Sherpa Hossainy's Blog

WE Holdings forms Myanmar JV

Posted in ASEAN, Investment, Myanmar, Yangon by Sherpa Hossainy on July 10, 2013

Aims to explore petroleum onshore project

Published in Myanmar Business Today (Vol 1, Issue 23) on July 11, 2013

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Singapore-based WE Holdings Ltd acquired a joint venture company in Singapore in a bid to assess potential petroleum, oil and gas, and related resources business opportunities in Myanmar, it said in a statement.

The JV, WE Dragon Resources Pte Ltd, was formed with Myanmar tycoon Nay Win Tun.

The company has entered into a non-binding memorandum of understanding with Nay Win Tun for a proposed collaboration to carry out petroleum operations projects in five target oilfields in Myanmar through a project company, the statement said.

Under the agreement, the project company will carry out petroleum operations projects, including the exploration of petroleum fields, drilling, petroleum extraction, and the recovery and trading of petroleum products, in Myanmar. The exploration activities will be carried out in Mandalay, Magway, Sagaing, Ayeyarwaddy divisions and Chin state.

The investment in WE Dragon will be funded by the company’s internal resources. WE Holdings and Nay Win Tun will each hold 50 percent of WE Dragon’s issued and paid-up share capital. The issued and paid-up share capital of WE Dragon will be increased to S$200,000 comprising 200,000 shares, WE Holdings said.

Strategically located near energy-hungry China and India, Myanmar has received keen interest from foreign investors since the United States and European Union lifted sanctions against the country. With a vast, untapped reserve of oil, estimated to be 50 million barrels, and 10 trillion cubic feet of gas, Myanmar has been inviting foreign energy companies to bid for exploration licences and oil blocks.

“As one of the oldest oil producers and the tenth largest gas exporter in the world, Myanmar promises immense opportunities. The country has been actively wooing foreign investors so as to unlock the potential of its huge oil and gas reserves, and we believe that we are well-placed to benefit from this trend,” WE Holdings said in the release.

The project company will also seek business opportunities and collaboration with small scale local owners of oilfields. The proposed collaboration is conditional upon the project company’s successful application of a large scale petroleum operations permit from the Myanmar government as well as the company and Nay Win Tun entering into definitive agreements regarding the collaboration, it said.

Nay Win Tun is the chairman of the Ruby Dragon Group of Companies, which has mining, manufacturing, agriculture, food and beverage, trading and hospitality businesses across Myanmar.

The company will also explore opportunities in the exploration, extraction/mining and trading of energy and metal resources and the production and trading of cement, sand and steel.

WE Holdings said it will now be seeking shareholders’ approval for the proposed new business prior to entering definitive agreements.

The proposed collaboration is subject to numerous conditions and there is no certainty or assurance that the parties will in due course enter into any definitive agreements.

WE Holdings recently proposed investment to own a stake in local Dragon Cement Co Ltd. Shares of WE Holdings Ltd jumped as much as 11 percent after the electronics manufacturer and distributor unveiled plans to invest in a Myanmar-based cement plant.

The company plans to buy a 20 percent stake for $20 million in Dragon Cement, a unit of the Ruby Dragon.

DuPont to foray into Myanmar

Posted in Agriculture, ASEAN, Myanmar, Technology, Yangon by Sherpa Hossainy on July 10, 2013

Eyes agriculture and sustainable energy solutions

Published in Myanmar Business Today (Vol 1, Issue 21) on June 27, 2013

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American science and chemical giant DuPont has set its eyes on Myanmar as part of its ASEAN expansion strategy and will open office in the Southeast Asian country this year, a top executive said.

“Our regional team has done a lot of good work to get us started in Myanmar. We are in the process of getting all the government permission and finishing other formalities, and our office will open by the last quarter of this year,” Rajeev A Vaidya, the Delaware-based company’s President of South Asia and ASEAN, told Myanmar Business Today.

“There’s a lot of potential. As we come into Myanmar and we see those opportunities, we would certainly like to be a part of that,” he added.

DuPont, founded in 1802, describes itself as a “global science company” and employs more than 70,000 people in 90 countries and has a diverse array of products. Garnering a revenue of $38 billion in 2011, DuPont ranked 72nd in the Fortune 500 ranking in 2012.

Emerging markets contributed to 34 percent of DuPont’s sales in 2011 and half the company’s agricultural sales are outside the US. DuPont also spends 5 percent of its revenue in research and development (R&D).

Rajeev Vaidya, Hsing Ho

Rajeev A Vaidya (L), Dupont’s President of South Asia and ASEAN, and Hsing Ho, managing director for ASEAN. Sherpa Hossainy

DuPont businesses are organised into five categories, known as marketing “platforms”: electronic and communication technologies, performance materials, coatings and color technologies, safety and protection, and agriculture and nutrition. Agriculture contributes the greatest share of DuPont’s revenue, $10.4 billion last year, up from $9.17 billion in 2011.

