Despite delays in the process, Myanmar will get the Securities Exchange Commission this month or next, according to Daiwa Securities Group, which is helping Myanmar authorities set up a stock market here.
The government plans to launch the stock exchange in 2015.
Although Parliament passed a Securities Exchange Law on July 31, 2013, its implementing by-laws and regulations remain in the pipeline. “Only the Ministry of Finance knows what stage the formation of the SEC is at,” said Soe Thein, former director of the Myanmar Security Exchange Centre.
“In fact, the SEC can be formed since the [securities exchange law] was passed. There is no need to wait for the by-laws. If the SEC had been formed then, it would have gained momentum by now,” he added. “The by-laws are nearly complete and have been sent to the Attorney-General’s Office. The SEC is the key. We heard it will debut soon, but we are not sure,” he said at a KPMG-hosted investment forum last week.
On May 12, 2012, the Central Bank of Myanmar, Japan Exchange Group (formerly known as the Tokyo Stock Exchange), and the Daiwa Institute of Research signed a Memorandum of Understanding regarding to form a stock exchange in Myanmar.
The prolonged delay in forming the SEC caused anxiety on the Japanese side, sources said.
A spokesperson from Daiwa said it could impact the entire preparation process. Nevertheless, as long as there is no change in government policies, they would try to launch the stock market according to the targeted time in October 2015.
Enough public companies?
The number of public companies in Myanmar raises questions about the emergence of a capital market. Currently, there are 142. Among them, 21 public companies were registered under the junta. The number has increased significantly, but many experts say there are still not enough for a viable bourse. Most companies remain private, and there are numerous reasons why they are either unable or unwilling to turn themselves into public companies.
“We’ve studied about 60 companies and talked with their owners. We noticed that banks, airlines and telecommunications firms are quite interested in an IPO,” said Shinsuke Goto, a director of Daiwa Securities Group. He added that that they were interested in listing because they understand this can enhance their competitiveness. “The rules of game are going to change … foreign firms will enter the market. Being listed on the stock exchange will make a company more attractive.”
IPOs and other share sales
Goto said that these companies stand to attract more investment, if launching initial public offering (IPO). Some local companies have offered shares to the public, but he insisted that the pool of offered investors is much smaller.
He also raised concern about the number of companies that have started selling shares recently. Some are not in compliance with the requirements of the Myanmar Company Act, he said. The law requires them to briefly explain their business when they register, but many do not, Goto said. He also raised questions about the validity of their shareholders’ lists.
Goto said if current share selling practices continue they could have harmful long-term effects, including undermining trust in the capital market when the stock exchange debuts in 2015.
Limits on foreign companies
Sources have said that some foreign investors have purchased shares of local public enterprises that plan to list in future in the hope to boost capital gains. These purchases are illegal.
To allow foreign investment in the stock market, the country may also need to amend the foreign investment act.
The Myanmar Companies Act places limits on foreign ownership of companies registered here, generally in the form of ratios between foreigner and Myanmar nationals, but rules will be required in the stock exchange to ensure these ratios are sustained.
Can cronies comply?
One Dawai executive said that if a crony company could meet the criteria for listing and submit an application to list on the exchange it “will be cleansed”.
“This is why the regulator is essential,” Tin Myint, an official from MESC added.
“Whether the company is owned by a crony or whether it is a Myanmar or foreign company,” it will have to operate under the same regulations and the same level of scrutiny, he explained.
Tin Myint added that it was also important to work out foreign ownership issues, but said The Myanmar Companies Act would need to be amended but that this Act was not even on the table yet. Regarding the challenges ahead, the Myanmar Companies Act limits foreign investment and this needs to be amended to attract foreign investment. Foreigners want to acquire Myanmar shares but the law limits them. One possible problem is that once foreigners are allowed to purchase local shares they will be able to buy entire companies, which can threaten Myanmar’s independence.
Challenges in 2015
“Worries are growing that Myanmar’s stock exchange might end up like those of Cambodia and Lao, which have only two or three companies listed on them. From my point, I can say Myanmar won’t face the destiny of Cambodia and Lao as Japan has assisted Myanmar. Daiwa has started discussions between relevant organisations in Myanmar to form IPOs,” Goto said.
Source: Myanmar ELEVEN