Japan firms to help create Myanmar bourse

By HIROKO NAKATA, Staff writer, Thursday, May 3, 2012  ... ...

Myanmar, the so-called last frontier for business opportunities in Asia, will be establishing a stock market by 2015 with the help of Japan's Daiwa Securities Group Inc. and Tokyo Stock Exchange Group Inc.

Many Japanese and foreign investors believe that the envisaged stock market will open up numerous business opportunities. At the same time, however, some experts have pointed out that after five decades of the isolation from the global community, Myanmar's transformation from a pariah state to a modern economy will not be quick.

"We are very proud of joining the national project," said Ryota Sugishita, an executive director in charge of consulting for Asian capital market development for Daiwa Institute of Research Ltd. "And we are eyeing joining in the country's securities business in the future."

Daiwa, TSE and the Central Bank of Myanmar reached an agreement April 11 to set up a stock exchange by 2015 and help grow a capital market. They are likely to sign a contract as early as this month, according to the two Japanese groups.

The move is in line with Myanmar's attempt to bring its economy on par with neighboring countries.

The plan to set up a stock market by 2015 comes the same year as the Association of Southeast Asian Nations plans to integrate their economies to create the ASEAN Economic Community. In the planned integration, ASEAN countries would do away with trade barriers and promote cross-border investment within the community.

Meanwhile, the Tokyo bourse is expecting future benefits by helping Myanmar to open its stock exchange.

"We hope our support will lead to more active trade on our exchange," TSE spokesman Naoya Takahashi said. For example, the TSE hopes to build a broader tieup with Myanmar's stock exchange by listing financial products on each other's markets or exchanging stock price information.

"For TSE, it is a long-term story, rather than a short-term business chance," Takahashi said.

Such support would be part of a number of steps taken by the Tokyo bourse, which cooperates with more than 20 exchanges around the world, including in New York, London and Shanghai, to survive fierce global competition to lure more investors and corporate listings.

Under the agreement, Daiwa will be in charge of helping the country nurture a capital market through various measures, including the training of the stock exchange's workforce and giving advice to set up IT systems necessary in the securities business. TSE will help establish rules and standards to operate a stock exchange.

Daiwa said the company's approach to the country dates back to the early 1990s.

The firm's initial interest in Myanmar's capital market was welcomed by the government in 1993, which led to Daiwa's official contract with the country to help set up the Myanmar Securities Exchange Center Co., an over-the-counter stock market, in 1996.

Daiwa plans to use its knowhow and personnel resources at the MSEC to create the new stock exchange.

Global interest in Myanmar stocks has grown recently as the country opens up its economy and the U.S. and Europe begin lifting their strict sanctions.

Renowned U.S. investor Jim Rogers said in an April 2011 Forbes interview that if Myanmar opens a stock exchange, he would buy shares there "in a minute."

But the fledgling democracy faces many challenges, because it needs drastic reforms to improve its overall financial system.

The first key task it faces is to create various regulations. These include stock-trading rules for the exchange, financial requirements for stock listing and financial disclosure standards for shareholders.

What's more, the underdeveloped economy, often suspected of being a hotbed for money-laundering, is sorely lacking modern financial infrastructure — including crucial Internet technology — for transactions, money transfers and settlements.

Currently, only cash and checks are available for settlements at the MSEC, the tiny over-the-counter market. ATMs have only just been introduced at the country's banks, and credit cards can barely be used.

Finally, workers would need to be trained to operate the new technology.

Currently, only a handful of people are working for the MSEC, where only shares of two companies — Forest Products Joint Venture Co. and Myanmar Citizens Bank — are traded.

"We have to boost the number of staff (at the MSEC) to about 100 people," Daiwa's Sugishita said.

In total, there are about 50,000 firms in Myanmar, and nearly 80 percent of them are small businesses.

Despite such a huge number of companies, only 20 firms under the category of "public companies" are currently allowed to sell their shares.

Sugishita said there are many other firms called "private companies" in sectors such as construction, real estate, infrastructure and agricultural and processed food, which may be attractive to investors once listing rules are eased.

Local companies have long struggled with raising funds to expand their businesses, with many either relying on business owners' savings or unofficial borrowing from their friends and relatives.

Official bank loans bear high interest rates and require real estate, jewelry or beans as collateral. Interest on bank lending now stands at 12 percent, after falling from 17 percent in fall last year, Sugishita said.

Banks have been reluctant to extend loans since panicky withdrawals triggered by groundless rumors of their financial health in 2003 forced the government to tighten control of banks, he said.

Besides these hurdles, other deeper-rooted problems also remain. Despite pressure from the West, many firms are reluctant to become more transparent and comply with corporate norms, experts say.

"There are companies, including local conglomerates, that are interested in stock listing," said Yoshihiro Araki, director in charge of ASEAN industries integration at the Japan External Trade Organization.

But listing their stocks is a different matter, according to Araki.

"As in many other emerging nations, companies hesitate to disclose their financial results," he said, explaining that the reluctance partly stems from overzealous local tax authorities.

"Also, many of them are family-owned companies, and they don't want outsiders to poke their nose into the business," said Araki, who visited Myanmar on an inspection tour of the booming economy in February and March.

Despite all the challenges, building a stock market is a necessity for economic growth, experts believe.

As in Indonesia and many other emerging markets, any growth in stock markets stimulates the economy, whets consumer appetites and encourages more investment in a positive economic cycle, said Takashi Takayama, an economist at NLI Research Institute in charge of emerging Asian economies.

If companies started to raise funds by floating their shares on the stock exchange, that would also help Japanese companies to find good business partners, he said.

"What I'll focus on is how many companies will go public and how the government and local banks support active trade," Takayama said.

http://www.japantimes.co.jp/text/nb20120503a4.html