 

While DuPont will “bring all our offerings” in Myanmar, Rajeev said the priority would be agriculture and sustainable energy solutions. “We will offer anything to ensure food security for the Myanmar market. If you look at the development stage of Myanmar, the priority will of course be on agriculture at first. Enhancing the farmers’ livelihood and productivity through technical assistance would be the initial focus,” he explained.

“We will also look at sustainable energy because in a geography like Myanmar there’s always need for sustainable energy like biofuel and solar, and solutions that improve energy efficiency,” Rajeev said. Technologies that help protect people, assets and the environment through improved industrial processes and lowering the carbon foot print will be introduced, he added.

DuPont’s agriculture division makes and sells hybrid seed and genetically modified seed, some of which goes on to become genetically modified food. Rajeev said the company will bring a number of different solutions to the farmers including seeds and crop protection. “These solutions help the farmers to get the most value out of every acre. We not only want to make this solutions available, but we also want to do it in a way that we actually engage the farmer community in the best agronomic practices on using those solutions to create the best outputs.”

The DuPont South Asia and ASEAN President said the company will also invest in educating farmers, and in localising and enabling them to use the technology.

Rajeev said at a World Economic Forum session on agriculture and food security that science can play a critical role in achieving food security solutions. “Over 10 million farmers benefit from our solutions. We are working on how to grow more food with less land, and science-powered solutions is relevant for this approach. Also, science has to be put in the hands of the farmers to empower them. Collaboration will unlock the true potential of science.”

Rajeev said young people should be encouraged to adopt agriculture as a profession, adding that average age of a farmer in Southeast Asia is over 60. However, Rajeev said it’s not going to be an easy challenge to lure young people into agriculture.

“It’s a major challenge. We have to change the way a generation thinks. Is that possible? Yes. Can that be done by DuPont only? No. That’s where the ecosystem of collaboration comes in.”

“That’s a problem we must solve. If we don’t make farming an attractive business for young people it becomes a sustainability issue. A big part of the solution is to actually make farming profitable for small farmers. As that happens, some fundamental building blocks can be put in place through science and in collaboration with the government.”

Hsing Ho, managing director for ASEAN, said in this regard, “There is a great potential to make farming more productive and profitable. Therefore the profitability is on the discussion table and people say who is going to reap the profits. From our perspective, it is about the notion of equitable distribution of wealth.

“If we can bring up the value of creation, we would be able to split those values more equitably with the ones in the value chain, by putting them in the centre. That’s how we create more potential for the younger people to make them more excited about it.”

Hsing Ho said farming is not only about “hard work and sweat.” “It’s about applying the right technology. When farmers’ income goes up it results in more mechanisaiton, thereby increasing productivity. When farming becomes no longer a hard work and more tech-based young people will get encouraged.”

However, Myanmar also faces its own problems such as complete lack infrastructure and a weak supply chain. Most Myanmar farmers have been trapped by very high costs due to the lack of infrastructure, while internal transport costs are five times higher than in Thailand and 20 times higher than in China.

Rajeev said: “There has to be collaboration with the government where the government oragnisations are investing in the infrastructure and simplifying the regulations so that new technology can come in. Farmers, companies, governments and NGOs can work together to create a greater market access.

“The problem is when you look at the whole thing it sounds so big and so complex that nobody wants to touch it. There’s an old Chinese proverb that a thousand-mile journey starts with a single step. So, we just got to start. We’ve heard very positive comments from the government and when we make progress things will continue to fall in place.”

Thai firm moves to Myanmar following Laos success

Posted in ASEAN, Finance, Legal, Myanmar, Yangon by Sherpa Hossainy on July 10, 2013

Offers help to Myanmar government, state enterprises and corporations to raise capital from Thai bond market

Published in Myanmar Business Today (Vol 1, Issue 21) on June 27, 2013

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Thailand-based advisory firm Twin Pine Consulting will help Myanmar corporations to raise much-needed capital from the Thai bond market after it successfully manoeuvred the Laos government to raise 1.5 billion baht ($50 million) from the coveted regional bond market, its top executives said.

The Laotian government in May issued three-year baht bonds in Thailand worth THB1.5 billion with an interest rate of 4.5 percent per annum through private placement. Twin Pine acted as the Laos government’s financial adviser. The transaction was the first unrated sovereign or quasi-sovereign credit to be issued in the baht-denominated bond market and established Thailand’s image as a viable regional debt capital hub.

“We want to help at least a couple of Myanmar companies, its government or state enterprises to raise capital from the Thai bond market. We will act as a matchmaker as we help them launch in the market. We can also get the rating agencies to come and rate them, for example the Thai Rating and Information Services (TRIS),” Adisorn V Singhsacha, managing director and partner of Twin Pine, who also has over 15 years of international banking experience, told Myanmar Business Today. The whole idea is about increasing the level of professionalism and the outreach of local companies and also Myanmar as a country, he added.

“We still haven’t identified who is going to be the underwriter for the bond, but it could be either a Thai bank or a foreign bank. For the Laos project we worked with Thai Military Bank (TMB) who worked as the underwriter,” Adisorn said.

