Stock market plans hit by weak corporate governance levels

Coorperate governance could be the largest barrier to setting up a robust capital market centred on a planned 2015 stock exchange, according to experts.

Although there are about 200 public companies currently operating in Myanmar, only about five currently have high-enough governance standards to meet the disclosure rules that will come with the exchange, said presidential economic adviser U Aung Htun Thet.

Poor corporate governance often stems from management and ownership at many companies being indistinguishable, he said at a finance seminar held by the OECD in Yangon on July 4. Companies with indistinguishable management and ownership are often tempted to not follow best practices in transparency and accountability, areas that are particularly important for meeting a stock exchange’s disclosure rules.

“This is the challenges we have: There are public companies without good corporate governance standards,” said U Aung Htun Thet. “We must make sure that all the companies to be listed will have good corporate governance standards before 2015.”

The process to register as a public company in Myanmar is not seen as particularly onerous. A public company is required to have a minimum of seven shareholders and report to the Directorate of Investment and Company Administration (DICA), though domestic public companies generally do not have the high reporting and disclosure standards familiar to publically-listed companies on foreign stock exchanges.

Rainer Geiger, former OECD deputy director, said Myanmar’s public companies often don’t meet the criteria to be listed on a future Yangon stock exchange, which is planned to be launched in October 2015.

The business sector lacks a full legal framework as the country has been closed for many years, while company officials and directors, regulators and government officials all require training, he said.

“Companies have had a lack of awareness on the market economy; now their mindset needs to change,” Mr Geiger added.

Improved corporate governance standards will assist firms with access to capital by listing on the planned exchange, he added. Insufficient financial capacity is a key problem for many local businesses, but the introduction of foreign banks should also help, particularly for foreign companies operating in Myanmar.

Mr Geiger also said that state-owned enterprises require reform in a range of corporate governance standards, including principles of integrity, transparency, accountability and management.

U Aung Htun Thet said that strong corporate governance standards should also be emphasised with the ongoing reforms of state-owned enterprises.

“The choice is open to us,” he said, adding it is up to government ministries to ensure public enterprises are professional managed.

State-owned enterprises in ministries including industry, transport, energy and construction have been privatised or corporatised as part of the larger reform process.

U Win Myint, secretary of parliament’s Bank and Monetary Affairs Development Committee, said state enterprises initially expanded due to the impact of economic sanctions, and many state-owned companies became known for producing low-quality goods and preventing fair competition with private business.

The role of state-owned enterprises began diminishing in 2008, with landmarks such as the 2010 privitisation of 200 petrol stations and the 2012 corporatisation of most Ministry of Transport business, he said, adding the government still controls businesses in areas including the extractive industry, broadcast media and defense and security products.


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