 174
out of 178, ahead of only Iran, Turkmenistan, North Korea and Eritrea.
v)
Defunct legal system
The rule of law was drafted when the military held absolute power. This led to
politicisation of the judiciary: the system was laced with corruption and
became a tool for the military to remove any opponents.
EXHIBIT 8: CORRUPTION PERCEPTIONS INDEX
Rank
Country
Score
169
170
170
Iraq
Turkmenisan
Uzbekistan
18
17
17
172
Myanmar
15
173
174
174
174
Sudan
Afghanistan
North Korea
Somalia
13
8
8
8
Source: Transparency International, 2012
N.B. Scores range from 0 – 100
EXHIBIT 9: PRESS FREEDOM INDEX
Rank
Country
171
172
173
China
Sudan
Syria
174
Myanmar
175
176
177
178
Iran
Turkmenistan
North Korea
Eritrea
Source: Reporters Without Borders, 2010
12
In tandem with, and largely as a result of, the key political and social concerns
highlighted above, Myanmar’s economy endured sluggish growth throughout the second
half of the 20th century, trailing far behind the growth of the majority of its ASEAN
peers.
EXHIBIT 10: 1950 TO 1990: GDP PER CAPITA OF MYANMAR AND NEIGHBOURS
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
MYANMAR INVESTMENTS INTERNATIONAL LTD (MIL.L) 1 April 2015
Allenby Capital
$2,000
$0
Myanmar
Thailand
China
Laos
India
East Asia
Source: Maddison Project, 2013, Bolt, J. and J. L. van Zanden (2013); Allenby Capital
We highlight some of the key economic failings that were (and to a large extent remain)
most evident:
Economic failings:
i)
In the past, the Central Bank of Myanmar
lacked independence from the military junta
Only circa 400 bank branches across the
nation
Weak, distrusted banking system
The heart of the banking issue resided in the fact that the Central Bank of
Myanmar was not independent from the political power, i.e. the military junta.
Constant interference in its activities resulted in diabolical mismanagement of
the nation’s fiscal and monetary policies. An example would be of the Central
Bank imposing fixed interest rates on the nation’s private banks, as well as
bans on loan terms of more than one year made to their customers.
Besides the Central Bank of Myanmar, there are four stated owned banks and
only 23 private banks – between them they operate through only circa 400
branches across the nation. The banks are all considered to be poorly
capitalised.
In 2003, the collapse of a number of deposit taking companies (none of which
actually had licences to take deposits) led to a run on the private banks and
ultimately a nationwide liquidity crisis. Savings have subsequently been
predominantly hoarded in land and gold. According to research undertaken by
the Federal Reserve Bank of St. Louis, in 2011 there were only 123 bank
accounts for every 1,000 adults in Myanmar. 2
In 2011, there were only 123 bank accounts for
every 1,000 adults in Myanmar
2
http://research.stlouisfed.org/
13
ii)
The overvalued exchange rate of the Kyat
One of the key failings of the military junta in terms of monetary policy was its
decision to peg the nation’s official currency – the Kyat – to the International
Monetary Fund’s special drawing rights at 6.4 Kyat per US dollar. This rate
was only available to state owned companies and was in excess of 100 times
stronger than the black market rate used for most transactions. An overvalued
Kyat lowered the cost of imports but significantly hurt the incomes of the
domestic producers (such as traders and farmers) using the black market rate.
iii)
Almost non-existent capital markets
The Myanmar Securities Exchange Centre (‘MSEC’) is located in the nation’s
former capital, Yangon, and is Myanmar’s only stock exchange. It was formed
in 1996, with two companies floating on it when it launched operations. No
new companies have listed on it in the 19 years since; trading volumes are
minimal and over-the-counter in nature. The failure of MSEC to gain traction
has resulted in lack of funding for many companies that otherwise would have
been able to obtain it, had an efficient stock exchange existed.
iv)
Insufficient electrification
According to the World Bank, over 70% of people in Myanmar did not have
access to electricity in 2013. In rural areas, this figure increased to 84% of the
population. For many industries, the lack of a reliable and sufficient power
infrastructure has been a key inhibitor of growth.
v)
Poor telecommunications / internet services
Penetration of telecommunications infrastructure is extremely low in Myanmar
– the lowest of any ASEAN country. In 2012, 5.4m people had access to a
mobile phone, 0.6m to a fixed line phone and 0.5m to the internet. 3 According
to World Bank data for the year 2011, Myanmar’s internet penetration ranked
186 out of 187 nations, whilst its mobile penetration was the lowest in the
world, out of 189 participants. The underlying issue derived from the virtual
monopoly of the industry enjoyed by the state owned Myanmar Posts and
Telecommunications (‘MPT’) during the military junta’s rule.
vi)
Poor transportation and logistics networks
The country’s roads, railways, ports and airports are all severely
underdeveloped: in 2012, the World Bank published Logistics Performance
Index ranked Myanmar 133 out of 155 participant countries.
‘Pegged’ official rate of the Kyat against the
dollar over 100x stronger than the domestic
black market rate
Only 2 companies have listed on Myanmar’s
stock market, MSEC, in its entire 19 year
history
70%+ of population did not have access to
electricity in 2013
In 2011, World Data statistics revealed
Myanmar to have amongst the world’s lowest
mobile and internet penetration rates
In 2011, there were approximately 38 vehicles per 1,000 people in the
country. 4 There has been lack of direction over road development largely
because of no single agency having authority over the sector. Three
government ministries all have some sort of responsibility, as do a number of
regional development committees.
38 vehicles per 1,000 people in 2011
In terms of Myanmar’s nine ports, only one – the Port of Yangon – has
significant capacity, with the eight others comprised of small coastal ports.