Adisorn V Singhsacha, managing director and partner of Twin Pine.

Earlier this year, Thailand’s Ministry of Finance granted Laos approval to issue baht bonds as a contribution to the Asian Bond Markets Initiative and the ASEAN Economic Community blueprint that aims at improving economic relations in the region. In an effort to promote the Laos deal, the Thai government removed a number of barriers, including the waiver for a required rating. The Laos deal demonstrated that there is institutional appetite for a high-yielding name, and is expected to set a template for other regional sovereigns such as Cambodia, Myanmar and Vietnam.

The Securities and Exchange Commission (SEC) of Thailand cleared one barrier for the bond in June last year, when it approved the sale of unrated paper. The last hurdle was removed when the Thai Ministry of Finance relaxed a rating requirement specifically for foreign governments or issues with a foreign government guarantee. Previously, only foreign issuers with an investment-grade rating could apply for the approval.

Twin Pine was appointed as the advisor for the Laos Ministry of Finance and its legal partner LS Horizon played a major role in getting the state-owned Electricite Du Laos (EDL) listed in the newly-formed Laos Stock Exchange.

LS Horizon Ltd is a regional law firm which has offices in Laos, Singapore and Myanmar, and has plans to expand into Indonesia and Cambodia. “We’ve been helping our Thai clients through our Myanmar office to set up businesses, giving legal advice on investment. Our clients range from mining giant Bangpu, Ital-Thai Development Plc to Siam Cement and some Thai banks,” Chiridacha Phungsunthorn, a partner at LS Horizon and also partner and director at Twin Pine, told Myanmar Business Today.

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Chiridacha Phungsunthorn, a partner at LS Horizon and also partner and director at Twin Pine.

“We have the same aspiration and the same philosophy. Twin Pine is a boutique firm and it operates in a flexible and dynamic manner with a focus on Greater Mekong – Myanmar, Laos, Cambodia and Thailand, and LS Horizon also shares the same focus,” Adisorn said.

The Laotian government used to raise funds from various sources such as borrowing from overseas banks or international organisations and issuing kip-denominated bonds. Twin Pine analysed Laos’ borrowing capabilities and found that Laos could diversify its borrowing to keep financing costs low and less dependent on traditional sources.

“We advised the Laos government to step forward from government to government (G2G) lending, and help took them to the international level by putting them in a cross-border capital market in Thailand, which has plenty of resources and funds. We said why not raise the capital in the Thai market, which would also alleviate Laos’ level and integrate it into the ASEAN community,” he said.

Many factors helped the launch of the Laos bond, Adisorn said. Part of the Laos government revenue is in baht as it sells electricity to Thailand. With a matching debt and income, eliminating currency risk from fluctuating exchange rates became easier.

Adisorn said Twin Pine’s philosophy is to meet the top level executives of an organisation including chief executives, directors, chief financial officers, owners and chief investment officers. “These are the people who make decisions. Sometimes these companies see that the resource in the organisation is not ready to response to a specific need. We act as a bridge to help generate ideas and execute top management’s wishes when gaps exist in expertise or readiness and resources. We say, ‘We are here and we can get it done,’”

The advisory firm is also currently raising funds for a real estate project in Yangon. “We have been in talks with land owners in Yangon to build a hospitality and serviced-apartment project. We will help them raise over $20 million from outside Myanmar. This won’t be a listing, only a private placement with high-networth individuals.”

Despite some obstacles like proper land valuation, Adisorn thinks Twin Pine would be able to raise the funds pretty soon. “The prospect is very good and we have to highlight this to the investors. I think we can do it for them by the end of this year; if I’m optimistic then I’d say in three months, Adisorn said. Twin Pine has already studied the foreign investment law in Myanmar and LS horizon will assist in forming an ‘Investment Vehicle’, he added.

“The ROI could be about four and a half years after construction period and now we are looking for some investors who will just put in $20 million. It’s all about finding the people who has the appetite for this kind of market.”

Adisorn believes there’s a big opportunity for Myanmar conglomerates to reach out to international investors and raise funds. “Myanmar is now the darling for new investments. We have already identified a few large corporations and we aim to work with those to raise funds in a similar fashion [like Laos] in the Thai capital market. These customers range from state enterprises, banks, large holdings companies to airlines.

“Our next step is to work with a rating agency in Thailand to do the rating for our clients. If we can get large Myanmar corporations, we can approach the rating agency in Thailand to do the rating and the pricing can be done according to the market demand and supply.”

Starting the discussion is the first step but making it happen is not easy, Adisorn said, adding that the Laos deal took two years to realise. “Now I can say that we have been successful in a virgin market and we are ready to move on to the next level. We are looking at more deals in Laos, new deals in Myanmar and Cambodia. We are likely to see some deals in those countries by the end of this year.”9

However, there’s no surefire way to raise capital, Chiridacha said. “It’s about strategy and how you want to perform according to the market. However, by listing you give away your share of the company. But through bonds you can just raise the capital.”

