Opening up at last

It is early days for Myanmar’s capital markets, but already international financings and plans for a modern stock exchange are attracting overseas interest.

Myanmar has long been on the radar screen for bankers and investors hoping that the country can develop capital markets as it undergoes the transformation from military dictatorship to democracy.

The recent granting of banking licences to foreign banks is a step in the right direction for capital market development, but much remains to be done.

Last October, nine foreign banks were given permission to set up operations in Myanmar, with each of the Asia Pacific-based banks given a one-year timeline to meet central bank requirements and deliver on pitches made to the financial authorities three months earlier.

One of the principal hopes of the Central Bank of Myanmar is that the foreign financial institutions, namely ANZ, Bangkok Bank, Maybank, OCBC, UOB, Bank of Tokyo Mitsubishi, ICBC, Mizuho and SMBC, will effect a transfer of banking technology and promote a culture of banking competitiveness in the country.

This move complemented an earlier opening up of the Myanmar telecoms sector and the country has applied to join the global Extractive Industries Transparency Initiative in a bid to improve standards in its mining and oil-and-gas sectors.

The Myanmar Government’s wide-ranging structural reform programme has borne fruit, with the Asian Development Bank forecasting that the country’s GDP growth hit 7.8% in fiscal 2014 (ending March 31 this year), one of the highest in the region. Foreign direct investment has underpinned this growth, with higher tourist arrivals, as well as rising commodity and natural gas exports.

In terms of what is in store for bankers, apart from offering traditional banking services to individuals and corporations, one area of clear opportunity is to grab business is in project finance. The ADB’s resumption of operations in Myanmar in 2013,after an absence of 25 years, spells this out starkly and its re-emergence in the country came hand in hand with the announcement of an assistance package to foster economic and social development.

The ADB has identified key areas in which Myanmar is constrained: transport, energy, agriculture and natural resources, education and urban development. Project-finance bankers are looking at these sectors for financing opportunities and the ADB is a prime candidate to leverage the public-private partnership route in this area of business.

As a sign that the PF initiative is under way, Pan Asia Majestic Eagle raised back in October the first typical non-recourse PF financing seen in Myanmar via a US$85m loan. Funds, raised through a five-bank club loan, will go towards the construction of 1,250 telecom towers and the transaction represents a milestone in Myanmar’s emergence from decades of economic isolation.

It is estimated that telecoms industry will account for around 50% of infrastructure investment over the next five years, with a figure of around US$2bn mentioned as the funding requirement. Indonesia is a template for Myanmar’s nascent telecoms industry and plenty of regional private-equity houses and tycoons are salivating at the prospect of building up the country’s miniscule mobile phone penetration rate of just 7%.

Meanwhile, transportation infrastructure development is being showcased with the proposed new Hanthawaddy International Airport, where a South Korea consortium had proposed a 20-year financing set to raise US$770m, but walked away after failing to get funding. The project is still up for grabs, with Japanese banks and PE firms rumoured to be showing interest.

“Myanmar is going to be firmly on the radar of the project finance community and it will be interesting to see if anything approaching best practice emerges there. I would imagine deals could get done quite quickly there, given the government’s control of land banks and its focus on getting infrastructure up to speed,” said a Singapore-based loan banker at a European house.

Singapore has long had entrepreneurial ties with Myanmar. As such, it is not surprising perhaps that, with the opening of Myanmar’s planned stock exchange delayed (it was supposed to open this year, but 2016 is tentatively scheduled), companies with businesses based in the country are seeking listings on the Singapore Exchange (SGX) instead.

First taste of Myanmar

A planned IPO from Toyo Thai Power Holdings, a Thai-Italian-Japanese joint venture is likely to emerge this year, with funds to go towards the development of coal and gas-fired power plants in Myanmar.

Telecom infrastructure firm HyalRoute Communication Group is preparing to give Hong Kong’s IPO market its first taste of Myanmar.

HyalRoute, which is building a fibre optic cable network in Myanmar, plans to list in Hong Kong as early as the end of the year, potentially raising as much as US$200m.

A much-touted subject since Myanmar’s military junta began the political and economic reform process has been the possibility of the country issuing a sovereign bond.

Most market participants believe it is too early to speak of such a deal, though the financial authorities in Myanmar are beginning to reform the domestic bond market. Electronic auctions of treasury bonds started in January, with the aim of getting market-driven yields rather than the fixed yield system, which had been in place since 1993.

“Myanmar needs to ask itself whether commercial funding makes sense versus concessional avenues at this stage, against the backdrop of a balance of payments deficit,” said Florian Schmidt, head of debt capital markets at independent fixed income specialist SC Lowy.

“Pricing Myanmar risk will be a function of its credit ratings and of investors’ perception of various factors, including the status of its existing debt stock, the economic ‘master plan’, expected political developments and the fight against corruption. The secondary market performance of other frontier market bonds will also have an impact, especially from countries considered resource-dependent.”