Yangon accounts for circa 90% of the nation’s cargo throughput. 5
Only 1 deep-sea port currently in operation
The railway sector is currently a monopoly operated by the state-owned
Myanmar Railways. The network, although having been expanded by almost
78% between 1988 and 2010, is reported to be in poor condition and has
lacked adequate investment for decades. 6
3
Cutting through complexity, KPMG, 2013
KPMG, 2013
KPMG, 2013
6
KPMG, 2013
4
5
14
Only 3 international airports currently in
operation
Finally, as of May 2013, only 32 of Myanmar’s 69 airports were operational.
Out of the 32, only 3 constituted international airports.
The struggles of the economy as it has attempted to grow on weak foundations have
been exacerbated over the years by the international response to the nation’s political
and social concerns. Numerous countries and organisations put in place heavy economic
sanctions that prohibited receipt of imports from Myanmar, exports to Myanmar, and
perhaps most significantly, FDI (see Exhibit 11 below). The movement of people, ships
and aircraft from Myanmar amongst those nations has likewise been heavily curtailed.
In light of the above, it is unsurprising that in the 2013 edition of the Index of Economic
Freedom published by The Wall Street Journal and Heritage Foundation, Myanmar
ranked 172 out of 177 nations. Likewise, from an outside perspective, the blend of
social, political and economic failings rendered the nation a difficult option to select as a
recipient of FDI. This only served to compound economic stagnation.
EXHIBIT 11: 1990 TO 2006: FDI INTO MYANMAR STAGNATES
$800
MYANMAR INVESTMENTS INTERNATIONAL LTD (MIL.L) 1 April 2015
Allenby Capital
$700
$600
Millions
$500
$400
$300
$200
$100
2007
2004
2001
1998
1995
1992
1989
$0
FDI, net inflows
Source: World Bank, Allenby Capital
15
A NATION NOW IN TRANSITION
2010 general election viewed as fraudulent by
Western world
2012 by-elections viewed much more
favourably
An acrimonious start to political transformation...
In 2008 a constitutional referendum was held in order to lay the foundations on which
to rebuild a democratic state. Multi-party elections followed in 2010. However, old
issues were immediately visible under the new constitution, with the NLD declared
illegal and broken up by the military junta in the lead up to the November 2010
elections. The military-backed USDP consequently was victorious in the essentially
uncontested elections, and U Thein Sein, a former military commander, became
President of the country in March 2011.
...But with real progress now being made on the political scene
The 2010 election was dismissed as fraudulent by much of the Western world.
Surprisingly however, the new President immediately commenced pushing through
cautious, democratic reform. NLD figurehead Aung San Suu Kyi was released from
house arrest in November 2010: President U Thein Sein met with her in private and they
purportedly agreed to put aside their differences for the benefit of the people. The 2012
by-elections were more favourably received by the global audience: Aung San Suu Kyi’s
lead opposition party, the NLD, enjoyed an overwhelming success.
Below, we describe how the political and social issues as highlighted on pp.11-13 are
being tackled:
i)
Hundreds of political prisoners have been
released over the past 3-4 years
Successful, transparent general election in
2015 is key to improving international relations
Alleviating political oppression
A crucial step taken by the USDP (especially in the eyes of the international
community) has been the release of hundreds of political prisoners since late
2011. Such prisoners were comprised of a variety of people including
journalists, monks and pro-democracy activists. Another important step taken
was in October 2011, when the government passed legislation that gave rights
to labour unions.
With the world watching closely, the 2015 elections are likely to be conducted
with greater transparency than the 2010 elections. The general consensus
remains that the NLD is unlikely to win an outright majority in parliament,
with the military backed USDP enjoying an automatic 25% of seats (the NLD
would thus require two thirds of the seats simply for a bare majority within
parliament). Nevertheless the elections should give the democratic reform
process a boost in terms of legitimacy.
It is as yet unclear whether Aung San Suu Kyi will be able to run for the
presidency under the current constitution and may instead have to opt for the
role of kingmaker or another senior role in government.
Whilst this may not sit well in the eyes of the West, it is a much discussed topic
locally: of the potential presidential candidates, all are seen as pro reform (and
not just Aung San Suu Kyi) even though their styles and reputations differ.
Therefore whatever is the outcome of the election later this year, Myanmar is
expected to continue upon its trajectory of increased openness and its
transition to greater democracy.
ii)
16
Halting ethnic conflict
The current government has managed to negotiate ceasefires with all of the
main ethnic groups, bar Kachin state which lies in the northern tip of the
country and borders India and China. Current peace negotiations are at a
delicate stage and could, for the first time in 50 years lead to a cessation of
conflict and a federal system being formed.
iii)
Addressing corruption and cronyism
In July 2013, an anti-corruption law came into effect: last year, President U
Thein Sein created a 15 man Anti-Corruption Commission. It has been met
with cautious optimism, although doubts remain as a number of
commissioners comprise former military personnel. Even so, improvements
have been noted: Myanmar moved up from second bottom spot (173rd) in
Transparency International’s worldwide Corruption Perceptions Index for
2012 (see p.12), to 157th in 2013.
iv)
Removing censorship
In August 2012, the Information Ministry abolished pre-publication
censorship, with reporters no longer required to submit work to the Press
Scrutiny and Registration Department. Myanmar has improved its ranking in
the Reporters Without Borders Press Freedom Index over recent years, moving
from being in the bottom five (174th – see p.12) to 151st in 2013.
EXHIBIT 12: CORRUPTION PERCEPTIONS INDEX
Rank
Country
Score
154
154
157
Republic of Congo
Tajikistan
Burundi
22
22
21
157
Myanmar
21
157
160
160
160
Zimbabwe
Cambodia
Eritrea
Venezuela
21
20
20
20
Source: Transparency International, 2013
N.B. Scores range from 0 – 100
EXHIBIT 13: PRESS FREEDOM INDEX
Rank
Country
148
149
150
Russia
Singapore
Iraq
151
Myanmar
152
153
154
155
Gambia
Mexico
Turkey
Swaziland
Source: Reporters Without Borders, 2013
Nowadays, there is a plethora of weekly and daily publications, some openly
supporting the opposition and increasingly professional news coverage of
political analysis.
