Sherpa Hossainy's Blog

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.”

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GE pledges $7-m project in Myanmar

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

Published in Myanmar Business Today (Vol 1, Issue 19) on June 13, 2013

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US-based technology giant GE last week announced a $7-million programme in Myanmar that will support training and capacity-building efforts throughout the country.

The new commitment, announced on the sidelines of the World Economic Forum on East Asia in Nay Pyi Taw, will focus on strengthening the health care system, improving the energy architecture and promoting the development of Myanmar’s human capacity.

John Rice, GE Vice Chairman and President and CEO of Global Growth Operations, said, “While Myanmar has made enormous strides to integrate into the global community and promote economic development, there are key areas where GE and others can partner to build capacity and support Myanmar’s future growth.”

The initiatives will include healthcare programming, power and water programming and corporate programming.

Under the healthcare programme, GE Foundation, the philanthropic arm of GE, announced it will expand its “Developing Health Globally” (DHG) programme to include Myanmar. This represents an initial $3 million commitment and as the programme evolves, the investment could get doubled, GE said.

The initial work will focus on decreasing the rate of maternal and new-born infection at government operated, district-level hospitals and clinics, as well as strengthening other aspects of maternal care. The GE Foundation will partner with the Ministry of Health (MoH) and Jhpiego, an affiliate of Johns Hopkins University for this project.

Also, under a rural healthcare pilot project, in partnership with the MoH, GE will supply training, technology and equipment to help reduce maternal and infant mortality rates. The programme is scheduled to launch in August. The biomedical engineer training programme will see GE providing training for 40 MoH participants on the usage of medical devices and on the delivery of healthcare.

GE’s power and water programming includes plans for developing a master electricity plan for Myanmar, which will evaluate how to best address its needs with the resources available. The plan will identify what types of power solutions will be most effective and where facilities should be located to maximise efficiency and system stability, GE said.

The GE corporate programming will launch a leadership training programme for public and private sector leaders in Myanmar. Under this programme, 50 individuals will be selected for an intensive two-week programme in the US focusing on the development of leadership skills in business, government and civil society. An additional 50 local leaders will be given the opportunity to participate in a GE-sponsored ASEAN regional leadership training programme at the Lee Kuan Yew School of Public Policy in Singapore.

The GE Foundation will also support the provision of legal services by international lawyers (the Senior International Lawyers Programme) to the Myanmar Resource Development Institute (MRDI) and other legal institutions in Myanmar. It will also sponsor the participation of Myanmar government officials in international training on public procurement best practices, and establish the Myanmar chapter of Transparency International.

Myanmar introduces 2pc advance tax on all imports and exports

Posted in Business, Export and Import, Finance, Myanmar, Tax, Yangon by Sherpa Hossainy on July 10, 2013

Published in Myanmar Business Today (Vol 1, Issue 19) on June 13, 2013

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In a move to improve tax compliance the Internal Revenue Department will start collecting a 2 percent income tax on the value of nearly all imported and exported goods, according to a new government notification.

The newly imposed tax will be implemented from June 14.

According to the notification, importers must pay an advance income tax assessment of 2 percent on the customs value of the goods for import and exporters must pay an advance income tax assessment of 2 percent on the value of all exported goods.

However, there are a few exceptions, including import of materials and equipment during the construction period of projects with an investment permit from the Myanmar Investment Commission (MIC).

The tax collected is counted as an advance payment of the income tax payable by the importer or exporter, and can also be reimbursed.

“A two percent cash leakage for all imports is likely to impact every businesses and consumers in Myanmar, but in most cases rather slightly,” Edwin Vanderbruggen, a partner at VDB Loi, a specialised law and tax advisory with offices all across Southeast Asia, said.

“Trading companies working on high volumes with very tight margins might be affected if their contractual framework doesn’t allow to pass on any unforeseen costs to their customers, and if they have difficulty in financing the sudden missing 2 percent,” he added.

“In theory exporters should not be adversely affected, and foreign investors should not be impacted if they have MIC permit,” Edwin said.