Adisorn added: “You have everybody believing in Myanmar, so why give away your equity and ownership if there is no synergy. I think you can get cheaper finance through bonds.

“Equity is expensive, unless there is a strategic value. If you know your company is growing and in three years time it’s going to be double or triple in value, why would you give that away? You should keep that as long as you can and if you can find someone to lend your money you should rather borrow the money. Myanmar companies have very strong growth prospects and Myanmar is just starting. So, to sell off equity, without real added value would not be advisable now”

The veteran financial advisor said there are no hidden dangers for Myanmar companies while raising capital from bond markets. “The only danger is for the ones who will buy the bonds if the Myanmar companies don’t perform. So, it’s completely safe,” he said.

From its experience in greenfield markets in Southeast Asia Twin Pine sees Myanmar companies have huge potential to raise capitals from the Thai bond market. “Myanmar is like a rough diamond now. We can see potential companies and we just have to market them.”

Adisorn thinks Myanmar companies should aim to raise capital from Thailand as there are shared values and greater understanding between the two countries.

“Myanmar companies shouldn’t go to New York or London first, because they are not as recognised there. We also don’t think we need to wait for outsiders to come in. We are capable enough and we have regional knowledge plus the cultural background. It’s not a disadvantage for us to be a regional firm, it’s an advantage. We can tell from our experience, ‘In 15 years I know where you [Myanmar] will be.’”

He added: “We go to places in Myanmar and we explain financial instruments like bond or stocks to top officials because they haven’t been exposed to it yet. But people from leading Investment Bank, for example, may not do this for you. At the end of the day, some of these Western establishments will have to learn from us.”

Adisorn claimed what Twin Pine is doing hasn’t been done before. “We matchmake, we give simple and interesting advice. If we present a scenario to someone they would say, ‘I know what you are talking about.’”

“We would like to establish a circle of trust here. We believe in our nations, be it Laos or Myanmar or any nation in Southeast Asia. If we help each other grow, we will see exponential benefits.”

Thailand upbeat about Japan involvement in Dawei

Posted in ASEAN, Investment, Myanmar, Yangon by Sherpa Hossainy on July 10, 2013

Published in Myanmar Business Today (Vol 1, Issue 20) on June 20, 2013

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Thailand is still hopeful that Japan will take part in the multibillion-dollar Dawei special economic zone project, a grand Myanmar-Thailand scheme to transform the Southeastern coastal strip of Myanmar into a global trading hub.

According to last week’s Thai media reports, Thai Prime Minister’s Office Minister Nivatthamrong Boonsongpaisal said Thailand is still confident that foreign governments, especially Japan’s, are keen to join the Dawei project.

Labourers work at a relocation area close to a site for a billion dollar industrial estate in Dawei district, Myanmar. Khettiya Jittapong/Reuters

The announcement came ahead of the signing of a deal to set up a special purpose vehicle (SVP) entity on June 17 in Bangkok between Thailand’s Neighbouring Countries Economic Development Cooperation Agency (NEDA) and a state agency under Myanmar’s Ministry of National Planning and Economic Development.

Despite recent reports that Japan is more interested in their own project Thilawa, another special economic zone (SEZ) 25 kilometre south of Yangon, Nivatthamrong said he was still confident that Japanese interests would join in the Dawei project, which will be bigger in size and give bigger returns than Thilawa.

The Dawei deep sea port project has been dubbed as Southeast Asia’s biggest industrial zone, which includes 200-square-kilometre industrial complex with steel mills, oil refineries and petrochemical plants, a deep sea port and an eight-lane highway linking Dawei to major industrial zones and the port southeast of Bangkok.

The Italian-Thai Development (ITD) Co was put in charge to complete the construction of the project, however, ITD was unable to raise $8.5 billion to kick-start the first phase of the massive $50-billion SEZ. Shadows of doubt were cast over the project after experts said the projected return on investments might not be as high as previously calculated.

Myanmar and Thailand both tried to court Japan into financing the mega project but Japan seemed lukewarm about the prospect of Dawei, and was rather more interested in Thilawa.

Currently, the Thai and Myanmar governments each hold 50 percent stakes in the SPV. The entity will try to attract other countries, especially Japan, to take part in the SPV, according to Nivatthamrong, who added some countries were expected to join this year.

An investment framework agreement between the SPV entity and the Dawei Special Economic Zone Management Committee will follow the SPV creation.

Nivatthamrong co-chairs the Myanmar-Thai Joint Coordinating Committee overseeing the Dawei development project.

ASEAN leaders quash common currency idea

Posted in ASEAN, Currency, Economy by Sherpa Hossainy on July 10, 2013

Published in Myanmar Business Today (Vol 1, Issue 20) on June 20, 2013

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ASEAN leaders recently brushed aside the idea of having a single currency for the Southeast Asian block, saying it’s “impossible” and would jeopardise the economic stability of the region.

“ASEAN countries have suffered together from the Asian economic crisis in 1997. Imagine what would’ve happened if we didn’t have the chance to peg our baht and turn deficits into surplus. We’ve seen the benefits of exchange rates, which are an important substance of the capitalist system,” Thai Deputy Prime Minister Kittiratt Na-Ranong told a discussion at the World Economic Forum in Nay Pyi Taw recently.