MYANMAR INVESTMENTS INTERNATIONAL LTD (MIL.L) 1 April 2015
Allenby Capital
Some of the former dissident press based overseas have now returned to set up
local publications and have resumed the printing of their same editorial
policies.
v)
Defunct legal system – turning ‘rule of law’ into a reality
Although the nation appears in unison in seeking the establishment of the ‘rule
of law’, implementing it is proving challenging given the limited number of
qualified and over worked civil servants, and is the least developed of our
listed legacy issues in the new era of civil rule. Small steps have been made, but
the key concerns to be addressed still remain: a lack of an independent
judiciary and lack of resources (low wages, inadequate research libraries /
material, lack of support staff etc) to improve said judiciary.
“A Burmese spring: After 50 years of brutal military rule, Myanmar’s democratic opening has been swift and startling.”
The Economist, May 2013
17
STEPS BEING TAKEN TO STIMULATE ACCELERATED ECONOMIC GROWTH
Improving political and social equalities lay the foundation for economic growth
In tandem with the gradual improvements being made on the political and social fronts,
the nation’s economic woes are steadily improving: internal powers are working in cooperation to build a stronger economy and are being lent substantially increased support
from the international community. We demonstrate how these improvements are being
made for each of the economic issues highlighted on pp.13-15:
i)
2013: Central Bank is granted autonomy
In November 2014, nine licences were issued
to foreign banks enabling them to commence
full scale operations in Myanmar
Restoring faith in the banking system
In August 2013, a major change in Myanmar’s financial sector was
implemented by the separation of the Central Bank from the Ministry of
Finance and Revenue. The Central Bank’s new found autonomy gives it the
right to issue new currency, with its primary objectives being to sustain
monetary and fiscal stability and to keep inflation in check.
Revisions to the Financial Institutions Law (first introduced in 1990) are
currently being discussed in parliament. At present, there are 43 foreign banks
with a presence in Myanmar: these play the role of liaison with their ‘home’
investors and do not operate fully in the banking system. 25 of these banks
have applied for operating licences: and in November 2014 the government
issued nine such licences to established banks like ANZ and Bangkok Bank.
ii)
Floating the Kyat
In April 2012, the Central Bank announced the flotation of the Kyat against
the US dollar at an initial rate of 818:1 (official rate was previously pegged at
circa 5.5 to 6.5:1). This has resulted in a weakening of the black market
exchanges and has helped to attract FDI.
iii)
Launching a new stock market in Yangon in October 2015
In April 2012 the Tokyo Stock Exchange, Japan-based Daiwa Securities Group
Inc. and the Central Bank of Myanmar reached an agreement to establish a
new stock exchange in Yangon, with a launch date pencilled in for October
2015. This will replace the defunct MSEC. The exchange should be of great
assistance in giving large domestic companies access to much needed capital.
Initially, only domestic investors will be able to invest in companies listed on
the new exchange, although we anticipate that this will be amended to include
foreign investors once a reliable FX mechanism has been established.
Floating the Kyat has weakened the black
market and helped to attract FDI
New stock market will replace the defunct
MSEC
Approximately 200 domestic companies have already converted to ‘PLC’
status, which we are highly encouraged by. The government is currently
reviewing applications from an array of banks and other financial institutions
for Underwriting, Broking, Dealing and Investment Advisory licences. It is
anticipated that the granting of said licences will commence in April or May.
iv)
Ambitious targets in place to provide nationwide electricity by 2030
The government has set a target of providing electrification to all households
in the nation by 2030. FDI is set to play a key role in achieving this: the World
Bank has earmarked $1bn of a total committed $2bn to be used in expanding
electrification generation, transmission and distribution over a multi year
investment plan; and the Asia Development Bank has loaned $60m in order to
improve the supply of electricity to circa 480,000 households.
v)
Inviting in foreign companies to fast-track telecommunications sector
By 2016, the government is targeting mobile phone density of 75% to 80%,
and internet penetration of over 50%. To achieve this, two significant steps
have been taken:
World Bank and Asia Development Bank have
earmarked funds to develop the nation’s power
sector
18
State-run MPT is being modernised and is
partnering with international firms
Firstly, substantial effort has been put into modernising the state-run MPT.
The group has partnered with foreign companies to fast-track this effort, such
as with Japan telecoms outfit KDDI and Sumitomo Corporation (who will
operate MPT under a contract basis) and California-based tech firm Dialogic
Inc (who have been selected to assist in the modernisation and expansion of
MPT’s domestic core switching infrastructure). Ultimately, the government
intends to fully privatise MPT.
Secondly, in early 2013 the government invited foreign investors to bid for two
national mobile telecommunications licences. The tender (that was bid for by
over 60 leading international operators in total) was won by Norway’s Telenor
and Qatar’s Ooredoo. The two companies are the first international mobile
providers to launch their services in the nation.
Successful tender in 2013 to international
operators for two national telecoms licences
vi)
Improving the transportation networks
The government is prioritising the development of its transportation
infrastructure: a strategy of encouraging private sector involvement is being
adopted. For example, Indian, Chinese and Thai corporations are driving the
development of border cross roads and deep-sea ports (notably the Dawei port
in the south of the country by the Thai (an $8.6bn project) and the Kyaukphyu
port in the north by the Chinese). Similarly, two domestic airports are being
upgraded to international status: the tender to develop the Hathawaddy
International Airport was won by a Singaporean consortium, and is estimated
to cost circa $1.5bn.
