Yangon stock exchange seeks foreign investor interest

THE Yangon Stock Exchange (YSX) recently had a few champagne moments with the first "real" initial public offering by a Myanmar telecom company. And even while the bubbly was still fizzing another company was eyeing a listing.

And, the moment foreign investors had been waiting for is almost here. For a start, foreigners residing in Myanmar will be permitted to buy shares on the YSX from Aug 1, when the Myanmar Companies Law is scheduled to be enforced, according to a senior official at the YSX, U Thet Tun Oo, who made the announcement on July 2.

In due course, foreigners residing abroad will also be allowed to trade following adoption of trading procedures by the YSX and the Central Bank of Myanmar. The market authorities will also allow "an appropriate number" of local-foreign joint ventures to list.

Established in March 2016, the YSX is a fledgling with only five listed companies. A possible sixth entrant is Myanmar Agro Exchange (MAEX), which built the Danyingone wholesale market in the Insein township of Yangon.

MAEX received approval to list from the Securities and Exchange Commission of Myanmar in January 2017, but it is still finalising plans.

To get back to one of the champagne-moments, on Jan 26 this year, TMH Telecom became the first company to offer new shares under an IPO, raising 1.6 billion kyat (S$1.5 million), 70 per cent of which will be used to cover equipment and labour costs associated with its 126 telecommunications towers in Mandalay and Shan regions.

The funds raised were proportionate to the relatively small size of the YSX, which aims to raise liquidity and create a wider spread of companies this year.

TMH is the fifth company to be listed but the first to offer new shares, as the earlier four listings offered existing shares.

The law firm Allen & Gledhill, whose Myanmar office acted as transaction counsel, declared: "This makes TMH's listing the first true IPO in Myanmar as the first four listings were by way of introduction of existing shares. This listing also sets a precedent for other companies to consider IPO as a channel for raising funds."

On its first trading day, almost 10,000 shares of TMH Telecom worth some 31.4 billion kyat changed hands, accounting for about half the shares traded. It debuted at 3,250 kyat per share.

TMH Telecom began operations in 2007 as a provider of engineering services for mobile networks, fibre connection projects and mobile stations. Its two factories and branch offices in several locations in Myanmar generate annual sales averaging US$8 million.

SLOW EMERGENCE

The YSX began with just one listed firm, First Myanmar Investment. Other listings followed: Myanmar Thilawa SEZ Holdings in May 2016, and Myanmar Citizens Bank in August 2016. First Private Bank and TMH Telecom listed in January this year.

The brief history of the YSX is closely linked with the slow emergence of Myanmar from isolation and US sanctions that were imposed in the 1990s in response to the dictatorial rule of the military government. The Obama administration lifted some sanctions in December 2016. Washington has recently begun imposing some targeted sanctions following the Rohingya crisis.

A quick look at the four other listed companies shows a healthy picture. First Myanmar Investment (FMI) is an investment holding company founded in 1992 in financial services, real estate and healthcare, and employing around 3,000 people. It has investments in companies in the retail and tourism sectors and is involved in the Thilawa Special Economic Zone, explained below.

FMI was a founding shareholder in Yoma Bank, one of the largest commercial banks in the country. In 1993 FMI made its initial investment in FMI Centre, the first international standard office tower in Yangon.

Its joint venture, FMI Garden Development, built the first gated housing community in Myanmar, FMI City, whose units were purchased by buyers keen to reside in an integrated community with amenities. FMI had invested in Pun Hlaing Hospital, the first ISO certified hospital in Myanmar which opened in 2005.

The two listed banks, Myanmar Citizens Bank and First Private Bank, were both founded in 1991. The former has 21 branches and latter, 32. Both have relationships with banks in Singapore, Malaysia and Thailand.

Lastly, Myanmar Thilawa SEZ Holdings, incorporated in 2013, develops industrial and commercial infrastructure in Myanmar. One of its projects is the Thilawa SEZ, the first zone in the country, located about 25 km from Yangon. It was built by the Myanmar-Japan Thilawa Development Company at a cost of US$3.28 billion.

The firm's shares are owned by Myanmar businesses and the Myanmar government, as well as by Japanese businesses, including Mitsubishi, Marubeni and Sumitomo corporations, and the Japanese government.

The YSX faces obstacles in attracting interest from investors. Shares traded by the four listed companies fell to 22 billion kyat in 2017, which was one third of the trades in 2016. The trading value of the five listed companies reached an all-time low of 666 million kyat in June 2018, a sharp drop compared to 869 million kyat in May, according to figures from the YSX.

The main reason for low trading volumes is that foreign investors have not been allowed to trade. The authorities are removing the restriction next month, but it will have limited impact because - for now - only foreigners resident in Myanmar will be allowed to invest.

LOOKING OVERSEAS

Due to the obstacles at home, some of the more globalised Myanmar-based companies have been listing their shares on stock exchanges abroad, in Singapore, London, Australia and Germany. Listed on the SGX are Yoma Strategic Holdings, Singapore Myanmar Investco, and Interra Resources.

The YSX has had advice from Japan's Daiwa which was involved in its development since 1996 when it opened the Myanmar Securities Exchange Centre, an over-the-counter market. Daiwa Institute of Research partly owns the YSX, and Daiwa Securities Group holds an underwriter's licence.

Yet, partial liberalisation may fall short of improving the fortunes of the YSX. The market should be open to all foreign investors, at home and abroad, who would be attracted to the forthcoming listings of strong local companies.