He dismissed the idea of an ASEAN common currency by saying, “It’s impossible.”

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The recently concluded WEF saw a lot of intra-regional commitments for regional integration and cooperation being made but the leaders were not keen on a common currency. They said regional trade and growth can be achieved without having a single currency and an ASEAN currency is not the primary agenda ahead of the creation of the ASEAN Economic Community.

“By being one doesn’t mean you have to lose your individuality,” said Cesar V Purisima, secretary of finance of the Philippines.

Harish Manwani, chief operating officer of Unilever, told the panel: “There are many currencies in the world, not one; and it is possible to manage an integrated system within the current context.”

The idea of a single currency has been on the table for at least a decade as part of regional integration plans. But the fiscal situations of the member states are so diverse that a single currency regime could prove fatal. Putting together strong globally traded currencies such as the Singapore dollar with weak Indonesian rupiah, Vietnamese dong or Myanmar kyat would very much dilute the strength of a common currency. It would also give the economically weaker states an unfunded creditworthiness which could trigger an economic debacle as seen in the eurozone when Greece’s economy collapsed under its debt load.

The leaders agreed that the recent euro crisis was a valuable lesson, and countries should not rush the process of financial and monetary integration before developing an adequate institutional framework.

“It would be impossible to get a 10 percent GDP growth with a single currency. Economic growth will not be driven by a single currency but by supply chain strength, an important aspect in which ASEAN countries must improve,” Tarek Sultan Al Essa, chairman and managing director of Agility, told the forum.

 

SingTel prods the game up a notch

Posted in ASEAN, IT, Myanmar, Technology, Telecommunications, Yangon by Sherpa Hossainy on July 10, 2013

Says “far exceeded” licence requirements, promises 95pc coverage in 3 years and transform people’s lives

Published in Myanmar Business Today (Vol 1, Issue 20) on June 20, 2013

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Telecom giant SingTel ramped up the telecom tussle ahead of the licence winner announcement by saying that it has “far exceeded” the government requirements and vowed to provide 95 percent network coverage in three years.

Singapore Telecommunications Ltd (SingTel) and its partners – KBZ Group and Myanmar Telephone Company (M-Tel) – are one of the 11 finalists in the race for two lucrative telecom licences in Myanmar.

“The consortium’s proposal far exceeds the government requirements in many areas, including network coverage plans and service prices,” Mark Chong, SingTel CEO International, Group Consumer, said at a press conference. The consortium will build a world-class mobile network, which will cover 95 percent of Myanmar population in 36 months, he added.

The SingTel CEO told Myanmar Business Today on the sidelines of the press conference, “We are confident in terms of our network reliability, quality and coverage. We will offer competitive package and innovative value-added products. We are going to offer competitive SIM prices and call rates in line with the regional standards. I don’t think we can charge supra-normal rates.”

Mark said: “With SingTel’s vast operations in many parts of the world, our knowledge in building new infrastructure and services from the ground up is unrivalled. We want to bring more than just a domestic telecom infrastructure. We will bring international connectivity that will improve the quality of lives of the people.”

“With the strength of our local partners KBZ and M-Tel, we believe through our investment, we can develop Myanmar’s telecom industry and create employment,” he added.

SingTel operates in both developed and emerging markets like Indonesia, India, Thailand and the Philippines, serving 468 million customers.

The telco said in a statement that together with the KBZ Group and M-Tel, which possess strong local presence and knowledge, the consortium is well-positioned to build a quality network to connect people, promote business activities and spur economic development.

Asked whether the government’s plan of achieving 80 percent mobile phone penetration by 2016 is realistic, Mark Chong said, “I think the government can answer it better. But we will try to do our best [to achieve that].”

However, one of the partners of the consortium M-Tel’s CEO Jonathan Myo Kyaw Thaung told Myanmar Business Today, “I believe it’s realistic and possible.”

He added, regarding the consortium’s strategy to build infrastructure in Myanmar’s conflict-prone areas, “This conflict areas are not new. The government has known about them for a while. The requirement fixed by the government tells us which township to cover and by when; and there’s leniency in terms of establishing networks in some parts of those conflict areas.”

To develop Myanmar’s international infrastructure, SingTel said, it will invite the government to participate in feasibility studies for future satellite programmes and lend its assistance in the launch of a Myanmar national satellite. “We are not saying this regardless of winning or losing the telecom. As one of the lead parties planning the Southeast Asia-Middle East-West Europe (SEA-ME-WE) 5 submarine cable, we want to include Myanmar as an ASEAN friend.”

U Nyo Myint, managing director of KBZ Group, said: “Our 20-year experience on the ground running large companies provides us with unique insights into the local operating environment. We believe that the consortium’s proposal will elevate Myanmar to be able to compete globally in the upcoming decade.”

