Sunday, August 20, 2017

Yangon Stock Exchange to be opened to foreign investors next year

Yangon Stock Exchange will be opened to foreign investors when a new Myanmar Companies Act is passed next year, and local-foreign joint venture companies are also likely to be eligible to list under the new law, officials said at the launch of the bourse yesterday.

Officials shake hands at the launch of the Yangon Stock Exchange. (Naing Wynn Htoon/The Myanmar Times)Officials shake hands at the launch of the Yangon Stock Exchange. (Naing Wynn Htoon/The Myanmar Times)

A revision to the century-old law will open the market to foreign buyers and international joint-ventures, Myanmar Securities and Exchange Commission chair U Maung Maung Thein told media on the sidelines of yesterday’s event, although he did not provide details on whether foreign buyers would face restrictions.

It is also unclear whether overseas investors will be able to buy shares in sectors off-limits to foreigners under Myanmar law, such as jade and gemstones, domestic financial institutions and land.

The draft act is likely to be passed after the new National League for Democracy-led government takes office at the end of March. If it is passed early next year, foreign investors will not have lost much time – while the stock exchanged opened yesterday, the first trades will not take place until February or March.

“The critical thing is to change the law to accept foreign investments,” Takashi Hibino, president and chief executive officer of Daiwa Securities Group which co-owns the exchange, told The Myanmar Times.

“At the moment it’s a purely domestic market – without investment from overseas it will be very difficult to grow.”

Foreigners will be expected to take on the currency risk, he said, as there are no facilities for hedging the Myanmar kyat, which has depreciated by more than 25 percent to the US dollar this year.

Another issue to ironed out before the market is opened to international capital is that the Yangon Stock Exchange, or YSX, is technically under US sanctions, as it is majority-owned by Myanma Economic Bank, a sanctioned entity. A number of the new securities companies hoping to receive final licences, are also sanctioned.

At yesterday’s event, six companies were named as the first that will list: First Myanmar Investment Company, First Private Bank Limited, Great Hor Kham Public, Myanmar Agribusiness Public Corporation, Myanmar Citizens Bank and Myanmar Thilawa SEZ Holdings Public.

These companies are “the best of the best”, U Maung Maung Thein told a packed audience at the former Central Bank building on Sule Pagoda Road, now home to the Yangon Stock Exchange.

“We will start with those six. On completion of the formalities they will start trading in February or early March,” he said, adding that he has asked the companies to “sell shares calmly without rushing”.

For those companies that did not make the cut, a new over-the-counter market will be established, the MSEC chair told a press conference.

Crowds gather outside the stock exchange building in Yangon. (Naing Wynn Htoon/The Myanmar Times)Crowds gather outside the stock exchange building in Yangon. (Naing Wynn Htoon/The Myanmar Times)

“We will issue new rules along with it,” he said. “If companies can raise their standards to meet the requirements of the OTC market, and follow the rules, they may later become eligible to list on the YSX.”

Restrictions mean that only “public” companies, meaning those that already have permission to sell shares, can apply to list on the Yangon Stock Exchange.

In Myanmar, there are around 200 such companies. Many were set up specifically to bid for projects, after President Thein Sein’s administration said it would favour public firms when awarding tenders. Most of Myanmar’s largest and most successful companies are not “public” and therefore not eligible to list.

Meanwhile, a number of preparations need to be made before the first stocks can trade. U Maung Maung Thein said that KBZ Stirling Coleman Securities, a joint venture between KBZ Group and Singapore’s Stirling Coleman Capital, is the first to be granted an underwriter licence.

KBZ managing director U Nyo Myint said the group also has ambitions on the buy-side. “We will try to enter the investment market as well,” he told The Myanmar Times.

The names of nine other companies awarded provisional underwriting licences have yet to be announced. Once these companies have received licences, then dealer, broker and consultant licences will be awarded, officials said.

Mr Hibino said he hoped licences for the companies, including a Daiwa joint venture, will be granted soon. Sources at a number of the future underwriters said yesterday they still need to open offices, hire staff and install the necessary software.

In preparing for the launch, Mr Hibino said the greatest challenge was drafting the legal framework.

“That’s a tough job, because we made the rules almost from scratch,” he said, adding that support from Japan’s finance minister Taro Aso in drafting the rules had been indispensible.

“From this point, the biggest challenge will be to collect investors’ money and increase the number of listed companies,” he said.

The stock exchange has been a long time in the making. Mr Hibino said he had first discussed its launch in 1996 and had aimed for an opening within five years, but “for various reasons” this did not happen.

In the best-case scenario, 10 companies could be listed on the exchange a year from now, he said.

“If the number exceeds 10, it’s a great, exceptional success. But six or seven? That will be fine.”

Translation by Thiri Min Htun and Kyawt Darly Lin