Roads, ports and airports being developed with
the assistance of foreign corporations
MYANMAR INVESTMENTS INTERNATIONAL LTD (MIL.L) 1 April 2015
Allenby Capital
Transition to peace, democracy and an opening economy is encouraging FDI
2011-2012 were the years of political and social reform for Myanmar: a time of
fundamental transformation from a military socialist state into a civilian democratic
state. The transformation has been cautious and stuttering, and is many years from
being complete, yet the encouraging start and the signs of a better future have been
sufficient for many nations to accept Myanmar back into the international fold.
The substantial improvement in inflow of FDI in recent years is testament to this.
Millions
EXHIBIT 14: FDI INTO MYANMAR HAS PICKED UP SUBSTANTIALLY IN RECENT YEARS
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$1989
1992
1995
1998
2001
2004
2007
2010
2013
FDI, net inflows
Source: World Bank, Allenby Capital
19
A WEALTH OF UNTAPPED NATURAL RESOURCES
Overview
Myanmar possesses a huge wealth of untapped natural resources at its disposal which
are amongst its most important assets. The country produces circa 90% of the world’s
rubies, as well as significant amounts of sapphires, pearls and jade; it has significant
deposits of coal, nickel ore and chromite; at least 60% of the world’s teak reserves; large
tracts of forestry; substantial fisheries; vast untapped resources of rubber, oil and natural
gas; and of course an established rice industry that has the capacity to boost output
considerably.
The ‘new’ democratic civilian state of Myanmar is slowly building on the foundations
laid in 2011-12 after the military junta relinquished its hold over a totalitarian socialist
state and officially disbanded. The economy is already showing signs of thriving on this
new look state: at the core of the economy’s development is a national and international
desire to fully access the country’s natural resources.
EXHIBIT 15: FARMLAND BY CROP (17.3M HA IN 2012)
Maize,
2%
Rubber,
3%
Oilseed
Crops,
19%
Rice,
47%
Pulses,
25%
Farming, especially of rice
Myanmar’s economy remains heavily dependent on agriculture, unlike those of its
ASEAN peers that have experienced shifts towards being based primarily on industrial,
manufacturing and services sectors. As MGI demonstrated, between 1965 and 2010
Myanmar’s agricultural actually increased its share of GDP from 35% to 44% of total
GDP.
EXHIBIT 16: AGRICULTURE DOMINATES MYANMAR’S ECONOMY
60
Other,
4%
50
Source: CLSA Asia-Pacific Markets, 2013; Allenby
Capital
40
30
20
10
0
Myanmmar
Indonesia
Thailand
Malaysia
1965
Philippines
China
South Korea
2010
Source: MGI quoting World Bank data and Central Statistical Organisation data; Allenby Capital
In the 20 year period from 1990 to 2010, the area of rice paddies under cultivation
increased 69%, from 4.76m ha to 8.05m ha. Enhanced yields resulted in production
over the period improving 138%, from 14.0m tons to 33.2m tons. 7
The nation is intent on re-establishing itself as a major force in the rice export industry,
despite facing heavy competition from neighbours (esp. Thailand and India). Japan has
7
20
Stepping back into the light, CLSA Asia-Pacific Markets, 2013
already demonstrated a keen interest in Myanmar’s rice industry, having funded the
construction of rice mills in the country and recommenced importing rice from
Myanmar after a 50 year break.
Myanmar possesses c.60% of the world’s teak
reserves
EXHIBIT 17: RUBBER PRODUCTION INCREASING
Year
Planted area (acre)
Production (MT)
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
558,565
728,329
935,800
1,057,395
1,143,427
1,246,531
1,342,202
64,239
73,355
88,528
93,207
111,673
127,921
149,619
Source: ASEAN Plus 2013 Rubber Conference,
quoting Prennial Crops Division, DICD
Accounts for 90% of global ruby production
16 recorded major coal deposits
Teak
It is estimated that circa 60% of the world’s reserves of teak are found in Myanmar.
Although a number of its neighbours export plantation teak, Myanmar was, prior to
March 2014, the only nation in the world that exported natural teak (with the largest
importers of teak being its direct neighbours, India and China). However, in March in a
bid to protect the country’s forests against an onslaught of illegal logging, exporting raw
timber of all kind was banned. Nevertheless, there remains significant domestic demand
as well as international demand for milled lumber (which is not covered by the export
ban).
Rubber
Although commercial planting of rubber in Myanmar began in 1909, only in the past
two decades has production witnessed a significant ramp up. In the five years to
2011/12, production more than doubled from 73.4k tons to 149.6k tons. 52.7% of
production was exported: total exports amounted to $311.1m in the period. There is
significant scope to enlarge rubber production in the nation, with abundant vacant land
available on which to expand rubber plantations.
MYANMAR INVESTMENTS INTERNATIONAL LTD (MIL.L) 1 April 2015
Allenby Capital
Precious gemstones
Myanmar accounts for circa 90% of the world’s production of rubies. It also produces
significant amounts of blue sapphires, pearls and jade. The Valley of Rubies located in
the mountainous Mogok area in the north is famed for producing the exceptional
quality ‘Pigeon’s Blood’ rubies. As revenues from trade of these stones predominantly
funded the reign of the oppressive military junta for almost half a century, numerous
sanctions were enforced by the international community that prohibited trade in the
gems. With the military having now relinquished power, the gemstones industry has the
potential to flourish under investment and guidance from the private sector.
Coal
There are 16 recorded major coal deposits within Myanmar. These have not been
materially developed owing to a historical lack of sufficient investment coupled with the
remoteness of the reserves. At present, demand of electricity far outstrips supply across
the nation: therefore development of thermal coal power projects are being fast-tracked
with the managerial and financial assistance of multinational companies.
