Military firm tops in Fraser & Neave dispute

Myanma Economic Holdings Limited has won a dispute over the ownership of Myanmar Brewery Limited, the military-owned conglomerate has announced, and will now accelerate plans to buy out its joint venture partner.

MEHL has been locked in a legal battle with Singapore-based Fraser and Neave Limited (F&N), which owns 55 percent of Myanmar Brewery since August 2013, when it announced it would submit the dispute to an arbitration tribunal in Singapore.

Arbitrators on October 31 upheld MEHL’s right to buy F&N’s shares in the brewery, enabling it to increase its stake from 45pc.

“We are very pleased with the ruling. It vindicates our legal position that the [joint venture agreement] clearly provides for us to buy F&N’s shares after they failed to meet their contractual obligations,” said MEHL deputy managing director U Myint Aung in a statement.

F&N was a partner with Heineken in Asia Pacific Breweries Limited (APB) until 2012, and also had a longstanding partnership with UMEHL in Myanmar. In 2012, control of Fraser and Neave was bought for US$2.2 billion by ThaiBev, owned by billionaire Charoen Sirivadhanabhakdi.

F&N sold its other beer investments to Heineken but the Dutch firm did not take on the Myanmar stake, making it F&N’s sole beer holding. The brewery produces popular domestic brands Myanmar Beer and Andaman Gold, and brews Tiger Beer under licence.

MEHL argued that ThaiBev’s buyout of F&N constituted a change in ownership and therefore violated the joint venture terms, which gave the partners first right of first refusal to purchase each others’ shares before they are offered to a third party.

In November 2013, MEHL said in a rare public statement that it had started arbitration proceedings after negotiations between the two companies broke down.

Following the October 31 ruling, MEHL will now be able to purchase F&N’s shares at a price set by a valuer agreed upon by both companies. F&N said in a statement that MEHL had sought to purchase its 55pc stake for US$246 million. Huang Hong Peng, chief executive officer of beer at F&N, described this figure as “grossly inadequate”. This price was set by the Controller of Military Accounts (CMA), which, though authorised to audit in Myanmar, is not a certified public accountant, a lawyer familiar with the case told The Myanmar Times.

The case was touted as a test for Myanmar’s legal framework and foreign investment environment. U Myint Aung said that the ruling should bolster confidence in the way the country handles such disputes.

“It is very important for Myanmar that foreign investors have confidence in the way we do business. The conduct of this arbitration shows our commitment to the rule of law and that we will always adhere to due process,” U Myint Aung said.

The beer market in Myanmar is forecast to see considerable growth. State- and military-owned enterprises have had a virtual monopoly in the sector for decades but the government decided to open it up to foreign brewers, including Heineken’s APB, last year.

Figures from Euromonitor International show that the legal beer market hit 172 million litres in 2013, with annual growth of 5.5pc since 2009. In dollar terms, beer sales amounted to US$265 million in 2013, and have posted 14pc annual growth between 2009 and 2013. Annual growth of 21pc is expected between 2014 and 2018, when the market is forecast to reach $675 million.

Despite the growth, beer consumption in Myanmar remains low compared to other countries in the region. Myanmar drinkers consumed just 3.2 litres per person in 2013, far behind neighbouring Vietnam, where per-capita consumption was 36 litres, and the Asia Pacific region average of 18 litres.

Danish brewer Carlsberg will officially open its production facility in early December. Dutch rival Heineken is constructing its own brewery.

F&N said it plans to “study ways to enable it to maintain its presence in the Myanmar market, which still has great growth potential and remains of keen interest”.


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