Myanmar-Bangladesh bilateral trade: Mired in lack of connectivity

Posted in Bangladesh, Banking, Business, Dhaka, Economy, Export and Import, Finance, Interviews, Investment, Myanmar, Yangon by Sherpa Hossainy on July 9, 2013

Bangladesh is keen to resolve all the barriers to trade and tap the huge potential of Myanmar, which it sees as a key regional partner and gateway to Southeast Asia, says Bangladesh Commerce Minister

Published in Myanmar Business Today (Vol 1, Issue 11) on April 4, 2013

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A dearth of basic land, air and sea connectivity is daunting the prospects of boosting the bilateral trade between Myanmar and Bangladesh, the Minister for Commerce of Bangladesh said.

“The transport and communication infrastructure is very poor between Myanmar and Bangladesh despite being neighbours. We still haven’t been able to resume the air linkage and we don’t even have land links with Myanmar’s major cities. This is gravely hurting the prospects of a better trade,” GM Quader told Myanmar Business Today.

GM Quader, Minister for Commerce of Bangladesh, speaks to Myanmar Business Today during his visit to Myanmar at the Bangladesh Embassy in Yangon. Sherpa Hossainy

GM Quader, Minister for Commerce of Bangladesh, speaks to Myanmar Business Today during his visit to Myanmar at the Bangladesh Embassy in Yangon. Sherpa Hossainy

Myanmar and Bangladesh have been working to re-establish direct air link to connect Yangon and Dhaka after Biman Bangladesh Airlines, the national flag carrier of Bangladesh, suspended its flight between Dhaka and Yangon in 2007 against the backdrop of economic losses.

Bangladeshi cabinet in June last year approved a proposal for inking a deal with its Southeastern neighbour to resume direct flight service, which will allow seven passenger and four cargo flights to fly between Dhaka and Yangon every week.

“The agreement has been finalised and signed. However, Biman is not in a position financially to start a route which will take some time to become profitable, and airlines from Myanmar are also hesitant about getting into a financially risky venture,” Quader said.

During Bangladeshi Prime Minsiter Sheikh Hasina’s visit to Myanmar in 2011, the two countries agreed to develop their land, sea and air connectivity.

“These three are the biggest barriers for us. India, China and Thailand have a good connectivity structure with Myanmar in place via air, sea and land. We have to improve our connectivity if we have to improve the trade,” the Bangladeshi Commerce Minister said while visiting Myanmar last month.

When asked why Bangladesh have reacted slower than other Myanmar neighbours such as India, China and Thailand to the recent economic reform process the minister said they were “well-ahead than anyone even before the reforms began.”

“China and Thailand have basic advantages. Their manufacturing and production base is much stronger and they are way ahead than us in terms of investing in other countries.”

China is Myanmar’s biggest trading partner, followed by Thailand. Bilateral trade between China and Myanmar was worth about $3.6 billion in the fiscal year 2011-12, according to Myanmar’s Ministry of Commerce, while bilateral trade between Myanmar and Thailand stood at $4.576 billion in 2012. Myanmar-India bilateral trade reached $1.19 billion in 2009-10, making it Myanmar’s fourth largest trading partner after Thailand, China and Singapore.

Besides air linkage, Bangladesh and Myanmar also haven’t been able to develop any reliable road network in the bordering areas. However, the minister hoped that the proposed Asian Highway will hugely boost the road connectivity.

The Asian Highway project, also known as the Great Asian Highway, is a cooperative project among countries in Asia and Europe and the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), to improve the highway systems in Asia.

A sub-regional organisation of Asian nations called the Bangladesh-China-India-Myanmar Forum for Regional Cooperation (BCIM), established in 1999 for greater integration of trade and investment between the four countries, organises a car rally, widely known as Kolkata to Kunming (K2K) car rally, to explore the potentials of expanding trade, investment and tourism, and enhance connectivity in the region along the Kolkata-Kunming route.

“We have to establish major road links with Myanmar to get access to Southeast Asia. Myanmar is our gateway to get into the markets of Thailand, Laos and Cambodia,” Quader said. Talks are also underway to allow Myanmar water vessels into Bangladesh’s inland waterways and vice versa to strengthen the sea connectivity, he added.