Booming Southeast Asian real estate markets to support AEC by 2015

Posted in ASEAN, Myanmar, Real estate and property, Yangon by Sherpa Hossainy on July 10, 2013

Jones Lang LaSalle ties increased real estate transparency and investment interest to economic growth

Published in Myanmar Business Today (Vol 1, Issue 20) on June 20, 2013

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Real estate trends and opportunities in emerging markets across Southeast Asia will support the establishment of the ASEAN Economic Community (AEC) by 2015, according a leading global real estate advisory firm Jones Lang LaSalle.

The economies of the ASEAN markets continue to outpace the rest of the world by a significant margin. While Singapore remains the commercial and financial hub, emerging markets like Myanmar are making headway across Southeast Asia. Despite a slight slowdown during the first quarter of 2013 in some Southeast Asian markets, such as Indonesia and Thailand, economies across the region anticipate growth for the remainder of the year. “As the continued global economic recovery and growth in the region increase liquidity and reduce debt, growth prospects in real estate assets across the region will attract global investors,” Jones Lang LaSalle said.

While Myanmar is touted by Asian Development Bank and International Monetary Fund to grow more than 6 percent, other Southeast Asian countries are also expected to see similar growth. Supported by strong investor demand and consumer spending, Indonesia’s economy is forecast to grow 6.1 percent in 2013, while the Philippines is expected to grow 5.7 percent this year, driven by investor interest in the country’s upgrades to sovereign credit ratings and low interest. Thailand, Malaysia and Vietnam are also expected to grow between 4.5 and 5.5 percent driven by strong domestic demand.

Chris Fossick, managing director, Singapore and Southeast Asia at Jones Lang LaSalle, who attended the World Economic Forum on East Asia in Nay Pyi Taw, said, “This growth translates to robust domestic investment into commercial property, driving demand for office and logistics space.”

Fossick added that increased consumer spending will boost demand for expanded retail formats, which in turn will support the developments of retail malls and the subsequent accompanying infrastructure in emerging markets. “We are now starting to see increased transparency in the real estate markets of these economies which will ultimately spur regional growth encouraging investment.”

“The real estate industry is in a unique position to influence and be involved in many key aspects of development in the Southeast Asia region, both economic and social. There is a role for the industry in areas such as infrastructure, housing, education, healthcare, tourism and industry and trade which are all inextricably linked. This is both an opportunity and a challenge for our industry and we need to work closely with both private and public enterprise to ensure real estate adds full value,” Fossick said.

2012 ASEAN Real Estate Market Transparency Rankings

ASEAN Ranking Global Ranking Market Composite Score Change on 2010
1 13 Singapore 1.85 1.73
2 23 Malaysia 2.32 2.30
3 35 The Philippines 2.86 3.15
4 38 Indonesia 2.92 3.46
5 39 Thailand 2.94 3.02
6 68 Vietnam 3.76 4.25

Source: Jones Lang LaSalle 2012 Global Real Estate Transparency Index

While economic growth drives corporate activity across Southeast Asia, businesses are making changes to accommodate growing workforces and modernised office spaces in new, emerging markets. As existing companies seek space to accommodate expansion and new businesses and industries demand a share in the markets, demand for offices will spike and vacancy levels are forecasted to reach historic lows by 2014.

Demonstrating this growth is Jakarta, where office demand has increased by nearly 150 percent in four years, growing 7.4 percent the last quarter alone. The Philippines, often overlooked by investors, witnessed record levels in demand for office space, sparking new developments in previously unexplored submarkets and a 3 percent rise in rents from the same period 2012. Backed by increased domestic demand, office market rents and capital values, Thailand’s real estate market has demonstrated recovery since the end of 2012, rising 15.2 percent year over year in the first quarter of 2013. Meanwhile increases of 1 to 4 percent in office rents were seen in some other emerging Southeast Asian markets, such as Kuala Lumpur and Bangkok.

Owing to improvements in SEA economies and international trade, ASEAN industrial and logistics markets have reached historic highs and show no signs of slowing, as trade volumes are predicted to increase by 130 percent over the next 10 years.

“Real estate will have a critical role in driving trade and industrial growth across SEA markets. Many have already experienced rates increase as a result of improved foreign investment and a tighter supply base. As foreign investment continues and more borders once blocking global trade open, the most developers will seek new markets in the SEA region that will boost competitiveness and emerging markets’ growth,” Fossick said.

In retail markets sector, Jakarta leads the regional field in the retail market, supported by a large domestic population. As rising disposable income and a changing demographic drives consumer confidence, retail rents have accelerated by 4.9 percent year over year in Q1 2013. In Thailand, the local retail market also enjoyed renewed interest from international retail brands looking to capitalize on resilient domestic demand and overall rising affluence in Asia. Leasing activity was strong, largely driven by newcomers and expansions by international brands with retail rents in Bangkok growing 4.1 percent year over year and capital values rising by 3.4 percent year over year in 1Q13.

By incorporating sustainability in real estate development, markets in SEA can capitalise on and maintain growth, enhance corporate productivity and efficiency, and improve transparency for prospective investors. Jones Lang LaSalle’s 2012 Global Real Estate Transparency Index revealed that transparency in real estate markets is also improving as investors and corporate occupiers extend deeper into these geographies.

