Asian Firms in Pole as Myanmar Beckons
As Myanmar emerges from a half century of isolation, Asian companies with high tolerance for risk are sizing up business opportunities in what was once one of Asia's wealthiest nations
But 'first mover' advantage won't necessarily count for much
Shares in Singapore's Yoma Strategic [YOMA.SI 0.30 0.015 (+5.26%) ] have more than trebled to 4-year highs in the past month after the company said it would develop land north of former capital Yangon into a project known as "Star City" that will include housing estates and shopping malls targeting a new middle class
Yoma is just one of many Asian companies poised to move following three months of the most dramatic changes in the resource-rich country since the military took power in a 1962 coup in what was then Burma
"Myanmar is now in everyone's spotlight," said Apisak Tantivorawong, president of Thai lender Krung Thai Bank
Recent overtures by Myanmar's new civilian government include calls for peace with ethnic minority groups, some tolerance of criticism, an easing in media controls and more communication with Nobel Peace Prize laureate Aung San Suu Kyi, who was released last year from 15 years of house arrest
On recent visits, U.S. Secretary of State Hillary Clinton and British Foreign Secretary William Hague have promised more support if Myanmar moves quickly on political reforms
While many Western multinationals remain publicly cautious about the investment prospects of a country entangled in U.S. and European sanctions following years of human rights abuses, Asian firms hope to fill the void
"Myanmar presents a relative low risk, high return proposition that is hard to ignore," said Krishna Ramachandra, head of corporate finance and investment funds at law firm Duane Morris & Selvam in Singapore
"I've had queries from corporate clients in infrastructure and construction who are keen to explore Myanmar for the simple reason it presents a compelling high investment growth strategy," he added
Japanese businesses are among those looking to expand, and the two governments agreed last month to start talks on an investment pact
Japan's Economy, Trade and Industry Minister Yukio Edano this week leads a delegation to Myanmar that includes officials from top Japanese companies such as Hitachi, Toshiba, Mitsui & Co, Itochu, JX Nippon Oil & Energy and Marubeni. Edano is expected to promote plans to develop Myanmar's infrastructure, and will offer to send Japanese engineers for technical assistance
"Economic interest in Myanmar is growing greatly. We plan to move forward with talks, especially on infrastructure development, with various economic committees," Hiromasa Yonekura, chairman of Nippon Keidanren, Japan's biggest business lobby, told Reuters
Japanese small- and mid-sized firms, especially in textiles and fisheries, want to set up production bases in Myanmar, and bigger firms are taking an interest, said Yoshihiro Araki, senior researcher at the Japan External Trade Organization
"Other countries are rushing in," he said. "Japanese businesses are thinking they cannot lose this race"
Lingering Risks
But opaque foreign investment rules and a weak judicial system could keep some investors on the sidelines
Don Lam, CEO of VinaCapital, Vietnam's largest asset manager, for example, sees opportunities in Myanmar's consumer goods and agriculture industries, but he also sees risks, saying Myanmar is at a similar stage of development as Vietnam in 1994, when the United States lifted sanctions against Hanoi
"Coming in early doesn't necessarily mean you actually make money," he said. "Those who came to Vietnam in the early 1990s actually didn't make money until the rules and everything were cleared up. Only the second wave of investors, those coming in ... 10 years later, they actually made money"
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"The challenge is similar to Vietnam in the early days, which is the evolution of legal structures," he said. "Once those clear up, major investors, institutional investors, will be more confident investing in Myanmar. At the moment, it's sort of in limbo"
Asked if he was ready to invest in Myanmar, he expressed caution. "It's way, way too early. We're taking it slow"
That sentiment is shared by Douglas Clayton, a former hedge-fund manager who is now chief executive and managing partner of Leopard Capital, a private equity fund focused on emerging Asian markets and backed by overseas investors
"A lot of individual investors arrive hoping to buy a house in Yangon or some cheap beach land, and then discover that property can't be owned directly by foreigners. As Myanmar reforms its foreign investment laws, there'll be a wave of foreign direct investment into major sectors like banking, electricity, telecoms, Internet services and hotels," he said
"Other investors will come looking for natural resources like mining and agricultural land. Myanmar simply needs everything"
But the government has a lot to do, he said
