Yangon Stock Exchange listing criteria lacking protection for investors

The listing criteria for Myanmar’s first stock exchange have been published, but important rules to protect shareholders are missing, said experts.

Unless more detailed regulations are added, investors will be at risk of abuse by unscrupulous companies, they said.

The Yangon Stock Exchange (YSX) is due to open later this year. It is owned by Japan’s Daiwa Institute of Research, Japan Exchange Group and state-owned Myanma Economic Bank, and will become the country’s first modern bourse.

Companies must meet the listing criteria to attempt an initial public offering (IPO), which allows the public to buy shares, or part ownership, of the company.

The YSX rules are less strict than expected, said a director at a Myanmar-focused investment company.

“That a company must have at least two years of profit as prepared under Myanmar Financial Reporting Standards will be the main hurdle, along with making sure the proper tax has been paid,” he said.

The profit requirement will discourage start-ups, said Sean Turnell, an expert on Myanmar’s economy, “although such firms are not likely to be seeking capital via a stock exchange in Myanmar at this time anyway”.

A rule that companies must have at least K500 million paid-up capital will also exclude some hopefuls, as will a ban on those with outstanding lawsuits, said Mr Turnell, adding that he believes the bar is relatively high.

“Given the shambles of the exchanges in Laos and Cambodia, I think excessive caution is probably no bad thing. The safeguards are high, probably a little over the top, but on balance appropriate,” he said.

However, while the rules state that companies must list with at least 100 shareholders, there are no rules on the minimum public float. This is a concern, said U Thura Ko Ko.

“I don’t see any criteria on the minimum percentage of the company that needs to be in public hands, to ensure that it is genuinely publicly listed and that there is liquidity in the shares,” he said.

“This is important, to make sure that companies don’t list and then play with the valuations. If you have 100 shareholders but 90 of them hold just a few shares, it’s possible for the remaining 10 to manipulate the pricing,” he said.

The Cambodia Securities Exchange (CSX), for example, states that at least 15 percent of a company must be listed. This is fairly standard worldwide and is the same on Singapore’s junior board, U Thura Ko Ko said, adding that the main board in Singapore also insists on a minimum valuation.

“However, the Catalist [junior] board in Singapore gives more flexibility in that you don’t necessarily need two years’ profit if your revenue base is large enough,” he said.

The criteria on public information are also quite vague, with no specific disclosure obligations, said the director at the Myanmar investment company. In other markets, these may include requirements to publish quarterly accounts, or announce major transactions, he said.

There is also nothing in the YSX rules about shareholder voting or annual general meetings. “However, these are the minimum requirements. So one could hope the YSX builds on these and adds much more detailed rules to fill in the gaps and provide the required protections,” he said.

The rules also appear similar to a 2014 draft set of criteria released by an official from Daiwa Securities, a sister company to Daiwa Institute of Research, which is one of three shareholders in the exchange.

The draft rules discussed in June last year required firms to have more than 100 shareholders and a minimum K500 million in capital. The draft had also required companies show a profit for the previous two years or have a market capitalisation of more than $10 million. There is no mention in the rules released on August 14 of companies with a $10 million capitalisation as being exempt from requiring two years of profits.

The Daiwa Securities official last year also said that there were plans for a requirement that a stake of a specific size to be owned by minority shareholders, though the final rules do not mention this provision.

Several companies have publicly said they plan to list, including First Myanmar Investment (FMI), Asia Green Development (AGD) Bank under Htoo Group of Companies, and Myanmar Agri-Business Public Company (MAPCO).

Businessperson Serge Pun said previously that FMI, a company he chairs, may be the only one ready to list when the market opens.

A senior MAPCO official previously told The Myanmar Times it may take a year for the company to eventually list.

Many other companies are eligible, said U Thura Ko Ko. “However, many of the big companies may want to list in Singapore rather than Yangon.” In some countries, companies are required to list locally before attempting an IPO overseas.

Joint ventures may also be permitted, though the rules on this are unclear, said the director of the Myanmar company.

“I don’t see joint ventures prohibited but I doubt they’d be approved – they should want to channel domestic savings into supporting domestic businesses, not help foreigners,” he said.

Source: Myanmar Times

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