Nickel, chromite and other metals
In Chin State in the north-west, the government is working with a syndicate of Chinese
mining companies to develop nickel ore deposits totalling 110Mt and chromite deposits
amounting to 38,100t.
One of the world’s first oil producers, but the
industry has lacked significant development
7.8 trillion ft³ of natural gas – which would
exceed the UK’s total reserves, if proved up
accurately
2.1 billion barrels of oil
Oil and gas
Myanmar is one of the world’s oldest oil producers, having first pumped crude in 1853.
However, as with the majority of industries in the nation, it suffered a sharp decline in
output during the military’s 50 year rule. From 1988, the government partially opened
up the sector to foreign investment: (through the passage of the Stated-owned Economic
Enterprises Law (‘SEE Law’)) it ensured that it had exclusive rights to explore for and
extract oil and gas; but that it was entitled to bring in foreign JV partners to assist in
these activities.
Lack of exploration activities has resulted in a widely quoted range for the country’s oil
and gas reserves. In 2012, BP’s estimates were for 7.8 trillion cubic feet of natural gas
and 2.1 billion barrels of oil. These figures are likely to increase subsequent to further
investment in exploration programmes.
21
Government has begun awarding O&G blocks to
international players
As of March 2014, the government has awarded 46 onshore oil and gas blocks to
international players in landmark tenders. Licence winners include Shell, ENI, Statoil,
Chevron, BG and numerous Asian heavyweights such as Petronas and PTT Exploration
and Production.
Fisheries
Myanmar’s aquaculture industry is also significant: fresh fish and shell fish constituted
Myanmar’s fifth largest export in 2011. In 2010, exports to China alone amounted to
£555m.
EITI membership: a boost to credibility in the
eyes of the international community
22
Now a member of EITI
The natural resources sector was subject to an overhaul in 2014: in July that year,
Myanmar was accepted as a member of the Extractive Industries Transparency Initiative
(‘EITI’), the global programme aimed at battling corruption in the natural resources
sector. Granting of membership has acted as a stamp of approval for Myanmar’s natural
resources industries, which has consequently resulted in Myanmar being more of an
attractive prospect to international investors (from elsewhere than solely China) who
have previously held back owing to the negative standing on the global stage that the
military junta caused for the country during its half century reign.
Allenby Capital
“This is Burma, and it will be quite unlike any land you know about.”
Rudyard Kipling, 1891
Overview: political, social and economic changes are accelerating
Fundamental change is afoot across the political, social and economic scenes in
Myanmar. The civilian government running a democratic state, despite being backed by
the military, has pushed through political and social reform at a surprisingly rapid rate.
On the back of this, growth of the economy has been able to accelerate.
Positive developments across social, political
and economic fronts
After the ceding of power by the military junta,
Myanmar is being accepted back into the
international fold
Lack of both competitiveness and investment
has curtailed growth across all sectors
Crucially, the national mind-set appears to be desirous of maintaining the recent positive
development across all three fronts. A civilian run democracy with peace between ethnic
groups is key to Myanmar’s future prosperity.
Myanmar is reconciling with the global community
The above developments have reignited global interest in Myanmar and the investment
opportunities held within. Previous economic sanctions put in place owing to the
oppressive regime of the military junta have largely been lifted since the junta stepped
down in 2010. Although questions abound as to the legitimacy of this public withdrawal
by the junta, the fact that President U Thein Sein of the USDP and NLD leader Aung San
Suu Kyi are co-operating to bring about further reform has assuaged the doubts of many
waiting on the sidelines. The surge in FDI over the past four years is testament to this.
MYANMAR INVESTMENTS INTERNATIONAL LTD (MIL.L) 1 April 2015
MYANMAR: THE INVESTMENT THESIS
Every sector is in need of substantial investment to fund urgent development
Myanmar’s economy lags far behind those of its ASEAN peers in terms of output and
productivity. This is attributable to two chief reasons, namely i) the existence of a
socialist state for a prolonged period during which competition across all sectors was
suppressed by state-run entities; and ii) a severe lack of investment that has resulted in
outdated technologies and infrastructure – which has ultimately curtailed productivity.
Updated Foreign Investment Law has boosted
FDI over past two years
In November 2012, the newly updated Foreign Investment Law (originally passed in
1988) was enacted, which acted as a green light signal for many multinational
companies deliberating investment into the country. The Law allows for foreign
investors to own up to 100% of Myanmar based ventures (with the maximum
percentage dependent upon the sector in which the venture operates), and encourages
FDI via tax breaks, long land leases and the elimination of the threat of nationalisation.
Economy forecast to more than quadruple to
$221bn in twenty years to 2030
If FDI flowing into Myanmar does continue to increase as anticipated, the nation’s
$650bn of investment will be required to
achieve this growth – equating to c.25% - 35%
of GDP every year
Although there is ample room for Myanmar’s leading sector, agriculture, to grow
steadily, (MGI estimated a compound annual growth rate (‘CAGR’) for the sector of 4%
between 2010 and 2030) the opportunity for acceleration of economic growth lies in the
possibility to rapidly develop and expand other sectors. For this to be achieved, MGI
forecasts that Myanmar will require total investment of $650bn across its economy
during the period.
economy is well positioned to experience rapid, substantial and prolonged growth.
MGI’s study on the country’s economy estimates that it has the potential to more than
quadruple in size between 2010 and 2030, with GDP increasing to circa $221bn.
