Burma’s ‘Vital’ Stock Exchange Plans Proceeding on Schedule
By Simon Roughneen 29 May 2013
RANGOON — Burma remains on track to establish a stock exchange in the commercial hub of Rangoon by the end of 2015, Burma’s Central Bank Deputy Governor Maung Maung Win said on Wednesday.
The official told a gathering of local and international would-be investors in Rangoon on Wednesday morning that the proposed Yangon Stock Exchange (YSE, using the official name for Rangoon, Burma’s biggest city) is needed to boost Burma’s economic growth. At present, local businesses must depend on bank loans for financing in what remains the only country in the Association of Southeast Asian Nations (Asean) without a stock exchange.
“The SEC [Securities and Exchange Law] is vital to the economic development of our country,” the deputy governor said, adding that the law, which was sent back to Burma’s Parliament in March by President Thein Sein, is expected to be discussed in Parliament over the summer with a view to it being passed before autumn.
Following that, securities and exchange rules are scheduled to be set in stone next year, prior to the establishment of the YSE in 2015.
Establishing a stock market is seen as key to reforming Burma’s ossified financial architecture and ensuring that the country’s economic potential is realized.
As well as passing the SEC Law, however, there are additional obstacles to setting up and running an exchange in Burma.
“We need securities companies, accounting firms and law firms to support a capital market,” said Koichiro Miyahara, senior executive officer at Japan Exchange Group, which runs the world’s third biggest stock exchange and is advising the Burmese government on the proposed YSE. “There are several good accounting and law firms in Yangon, and foreign firms are coming, so I think there will be enough in a few years to support,” Miyahara said.
It is difficult for companies to raise capital in Burma at present, with banks the main above-board source of financing. Stock exchange advocates argue that the YSE could help finance these ventures. Highlighting this gap in Burma’s financial architecture, the prominent Burmese businessman Zaw Zaw recently sought to list one of his companies in Singapore—a gambit that was rebuffed due to his inclusion on a US sanctions list.
“Loans from banks are more suitable to short-term and low-risk investment,” said Shinsuke Goto, an investment analyst with Daiwa Securities Group, outlining why a stock exchange could help finance longer-term, higher-risk but potentially more lucrative business ventures.
Daiwa, a Tokyo-based investment company valued at US$400 billion, has worked in Burma since 1996, teaming-up with Myanma Economic Bank—which was recently given the go-ahead to do business with US companies as part of Washington’s removal of sanctions on Burma—as part of the Myanmar Securities Exchange Center (MSEC).
The Japanese government is supporting the SEC legislation process through its Ministry of Finance, another signal of Tokyo’s keen interest in Burma. Last weekend Prime Minister Shinzo Abe visited Burma, pledging a half billion dollars worth of loans to improve Burma’s roads and electricity supply, as well as writing off almost $2 billion in Burmese debt.
Those involved in setting up the YSE sought to downplay prospects for the exchange on Wednesday. “Don’t expect too much, at least five years is needed to get the market going well, it will be a modest stock exchange, not a big one,” said Soe Thane, executive director of the MSEC.
Few Burmese companies are expected to be ready to list by the time the YSE opens in late 2015. Goto of Daiwa Securities Group said he expects “between five and 10” companies to list during the YSE’s first year of operation, with 10 to 20 listed by the end of 2017.
Though requirements for companies listing on the YSE have not yet been finalized, draft rules show that a minimum capital amount of 500 million kyat ($525,000) will be needed, with aspirant companies needing to show two years’ profitability. YSE-listed companies will need a minimum of 100 shareholders and minority shareholders will have to account for at least 10 percent of total equity.
The exchange—if Burma’s big businesses decide to list—could help improve corporate governance in Burma, where large businesses are often associated with “cronies,” or businessmen sanctioned by Western governments due to close ties to the former military regime and, in some cases, allegations of involvement in illicit activities such as drug trafficking and illegal logging.
“A listed company’s operations and financial results must be open to public scrutiny,” said Goto, reminding that listed companies must file regular financial reports with the exchange and “conduct investor relations by publishing annual reports and press releases.”
Miyahara of Japan Exchange Group outlined that profits should be known to shareholders of and investors in listed companies, to ensure that money does not flow “inappropriately to related parties,” such as the company owner’s family or “other persons that have a special relationship with the company.”
Burma’s military government first began drafting an SEC Law in 1996. The code was never implemented, despite 10 revisions, “because of lack of experience locally, lack of contact with the outside world,” Soe Thane said.
And though foreign assistance is needed to set up the proposed YSE, it is not clear yet what foreign participation will be permitted once the exchange is up and running.
“In the early stage, within the context of the current Myanmar legal framework and other laws, foreign involvement will be small or nonexistent,” Soe Thane said, adding however “that eventual foreign participation should be allowed in many areas of the market.”