“A higher transparency ranking in these markets will support ASEAN economic integration by leading developers to explore opportunities for real estate growth which, in turn, encourages other investors who will recognise the growing development cycle,” Fossick said.

 

AirAsia plans big for Myanmar

Posted in ASEAN, Aviation, Tourism by Sherpa Hossainy on July 10, 2013

To launch Bangkok-Nay Pyi Taw flights from October

Published in Myanmar Business Today (Vol 1, Issue 20) on June 20, 2013

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Malaysia-based low-cost carrier AirAsia is aiming big for Myanmar as it announced to launch daily flights between Bangkok and Nay Pyi Taw from October and targets to move 500,000 passengers this year to the recently-opened Southeast Asian country.

Anthony F Fernandes, Group chief executive of AirAsia, announced AirAsia’s expansion plans at the World Economic Forum (WEF) on East Asia in Nay Pyi Taw recently.

Tony Fernandes“It is especially timely as we anticipate a significant amount of travellers to this destination due to the upcoming SEA Games in December. With AirAsia’s extensive network, we are glad to play a role in connecting ASEAN to Myanmar’s happening capital, and we are equally excited to open up a new convenient option for residents of Nay Pyi Taw to reach Bangkok and the rest of the world,” Fernandes told a WEF session.

“Myanmar’s chairmanship of ASEAN in 2014 and the ASEAN Economic Community taking place in 2015 will spark a tremendous demand to connect the capital city to the rest of the world, and Bangkok is a perfect place to start,” Fernandes said.

The AirAsia chief said, “I’ve always been a strong believer that the success of the ASEAN Economic Community is highly dependent on regional connectivity and policies which truly support ASEAN open skies. But beyond ASEAN, Myanmar is also a gateway to India and China so it is only natural that the success of its economic reforms has enabled it to become one of the hottest investment sites in the region. With its foreign direct investment growing five times from 2011 to 2012, there is no better time to offer the world more access to this hot destination,” Fernandes added.

Currently, AirAsia offers three daily flights between Bangkok and Yangon, and one daily flight between Bangkok and Mandalay. In addition to Thailand, the low-cost airline also connects Yangon to Kuala Lumpur via one daily flight.

The carrier is also targeting to move 500,000 passengers this year to the country, Fernandes said. “Myanmar will have about 3 million tourists this year and we want about 20 to 30 percent share of that,” he said.

Eyeing its massive expansion, AirAsia, the biggest low-cost carrier of the region, has ordered more than 300 aircraft from Airbus SAS.

Fernandes told a high-level meeting on travel and tourism at WEF, “We are also training 20 pilots from Myanmar in our training facilities in Malaysia. Private industries have to be proactive to spur Myanmar’s growth and train human resources here.”

BASF plans to ramp up investment in Asia Pacific; targets Myanmar

Posted in ASEAN, Business, Industries, Investment, Myanmar, Yangon by Sherpa Hossainy on July 10, 2013
Ethylene Unit at BASF-YPC Company Limited / Ethylen-Anlage in der BASF-YPC Company Limited

A steam cracker operator carries out a routine inspection at a BASF plant in China. BASF

Aims to invest $13b in the region

Published in Myanmar Business Today (Vol 1, Issue 20) on June 20, 2013

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German chemical giant BASF announced it will invest over $13 billion (€10 billion) and create around 9,000 new jobs in the Asia Pacific region as part of its new growth strategy.

While about half of the money set aside for expansion will be spent in China, BASF is also planning to explore “untapped markets” in Myanmar, Laos, Cambodia and Mongolia, it said.

According to the firm’s new global strategy, BASF aims to scale up its sales to $32.6 billion (€25 billion) in the Asia Pacific region by 2020.

“BASF is implementing its global ‘We create chemistry’ strategy in Asia Pacific with a set of ambitious targets and a focus on sustainability. By being involved in those emerging markets, we not only open up new growth opportunities beyond 2020, but we become part of an emerging industry structure in these countries,” Dean Draper, Managing Director, ASEAN sub-region, BASF Southeast Asia, told Myanmar Business Today in an email response.

“BASF will set up task forces to explore the potential in Asia Pacific’s untapped markets. We target annual sales of €110 million in these markets by 2020,” Draper said.

Draper said: “In Myanmar, BASF is present and working with partners in the construction, agriculture and rubber industries. For example, end of May this year in Yangon we launched “Master Builders Solutions,” our global BASF brand of advanced chemical solutions for the construction industry.

“The untapped markets are a new area and we are at a relatively early stage. You will see other announcements of our more specific plans in the future.”

The world’s largest chemical company saw its margins slide in the region to 10 percent in 2012, which prompted it to shift its research and procurement to the world’s fastest growing chemical market to help double profitability.

BASF has a “good chance” to reach the average profitability of the group, Martin Brudermüller, vice chairman, board of executive directors, said at a press conference in Hong Kong.

