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Delay in Companies Law Negative, but not Surprising

Implementation of the long-awaited Companies Law will be postponed until August 2018, Reuters reported Monday, citing top officials from Myanmar’s Directorate of Investment and Company Administration (DICA).

Myanmar will delay implementing a new law that would have allowed foreign companies to take up to a 35 percent stake in local companies, bringing about badly needed reforms for cash-strapped businesses in the local economy.

The Myanmar Companies Law, which replaces rules made over a century ago, was approved by President U Htin Kyaw just last week without a commencement date specified.

The new law, which was initiated by the former military-backed government in 2014, establishes guidelines on how a company is run and governed, removing outdated rules on share transfers and offering greater protection to shareholders.

On Monday, U Aung Naing Oo, head of DICA told Reuters the authorities may not be ready to implement the new rules until as late as August 2018, after bylaws were prepared and a company registry vital to enforcing the law was completed.

“We really want to implement the law as soon as possible but there are many things for us to do,” he told Reuters, declining to elaborate what bylaws were needed. He said the government would make sure implementation would be no later than August 1 next year.

The news agency also quoted U Myo Min, director of DICA, as saying that the authorities needed up to eight months to “work on the guidance and operating manual” for the country’s first modern online registry.

“Nothing new”

One of the major issues of implementing the new law is the clause in the legislation allowing foreigners to take up to a 35pc share in local companies.

If successfully implemented, higher foreign participation would give local businesses access to a larger capital pool and open up the door for mergers and acquisitions in sectors that were previously closed to foreigners, and which are in urgent need of funding, including banking, property, trade and distribution.

Although lauding the move as a step forward for the Myanmar economy, several lawyers said the delay in implementing the legislation is “nothing new.”

As the various ministries governing the different sectors still have a say in whether or not to permit foreign participation, “it will be interesting to see how the relevant authorities work out the details over foreign ownership in sectors such as banking, property and insurance,” Jean Loi, managing partner at VDB Loi, told The Myanmar Times last week, after the law was approved.

To be sure, until specific regulations governing foreigners’ involvement in the local stock exchange are disclosed, trade volumes may well remain in the doldrums.

“We can say the law has allowed foreigners to take part in the local bourse, but we need regulations to implement actual changes in the stock market,” U Thet Tun Oo, senior executive officer of the Yangon Stock Exchange, said.

While the new law provides clarity on shareholder protection clauses and classifying types of corporations, implementation of the laws governing actual share transfers and ownership will need to wait until the government works out the appropriate bylaws and regulations, said Pedro Jose F. Bernardo, partner at Kelvin Chia Yangon.

“The new law includes a provision stipulating that foreign ownership is allowed. But we don’t know how it will be implemented. This means that even if foreigners want to purchase shares in local companies, the authorities will still not recognise the transfer. Until those bylaws are officially approved and announced, no one is following the new law yet, and practically nothing has changed,” Mr Pedro said.

In fact, “it is not surprising that the authorities have taken this stand in implementing the new Companies Law. We saw the same situation with the Investment Law. Even though it was passed last November, the bylaws were not implemented until February. Similarly, the Condominium Law has been approved but there have been no regulations issued until now,” he said.  “We will just have to wait and see when the rules will be enforced.”

Growth projected

So far, the response from the business community has been negative. William Greenlee, DFDL partner and chair of American chamber’s legal group, argued that the delay will result in “a loss of potential foreign investment enthusiasm.

There are of course a great many details of the new law that we need clarification as to how in practice such new concepts will be implemented, however, there are plenty of other aspects that do not require such follow up.  I fear that we will see a loss of potential foreign investment enthusiasm and thus negatively impact overall investment,” he said.

Nishant Choudhary, co-chair of EuroCham’s legal affairs advocacy group, agreed. “The new Companies Law is passed after passage of few years since it was introduced. There was time for the authorities to have worked on the post-enactment activates, so that DICA was ready and equipped to deal with the new law soon upon enactment. This would certainly slow the immediate investments,” he said.

Still, “eight months is a small period of time considering the magnitude of change we are looking at,” Mr Nishant concurred.

Shanaka Peiris, IMF Mission Chief for Myanmar, reckons so, too. “The recently released press release following the 2017 Article IV Consultation mission suggested the implementation of a second wave of reforms to accelerate and sustain Myanmar’s growth takeoff and strong poverty reduction. The Myanmar Companies Law is one of those second wave of reforms we had in mind,” he said last week.

“Opening up the economy to foreign minority equity investments and strengthening corporate governance should help attract greater FDI as well as enhance technology and managerial expertise transfer to Myanmar companies.”

Backed by the recovering agriculture sector and exports, the economy is expected to expand between 7pc and 7.5pc on the back of stronger foreign direct investments and public spending in the coming fiscal year, according to the IMF.

 

Source: The Myanmar Times

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