23
Billions
EXHIBIT 18: REAL GDP FORECAST TO GROW AT AN AVERAGE OF 7.7%PA IN THE 20 YEARS TO 2030
$250
7.7%
$200
$150
$100
10.3%
4.3%
$50
8.0%
5.1%
17.1%
22.2%
23.1%
$-
2010
2030
CAGR (%)
Source: MGI, Allenby Capital
Myanmar and its bordering countries contain
39.8% of the world’s population
EXHIBIT 19: DESTINATION BREAKDOWN OF EXPORTS
Other,
30.4%
India,
14.1%
Thailand,
36.7%
China,
18.8%
Source: Company data, Allenby Capital
Conveniently geographically located
Myanmar and the nations that directly border it have a combined population of circa
2.893bn, which amounts to 39.8% of the world’s population. Myanmar lies at the
epicentre of three of the world’s important trading blocks, namely India, China and
ASEAN. It is thus ideally positioned to export its in demand resources to the consumer
economies of its neighbours (see Exhibit 19) and to be the conduit through which trade
with the West flows.
Demographically primed for sustained growth
With a census having been completed last year that revealed a population some 10m less
than was widely believed, previous unemployment figures should be analysed with
caution. Nevertheless it is suffice to state that unemployment in the country is chronic: a
national survey in late 2012 found that circa 37% of the working force was unemployed.
Moreover, the country has an incredibly young population. Circa 40% of the working
population is aged between 15 and 28, with circa 25% of the entire population below
the working age. As such there is an abundance of cheap labour that will fuel the growth
of multiple sectors over the next two decades – the MGI report estimated that there is
potential to create an additional 10m non-agricultural jobs by 2030.
Growth already accelerating: opportunity at present to participate
Between 1900 and 1990, it has been estimated by MGI that whilst the global economy
grew at a rate of 3% pa, Myanmar’s economy barely progressed: in the 90 year period
GDP growth averaged 1.6% pa.
Economic growth has been accelerating over
the last quarter century
24
However, in the two decades to 2010, GDP picked up considerably. Official statistics
are questionable: in the decade to 2010, government statistics reported average annual
growth of 12%, although expert independent analysis (by the World Bank, IMF, MGI,
Asia Development Bank etc) is of the opinion that this figure is inflated. Nevertheless,
these independent bodies did report improved growth in comparison to the 1900 to
1990 period. MGI for example estimated average annual GDP growth between 1990
and 2010 of 4.7%, ahead of the average annual global growth of 3.2%.
Asian Development Bank forecasts growth of
8.3% pa over the next two years
Myanmar has the opportunity to replicate the
successful growth stories that many of its
ASEAN peers have experienced...
...But with the added benefit of having
witnessed the mistakes that these neighbours
made during their periods of accelerated
growth
Returnees betting on strong economic growth
in Myanmar will boost local labour constraints
Low labour costs attracting low end
manufacturers to the country
Myanmar: a high risk / reward opportunity
With political and economic change afoot, it is anticipated that growth will further
accelerate over the next decade. In 2012/13, Myanmar’s economy grew by 6.5%; this
increased to 7.3% in 2013/14; and last week, ADB forecast growth of 8.3% pa over the
next two years.
Tapping into Asia’s Final Frontier: a high risk, high reward play
Precedent has been set by Myanmar’s neighbours in recent decades for tremendous
economic growth that can be achieved over a prolonged period, given the right
conditions. Now that the military junta has stepped down and a unified national will
has emerged for progress to be made politically, socially and economically, there is a
genuine opportunity for Myanmar to replicate its neighbours’ success stories.
In fact, Myanmar will be able to leapfrog the technology curve in many areas, such as in
mobile banking, advanced Wi-Fi; online retail & education, computerised logistics
&warehousing etc.
Also – as has been the case with China and Vietnam – Myanmar’s returnees will provide
a much needed boost to local labour constraints.
MYANMAR INVESTMENTS INTERNATIONAL LTD (MIL.L) 1 April 2015
Allenby Capital
Low labour costs will provide a short term attraction for low end manufacturers. The
garment manufacturing industry has already enjoyed significant expansion in recent
years as a result of this.
Doubts do remain over to what extent the military has relinquished its power: the
President is an ex-military man; the leading party – the USDP – is headed by another exmilitary man; and ex-military men fill the USDP’s ranks. Despite much reform,
corruption is still rife and many industries remain opaque and monopolised. Numerous
sanctions also are yet to be lifted by the international community.
The political opening in Myanmar has created an unusual investment case for outside
investors: fast-track development of the country’s outdated industries and largely
untapped natural resources offers the prospect of compelling returns. However, Asia’s
Final Frontier is yet to prove itself a stable, safe and investor friendly nation. In its first
steps of political, social and economic rebirth, Myanmar presents a high risk, high
reward opportunity to investors.
“Probably the best investment opportunity in the world right now is Myanmar. In 1962, Myanmar was the richest country in
Asia. They closed off in 1962, and now it's the poorest country in Asia. I see enormous opportunities there because they're now
opening up. It's like when China opened up in 1978. There were unbelievable opportunities going forward. The same is true in
Myanmar now, in my view.”
Jim Rogers, Investor, July 2012
25
FIRST INVESTMENT: JVA IN MICROFINANCE SPACE
MYANMAR FINANCE INTERNATIONAL LTD: JVA OVERVIEW
Company contributing an initial $2.75m for a 55
stake in a newly formed microfinance
institution
JVA announced in August 2014
MIL has partnered with an established local microfinance business operating in the
Yangon and Bago regions, named Myanmar Finance Company Ltd (‘MFC’). The Joint
Venture Agreement (‘JVA’) created a newly incorporated foreign company in Myanmar,
named Myanmar Finance International Ltd (‘MFIL’). The initial capital contribution of
the two partners into MFIL will ultimately total $4.8m, with MIL’s portion amounting
to $2.75m for a 55% stake. The contribution is being made in tranches: for the first
(upfront) tranche, MIL contributed $1.1m in cash. MFC contributed $900k: this was
principally in the form of the transfer of its existing business into the new company.