On a group level, BASF aims to lift margins to 20 percent by the end of 2020 from a current 14 percent.

“In the next decade, Asia Pacific will face huge challenges while remaining the fastest growing market for the chemical industry. With our Asia Pacific strategy, we are positioning BASF as the leading provider of sustainable solutions for the Asia Pacific region. Based on our strong global R&D network, we will considerably strengthen our innovation capabilities in Asia Pacific, enabling us to better serve our customers in all industries in the region,” Brudermüller said in a statement.

BASF estimates the cumulative annual growth rate (CAGR) for real chemical production through 2020 for Asia Pacific at 6.2 percent, well above the world average of four percent.

BASF will conduct around one quarter of its global research activities from Asia Pacific. By 2020, BASF plans to reach a total of around 3,500 R&D personnel in the region, up from around 800 in 2012.

BASF is also going to establish research facilities in the areas of electronic materials, battery materials, agriculture, catalysis, mining, water treatment, polymers and minerals.

The company is currently considering establishing a second Innovation Campus Asia Pacific following inauguration of the BASF Innovation Campus Asia Pacific in Shanghai, China.

More than $ 2.62 billion in regional sales will be achieved through new business and acquisitions by 2020, BASF said.

By 2020, BASF aims for local production of approximately 75 percent of the products it sells in the Asia Pacific region in order to intensify its collaboration with and strengthen its supply position to customers in Asia Pacific.

BASF, which currently operates more than 100 production sites in the Asia Pacific, including two highly-integrated Verbund sites, located in Kuantan, Malaysia, and Nanjing, China, will invest in a range of efficiency measures that will save approximately $1.31 billion annually by 2020, it said.

Intel Capital Invests $16m in ecommerce across Asia

Posted in ASEAN, Business, Investment by Sherpa Hossainy on July 10, 2013

Global investor provides funding, business development support and technology expertise

Published in Myanmar Business Today (Vol 1, Issue 20) on June 20, 2013

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Intel Capital, Intel Corp’s global investment organisation, announced three investments in e-commerce firms seeking to scale up and extend their businesses in Asia.

The investments, totalling approximately $16 million, are: India’s Bright Lifecare, a distributor of nutrition, health and wellness products; Snapdeal.com, a consumer goods marketplace in India; and portfolio company Singapore’s Reebonz.com.

“Intel Capital focuses on adding unique and differentiated value beyond just financial investments by providing entrepreneurs strategic expertise, a global network and business development programmes to help them reach new customers and successfully scale businesses for a global economy,” said Arvind Sodhani, president of Intel Capital and Intel executive vice president, in a statement.

“These three exciting and innovative companies are delivering new ecommerce experiences to an ever-increasing customer base throughout Asia. We look forward to helping them grow and succeed through our resources and their passion.”

These investments will help drive innovation in the fast-growing ecommerce and distribution industries, Intel said. Growth in Asia’s middle-class, overall expansion of its economy and ever improving internet connectivity in the region has given rise to a considerable online retail market opportunity for these firms.

“We see start-up companies across Asia-Pacific taking advantage of new business opportunities created by the spread of personal computing and broadband Internet access. These technologies allow entrepreneurs to reach new markets and customers, and offer innovative new services that will help to enrich the lives of people across Asia,” said Gregory Bryant, vice president and general manager, Intel Asia Pacific.

However, Myanmar’s IT industry will have to wait longer to attract such investments from Intel, Sodhani said. “Myanmar does not yet have a venture capital ecosystem,” he said at the World Economic Forum on East Asia in Nay Pyi Taw. Myanmar’s lack of legal framework, poor internet connectivity and dearth of skilled IT professionals are barring Intel to invest in the recently opened Southeast Asian country, he added.

Bright Lifecare Private Ltd is India’s premier consumer health company. It is India’s leading distributor for nutrition and health products. It also operates India’s leading e-pharmacy network, HealthKartPlus, and develops innovative digital technology products for the consumer healthcare industry.

Snapdeal.com is one of the largest online marketplaces in India. The site features the widest assortment of products across all categories including fashion, electronics, home goods, among others. Thousands of small businesses, brands and retailers are leveraging Snapdeal’s reach of 20 million registered users to deliver their products across 4000 towns and cities of India.

Reebonz.com is one of the largest private sales ecommerce groups in Asia. It sells luxury goods, including fashion items such as handbags and accessories, to customers across Southeast Asia, North Asia and Australia. Intel Capital first invested in the company in 2012. Following the investment, the company launched Reebonz Vintage, a marketplace for pre-owned luxury goods, and Kwerkee.com, which sources and sells unique products from the best designers in the world.

In 2012, Intel Capital invested $352 million in 150 investments globally, with approximately 57 percent of funds invested outside North America.

Intel Capital started investing in Asia Pacific in 1998 and to date it has invested over $2 billion in more than 320 technology companies in a variety of industries including: mobile computing, consumer internet, cloud computing, software and services and semiconductor design and manufacturing. Over 60 of these companies have gone public or have been acquired.

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