Myanmar: Local bourse will open door to capital

Access to financing in Myanmar has been traditionally limited to an elite stratum of companies closely linked to the government, with smaller businesses turning to family and friends for raising funds. However, this is set to change, with a new bourse, to be known as the Yangon Stock Exchange (YSE), under development.

Speaking to a group of investors in late May, Maung Maung Win, deputy governor of the Central Bank of Myanmar (CBM), said the establishment of the YSE was “vital to the economic development of [the] country”, and assured onlookers that the bourse was on track to open in 2015.

Integral to this plan is a much-anticipated piece of legislation, the Securities and Exchange (SEC) Law, which is expected to be discussed by parliament this summer and approved shortly thereafter. Assuming its passage, more detailed regulations will need to be spelled out, likely to occur in 2014.

The new law will be a step on the road to a thriving bourse but it will likely not be sufficient. Myanmar, for example, lacks the associated financial services sector that helps a market function, including brokerages, accounting outfits and law firms. According to Koichiro Miyahara, senior executive officer at Japan Exchange Group, which is advising the government on the development of the YSE, it will take a “few years” for this support industry to form.

The Japanese government and Daiwa Securities Group, a Japanese brokerage, have also been involved in the development of the SEC law and the YSE. In 1996 Daiwa and state-owned Myanma Economic Bank set up the Myanmar Securities Exchange Centre (MSEC), which facilitates over-the-counter trading of shares in two firms, a bank and a timber company.

In early May, MSEC officials spoke at a seminar in Yangon about initial public offerings (IPOs). Such events may become more common if the YSE is to become a reality.

“We are aware that this infrastructure alone will not make an attractive stock exchange,” Kazuhari Ota, managing director of Daiwa’s Investment Banking Solutions Department, told the seminar participants. He noted that it would take work to attract businesses to list on the YSE.

Indeed, as is the case for any stock market, the requirements to list could discourage potential participants. According to draft legislation, to sell shares on the YSE, firms must meet a set of criteria that include recorded profits for the past two years, a minimum of MMK500m ($519,750) capital, and at least 100 shareholders of which the minority must account for at least 10% of total equity. More stringent corporate governance rules will also be put in place.

While some firms may balk at these requirements, evidence suggests that there are companies eager to sell equity stakes to the public as a means of raising funds. This already happens to a limited extent, although there are restrictions – shares can be held only by Myanmar citizens, and businesses that sell such shares often perform in-depth background checks before allowing an individual to become a shareholder. The lack of a liquid market might discourage potential buyers.

But firms are pushing ahead in innovative ways, including Mandalay Myotha Industrial Development (MMID), a real estate development company established in March 2013 that raised MMK36bn ($37.42m) from local citizens. Shares were priced at MMK100,000 ($104) and a prospectus was made available online, through selected distribution agents and from the company’s own offices.

The event received little international press coverage, but locally banners were displayed in shopping malls and highways to entice citizens into becoming owners of the new stock. MMID is planning to use the funds to develop a new industrial zone near Mandalay, the second-largest city, and the whole exercise may be the frontrunner in how capital markets will develop for the country as a whole.

The current signs in Myanmar point towards a nascent but burgeoning demand for capital, and businesses are keen to tap into the prestige and ease of funding that come with a stock exchange. But development is still in the early stages, and investors may have to wait longer than they imagined before they can easily shop for Myanmar equities.