In February 2015, MIL and MFC contributed a further $0.75m (with MIL paying
$0.41m of this for its 55% equity stake). The final tranche of $2.05m will be
contributed in cash as the business expands, with the drawdown date expected to fall
within 2015.
MFIL has both a lending and deposit taking licence.
MICROFINANCE IN MYANMAR
Efficient financial services sector crucial for
developing the wider economy
Only 16% of households use formal financial
services
Myanmar’s banks do not tend to operate in the
retail lending space
Myanmar’s financial sector: drastically underdeveloped, but being addressed
Myanmar’s financial services sector is small and underdeveloped. As highlighted on p.13,
the banking sector is undercapitalised, uncompetitive and severely lacking the public’s
trust. A stable and efficient financial services sector is a crucial ingredient for developing
the wider economy (it is beneficial both for domestic companies and peoples, and for
attracting FDI on a significant scale): the government is thus urgently addressing this
critical issue via a raft of new reforms and bold steps (see p.18).
Situation of financial access requiring urgent attention
Owing to a weak financial services sector, financial access to the retail market is severely
limited. A survey in 2012 by the Livelihoods and Food Security Trust Fund found that
of 4,000 households, only 16% used formal financial services. Only 6% of adults saved
with a regulated financial services provider, and 3% had insurance from a regulated
institution. Domestic credit cards have not yet been introduced into the economy, and
very few vendors even accept payment via foreign Visa cards. Only two of the state
owned banks deal in micro-lending, whilst the private banks similarly do not generally
make small loans.
Low income people therefore resort to borrowing from unregulated loan sharks at rates
of between 10% and 20% per month.
The concept of the provision of microfinance is consequently fast gaining traction in
Myanmar.
Microfinance: the provision of finance to
groups of business people that act as the
guarantors for individual group members who
receive the loan
26
Microfinance: what is it?
In short, microfinance is the provision of finance to people on low incomes who
otherwise would not have access to borrowings. In Myanmar, the practice of lending via
local co-operatives is becoming commonplace: a group of businessmen and women will
take on the risk of a member of its group seeking financing. Microfinance institutions
(‘MFIs’) such as MFIL lend to groups of borrowers as opposed to the individual business
owners so as to enjoy the benefits of the ‘pre-screening’ process. Groups of people will
form themselves. The heart of the credit assessment in microfinance stems from fact that
the group assembles itself so only creditworthy/reliable partners will be admitted.
Women are important members of such groups.
So far, the model has proved extremely effective for MFIL, with nil defaults having
occurred to date. The cause of this is that, in contrast to Western based societies where
the close ties of family and society have largely broken down, these ties remain
fundamental in Myanmar and other Southeast Asian nations: as such, integrity and duty
drive local business owners to honour and meet their debt obligations.
70%+ shortfall of provision of microfinance
c.250 licences have been granted to MFIs
The microfinance market in Myanmar
It has been estimated that demand for microcredit is circa $1bn. 8 However, as a result of
the banks’ reluctance to lend to persons or small entities, the country’s total microloan
portfolio has been estimated to be $283m (spread across circa 2.8m microclients). There
is therefore a shortfall of microfinance provision of over 70%.
In order to combat the insufficiency of available financing to small business owners, the
government enacted a series of laws (notably the Microfinance Law) in 2011 that
essentially formalised the microfinance sector. The Ministry of Finance has, since then,
granted licences to circa 250 MFIs.
MYANMAR INVESTMENTS INTERNATIONAL LTD (MIL.L) 1 April 2015
Allenby Capital
Most of the licence holders are small, localised operations (often NGOs) and lend from
their own capital bases.
Loan sizes presently capped by law at $5,000
The current law allows for MFIs to extend loans of up to $5,000, although the average
in the industry is estimated to be circa $150. Lending rates are capped at 30% pa (or 2.5%
pm), and the minimum rate on deposits is 15% pa (or 1.25% pm).
JV company already ranks amongst the top
microfinance players in the nation
Given the nascent state of the industry, the majority of the MFIs remain very small
enterprises. MIL estimates that circa 90% of these possess balance sheets smaller than
$100k. MFC was therefore likely in Myanmar’s top ten MFIs in terms of size of loan
book: post the $4.8m capital injection, the new joint venture company MFIL will likely
rank among the top players in the nation.
MFIL: CURRENT STATUS AND SHORT TERM TARGETS
Pre-JVA, MFC had a balance sheet of c.$825k
and a client book of c.10,000
Existing business of MFC, prior to the JVA
U Htet Nyi founded MFC approximately two years ago and remains its Managing
Director. He is a prominent and respected businessman in the nation, and is the
Honorary Consul for Norway and Finland. Having been one of the first MFIs in
Myanmar to secure a licence, MFC already operates through branches in the regions of
Yangon and Bago. Prior to the JVA, it had built up a balance sheet of circa $825k and a
client book of circa 10,000. MFC’s loans per client were (and remain under MFIL) on
average less than the $5,000 maximum under current law. They are usually for 10 to 12
month periods at the government regulated maximum interest rate of 30% per annum.
Clients typically comprise small-scale business operators.
MFIL in start-up phase and loss making
MFIL is in the start-up phase of its growth cycle: as such, in the year to 31 March 2014
(whilst trading as MFC) it incurred a net loss of $32.5k.
Partnership with MIL will accelerate the build
up of balance sheet and client bank
JVA set to substantially scale up operations
MFC sought out MIL in order to capitalise on the considerable opportunity to expand
its operations in the near term. In addition to the capital injection, the MIL team brings
to the JVA extensive connections to financing companies in the nation and wider
ASEAN region that will be of significant benefit as the business expands. Moreover,
8
Microfinance in Myanmar: Sector Assessment, International Finance Corporation, 2013
27
MIL has access to the capital markets through its AIM listing that will be beneficial to
MFIL when it requires further capital injections to maintain growth.