"Myanmar needs to harmonize its foreign exchange rates and create a foreign investment code similar to other countries in Southeast Asia. The laws should be changed to facilitate foreign investment in real estate, for example. The government should make it as easy as possible for foreign investors to move through the investment approval process, and provide tax incentives comparable to other developing countries"
"Investing now is essentially speculating that a package of reform measures will be implemented, which will help make Myanmar's economic revival sustainable. More cautious long-term investors will prefer to wait for new laws to be passed"
One early mover in the agricultural sector is Escorts, a $135 million Indian farm machinery maker
"Farming conditions are similar to India, and we ... have found ways to appoint a distributor/dealer," said Nikhil Nanda, joint managing director. "In terms of business, it's currently very small, but in terms of the future, Myanmar is a market that can have a decent demand prospect for us
As big as France and Britain combined, Myanmar and its 60 million people sit at the crossroads between China, India and Southeast Asia, with ports on the Indian Ocean and Andaman Sea, making it a vital energy security asset for Beijing's landlocked western provinces and a priority for Washington as President Barack Obama strengthens engagement with Asia
"Those who were not likely to look at Myanmar as a business destination are now beginning to study business opportunities there," said D.K. Sarraf, managing director of ONGC Videsh, the overseas arm of India's state-run explorer Oil and Natural Gas Corporation
"As far as our interest is concerned, it would depend on how soon sanctions are lifted"
ONGC Chairman Sudhir Vasudeva told Reuters on Friday that his group, which has two gas blocks in Myanmar with production due to start in 2013, was looking at further opportunities in Myanmar. "It's an area of interest to us. It's close to home"
Western sanctions could begin being rolled back this year, possibly as early as April after Suu Kyi contests by-elections. If the April 1 election goes smoothly, and remaining political prisoners are freed, some expect the European Union to lift its sanctions later that month
"The substantive release of political activists is probably the last real issue which needs to be resolved before Western trade, investment and development aid can be resumed," Derek Tonkin, Britain's former ambassador to Thailand and now chairman of Network Myanmar, a civic group, wrote in a recent report
Some companies aren't waiting
Stockbroking analysts in Bangkok expect at least three Thai companies — Italian-Thai Development, PTT Exploration and Production and Ratchaburi Electricity Generating Holding — to see a boost in their share prices this year as Myanmar develops its southern city of Dawei as a port and special economic zone in partnership with Thai firms
"Myanmar's Dawei Special Economic Zone will present decade-long investment and growth opportunities for Thai companies if it gets going," said Citibank analyst Suchart Techaposai
Italian-Thai, Thailand's top construction company, expects to sign loan agreements this year worth $12.5 billion to build a deep-sea port, industrial complex and power plants at Dawei
Japan Bank for International Cooperation would likely provide most of the funding for the port along with road and rail links from Dawei, less than 300 km (186 miles) west of Bangkok, Italian-Thai Chairman Premchai Karnasuta told reporters on Dec. 26
Despite that project, shares in Italian-Thai slid by more than a fifth last year. Ratchaburi did better, gaining 15 percent, and analysts see Dawei further boosting its stock price, which trades at 10.8 times forecast 2012 earnings, cheaper than China's Yangtze Power's [600900.SS 6.40 0.11 (+1.75%) ] 11.6 times and India's Reliance Power's 15.4 times, Thomson Reuters StarMine data show
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Many Japanese firms were slow to join a first wave of foreign investment in Myanmar in the mid-1990s led by Singapore, Malaysia, Indonesia, Hong Kong and Taiwan
Japanese firms opened offices there near the end of the boom in 1998. The economy then withered as the United States and Europe tightened sanctions, leaving neighboring China as the dominant investor
Takashi Fujino, a Keidanren official who visited Myanmar last year, said its big population and rich resources — from jade to offshore oil and gas and hydroelectric power — make it attractive to Japanese companies
Myanmar has awarded 10 onshore oil and gas blocks to eight firms in its biggest energy tender in years, and is now offering nine offshore blocks, two Yangon-based sources with direct knowledge of the deals told Reuters on Friday. The winning firms were mostly from Asia, including PTT Exploration and Production and Malaysia's Petronas
South Korean state-run Korea Resource Corp is looking to develop Myanmar's rare metals, which a spokesman describes as "an untapped and niche market", and some large listed South Korean companies are studying opportunities in resources development and infrastructure, said an official at the Korea Trade-Investment Promotion Agency
