Daiwa’s stock underwriter bid raises finance industry’s eyebrows

Japanese securities company Daiwa Securities Group has entered a bid for an underwriter licence along with its Myanmar partner, prompting some observers to question whether the firm and its sister companies may be positioned for too much control on the forthcoming Yangon Stock Exchange.

The firm submitted a bid by March 6 to be an underwriter on the exchange, while its sister company Daiwa Institute of Research is also a part-owner of the YSX. Daiwa arms are also involved in advising companies on preparing to list, as well as training and equipment sales.

Competitors have expressed concern that Daiwa may end up filling too many roles with the exchange, possibly leading to a conflict of interest among the different branches – though Daiwa officials refuted these claims.

Filling one or two functions are fine, but “not everything at the same time”, said one banker, who requested anonymity. He added that his bank is considering reducing its participation partly because of the reach of Daiwa.

“There are serious doubts in the market by companies who are going to invest,” he said.
Daiwa has a long history in Myanmar, participating in the Myanmar Securities Exchange Centre since 1996.

The centre currently functions as an over-the-counter market for shares in two public companies, though trading is relatively quiet.

Daiwa Securities’ sister company Daiwa Institute of Research is a part-owner of the Yangon Stock Exchange joint venture company along with two partners, according to a December press release.

It holds one seat on the board, while the Japan Exchange Group holds another seat, and Myanma Economic Bank – Daiwa’s partner in the Myanmar Securities Exchange Centre – holds three seats on the board, including the company president.

Deputy finance minister and Securities and Exchange Commission of Myanmar chair U Maung Maung Thein said Daiwa’s underwriter bid would not be given preferential treatment.

“If Daiwa does not meet the [selection] criteria, we will not choose Daiwa,” he said. “If they meet the criteria, we will choose it. We will not give preference to Daiwa because it is Daiwa.”

U Maung Maung Thein also said that it was possible that partners in the Myanmar Securities Exchange Centre could change in the future. He added that even if the partners were to stay the same, there would be lots of business for other firms involved in the exchange.

Joint ventures and local companies were allowed to submit bids to be service providers on the exchange by March 6, though wholly owned foreign companies were prohibited from bidding.

In an emailed statement to The Myanmar Times, Daiwa said that without its partner’s consent it could not confirm that it had submitted a bid to be a service provider on the exchange.

However, Daiwa defended its role supporting the development of capital markets in Myanmar, adding it actively contributed to development in the country when others shied away.

“Until recently, most of the developed nations were hesitant to support Myanmar while the US imposed economic sanctions, but only Japan actively supported Myanmar, as did Daiwa. Daiwa has been playing multiple roles toward the establishment of a stock market, as a representative of Japan because no one else was willing to do so,” it said.

“It seems inappropriate and inaccurate to condemn Daiwa as being unfair if you understand the history and background.”

It added that under YSX’s shareholding structure more than half the shares and the board were controlled by Myanmar. Japan does not have the power to make decisions on its own, and there are also a number of Japanese entities involved in decisions beside Daiwa.

“There is, therefore, no room for conflict of interest to occur,” it said.

Some experts say the Yangon Stock Exchange (YSX) must be cautious about perceptions, particularly in its early stages.

Sean Turnell, an expert on Myanmar’s economy at Australia’s Macquarie University, said there were ways in which the entity could be structured to avoid conflict-of-interest issues.

“However, at this foundational stage, it seems to me that the proposed YSX must be purer than pure,” he said.

Mr Turnell said the exchange must send strong good-governance signals and overcome a widespread lack of knowledge about how such exchanges work, adding that he thinks Daiwa should reconsider its position.

The YSX is slated to open in the last quarter of 2015. The listing criteria has not yet been finalised, though a number of companies have expressed interest in eventually listing on the exchange.

Source: Myanmar Times

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