MIL sourced a CEO for MFIL
MFIL expected to reach profitability once loan
book reaches $7.5m
MIL was responsible for sourcing an experienced CEO for MFIL and has been assisting
in setting up the operational processes.
Current trading
The market has not been provided with a trading update since the formation of MFIL
We await an update before passing comment on trading or providing forecasts.
However, MIL’s management team anticipates that MFIL will move into profitability
once its book has surpassed the $7.5m mark.
MFIL: OPTION AGREEMENT WITH NORFUND
Option agreement for Norfund to acquire up to
a 25% equity stake in MFIL
Would constitute a purchase of new shares in
MFIL
The details of the option agreement
In January 2015, MIL and MFC entered into an option agreement with The Norwegian
Investment Fund for Developing Countries (‘Norfund’). The agreement grants Norfund
the option to subscribe for up to a 25% equity stake in MFIL. The option expires on 3
September 2016.
The option agreement would allow Norfund to acquire newly issued share capital in
MFIL, thus diluting both MIL and MFC such that (assuming that the option were to be
exercised in full) MIL’s and MFC’s equity stakes would decrease to 37.5% each. In
effect, Norfund would be taking up a portion of the unsubscribed commitments.
For MIL’s part, this would result in its initially anticipated $2.75m commitment to
Phase 1 funding of $4.8m reducing to $1.92m.
If the option is exercised in full, MIL’s
outstanding cash commitment to MFIL would
reduce to $0.41m from $1.24m
DFIs exist to combat poverty in developing
countries through the provision of finance to
private sector entities
Norfund has a portfolio of circa $1.6bn and
focuses on the agriculture, clean energy and
FS sectors
Given that $1.51m cash has already been contributed to MFIL by MIL ($1.1m in
August 2014 and $0.41m in February 2015), a fully exercised option by Norfund would
reduce MIL’s outstanding cash commitment to a further $0.41m (currently $1.24m).
Development Finance Institutions (‘DFIs’)
Norfund represents Norway’s development finance institution (‘DFI’). DFIs are state
owned entities of nations with developed economies. Their purpose is primarily to
provide funding in the form of both equity and debt to private sectors in developing
countries. Specifically, DFIs provide such funding to private sectors with the aim of
combatting poverty in these developing countries. Companies located in nations with
less developed economies might otherwise struggle to source sufficient capital required
to develop and grow; it is in these scenarios where DFIs are active.
The Norwegian Investment Fund for Developing Countries (‘Norfund’)
Norfund was established by the Norwegian Parliament in 1997. As at end 2013 it had a
portfolio of circa $1.6bn and 54 employees. In line with other DFIs, its primary target
sectors are agriculture, clean energy and financial services (principally microfinance,
funding for SMEs and development banks). It operates in Eastern and Southern Africa,
Central America, and South and Southeast Asia.
Examples of its experience in the financial services space within Southeast Asia are:
-
28
ACLEDA Bank Lao - $6.0m loan
Bank established in 2008 by a team from ACLEDA Bank Plc (based in
Cambodia). Specialises in providing financial services to micro-clients and
SMEs in Laos.
Norfund has been involved in numerous
microfinance and SME funding ventures across
SE Asia…
…including in one microfinance enterprise in
Myanmar itself
Norfund has both the experience and the
industry connections to accelerate the build of
MFIL’s loan book
-
Amret - $3.2m loan
Leading MFI in Cambodia.
-
BRAC - $0.5m loan
MFI operating in Bangladesh.
-
Brac Bank - £5.5m convertible bond issue
Market leader for provision of financial services to SMEs in Bangladesh.
-
First Finance - $2.4m loan
MFI operating in Cambodia.
-
Sacombank - $20m loan
Leading commercial SME bank in Vietnam.
-
Proximity Designs - $1.6m loan
Proximity is a social enterprise in Myanmar that caters to rural smallholders.
Founded in 2004, it provides irrigation and energy products and farming
advisory services. In 2012, Proximity obtained a microfinance licence, which it
is using to expand a pilot farm loan program.
MYANMAR INVESTMENTS INTERNATIONAL LTD (MIL.L) 1 April 2015
Allenby Capital
Accordingly, we believe that the potential involvement of Norfund in MFIL represents
an exciting opportunity for both MFIL and MIL. We feel that Norfund, through both
operational advice and through its connections to a broad array of funding options that
complements MIL’s own existing connections, would accelerate the build of MFIL’s
loan book and bring the JVA into profitability sooner than initially anticipated.
MFIL: LONGER TERM GROWTH PROSPECTS
MFIL: longer term opportunities
With access to the capital markets through MIL (and to other funding arrangements
through the potential involvement of Norfund), MFIL is in a position to act as a leading
consolidator in the space and to expand its loan book rapidly. MFIL will initially
continue to supply the financial products supplied by its predecessor MFC to small
business owners. As the government has increased the $500 loan limit to $5,000, this
has unlocked a new core group of customers for microfinance institutions, namely the
SMEs. Moreover, the opportunity exists for MFIL to broaden its product offering, to
increase the number of its branches in Yangon and Bago (currently at three) and to
expand into new regions.
Ultimate aim of becoming a fully fledged bank
MFIL represents MIL’s first ‘core investment’
Ultimately, MFIL will aim to become a fully fledged bank. Indeed, this pathway to
maturity has already been proved up in neighbouring nations: for example, Cambodia’s
largest bank, ACLEDA Bank Plc, was formed in 1993 as a MFI. As at end December
2013, it had $2.4bn of assets with loans of $1.56bn.
We are of the opinion that MFIL will be developed and held as a ‘core investment’ for
MIL (see p.7). As a banking institution vying amongst fairly weak competition, we
envisage the business growing into a leading name in the financial services industry and
eventually floating upon the new Yangon Stock Exchange.
29
NOTES
30
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