Myanmar’s financial markets are slowly opening up

NAYPYITAW Naypyitaw’s famously empty hotels were busy for once on Sept. 13-14 as an annual investment forum drew more than 1,300 bankers and investors from around the world.

Expectations for the country’s financial development are sky high, especially as the first civilian government in half a century is settling in. Reforms are happening slowly but steadily. After years of isolation, Myanmar is taking it step by step to catch up with the rest of the world.

One recent milestone was the first auction for long-term government bonds on Sept. 20. The shift from fixed to market-determined rates began with 20-month notes, and longer maturities are to follow. The government sold 200 billion kyat ($161 million) of debt, equivalent to about 5% of the country’s annual budget deficit.

“This can contribute to our country’s economic growth, crucially,” Deputy Minister of Planning and Finance Maung Maung Win said at the investment forum, hosted by Euromoney.

The average yield was 8.843%. This was slightly higher than the rates for the shorter-term treasury bills that shifted to an electronic auction system last year, but may still lack appeal for many financial institutions as the minimum deposit interest rate is fixed at 8%. The country’s high inflation rate, estimated at 9.5% this year, has made the debt even less attractive.

The latest long-term bonds were issued to one state-owned bank and three private banks, according to local media.

A much-awaited secondary bond market to boost liquidity is in the pipeline. “We need to develop the secondary bond market to fulfill our every-year budget,” said Maung Maung Win.

According to McKinsey, Myanmar has the potential to become a $200 billion economy, up from the current $65 billion, by 2030. At the same time, $650 billion will be needed in investment, including $300 billion for infrastructure alone. An effective money market is becoming ever more crucial.

The Yangon Stock Exchange (YSX), which started trading this year, aims to expand. There have been three listings so far, bringing it on a par with the Lao and Cambodian stock exchanges, which also opened in recent years. Trading volume is 1.5 million shares at 59 billion kyat.

Maung Maung Win, who also serves as chairman of the Securities and Exchange Commission, said two or three more companies are expected to start trading by the end of the current fiscal year. The government had initially approved six companies to be listed.

Rudi Rolles, managing director at KBZ Stirling Coleman Securities, one of the five brokerages at YSX, suggests tax incentives will encourage more companies to list. He added that this will help enhance the credibility of Myanmar’s private sector as a whole, due to “better disclosure of accounts.”

Easing restrictions on foreign investment is another key, as more funds are set to flow in following the end of U.S. sanctions.

An upcoming revision of the Companies Act will pave the way for more foreign capital to flow into the YSX. Under proposed changes, companies with foreign investment of less than 35% will be regarded as domestic. Currently, even one share of foreign investment makes a company foreign, and foreigners are banned from taking part in YSX trading or listing.

The revision, expected by end of this year at the earliest, will also facilitate the flow of foreign capital into the country’s crucial agriculture and trading sectors. The current regulation only allows companies with 100% domestic investments.

In the bond market, banks are pressing the government to issue dollar-denominated bonds. “A dollar bond issue will kill two birds with one stone — it brings in foreign investors and also soaks up a lot of dollar liquidity in the domestic market outside the banking sector,” said Azeem Azimuddin, chief financial officer at Ayeyarwady Bank.

Getting a sovereign rating is another way to encourage investment. Myanmar is one of three Southeast Asian countries that have yet to be rated by a major rating agency. The government is now seeking advice from Citigroup and Standard Chartered Bank on procedures, Maung Maung Win said.

Kenneth Stevens, managing partner at Leopard Capital, which invests in various Southeast Asian developing economies, warns against acting too hastily. “It’s going to take time for the legal systems, the credit bureau agencies and all other components needed [for changes to happen],” he said. “It is important for Myanmar to walk before it can run.”

 

Source: Nikkei Asian Review

 

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