Asian Highway mapThe Bangladeshi minister also pointed out banking as “one of the biggest barriers” to Myanmar Bangladesh bilateral trade as there is a cap on transaction amount in place. Both countries are trying to increase border trade, which was hit hard by the recent sectarian violence in Myanmar’s Rakhine state.

“We are planning to set up wholesale markets and warehouses along the border. Bank draft margin has also been increased from $30,000 to $50,000 to facilitate trade. These issues were not stressed that much before as the trade volume was low and there were sanctions against Myanmar banks, but now we are developing mechanisms to remove the existing obstacles,” he said.

The border trade between the two countries is still low (125 commodities) compared to the existing potential and overseas trade. About 10,000 commodities are traded along the Myanmar-China border, while about 3,000 commodities are traded in Myanmar-Thailand border trade.

During the 6th Joint Trade Commission (JTC) meeting between Myanmar and Bangladesh held in Dhaka in November last year, both countries agreed to enhance the volume of bilateral trade to $500 million from around $100 million annually.

The bilateral trade between the two neighbours amounted to only about $79 million in 2011-12 fiscal year, while it stood at $170 million in fiscal 2010-11. Bangladesh exported goods to Myanmar worth $13.45 million during the fiscal year 2011-12.

However, the volume of unofficial trade between the two countries is about $300 million per year, Border Guards of Bangladesh (BGB) sources were quoted as saying in Bangladeshi media.

Bangladesh exports steel products, light engineering machinery, cement, dry foods, medicines and cosmetics to Myanmar and imports fish, timber, spices, synthetic foot-wears, among others. Besides the formal trade, a large quantity of petroleum products, fertilisers, agricultural inputs, and automobile parts are also smuggled into Myanmar.

The minister agreed that illegal border trade has been a problem as there were no formal banking channels in place. “Businesspeople don’t want to do illegal trade. But the payment system was complicated and they had to do transactions through hundis. But we are trying to clear the restrictions now so that all businesses can be done legally.”

During the Bangladesh Prime Minister’s visit Myanmar and Bangladesh signed memorandum of understandings to establish a Joint Commission for bilateral cooperation and a Joint Business Council (JBC) between the Republic of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) and the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).

Bangladesh is also interested in importing power from Myanmar as a power-starved country, the Minister said. “Not only power, we have to develop all kinds of infrastructures to facilitate business. Now people do business via Singapore or Bangkok and it takes a lot of time and money for businesspeople.”

“However, we have identified the barriers and efforts are being made from both sides to overcome those,” he said.

The Bangladeshi Commerce Minister said the trade volume between Myanmar and Bangladesh hasn’t reached a satisfactory level because of former Western sanctions and economic isolation of Myanmar, but the doors for business seem to have opened again.

“The opportunities are huge in Myanmar as it’s a very resourceful country. They have abundant agricultural products such as rice, pulse and beans. They have timber, oil and gas and jade, and most of the resources are mostly untapped here,” he said.

“The biggest advantage for Bangladesh is its geographical location. Many of our products are globally well-known for their quality such as readymade garments, leather and pharmaceuticals. Even Bangladesh’s shipbuilding industry, a sector where Bangladesh is recently registering remarkable export growth, has a great potential here.”

Bangladesh is the world’s second largest readymade garment exporter behind China with annual exports of about $20 billion and its leather industry is set to cross $1-billion mark in export earnings this fiscal year. The pharmaceutical industry in Bangladesh is one of the most developed hi-tech sectors within the country’s economy, with an export amount of over $50 million.

“If we can further the ties between the businesspeople of the two countries, and from the government’s part if we can ease the existing barriers then we can definitely develop our bilateral trade at a very faster rate,” he said.

“We both have goods that we need and can provide. So, the possibilities are endless.”

However, the Minister said it would take some time for Bangladeshi investors to come and invest in Myanmar because of Bangladesh government’s “rather strict” policy towards its businesspeople investing in other countries. “Only three to four months ago we started allowing foreign investments from Bangladesh in a case-by-case basis. Investment policy from our side to outside is still too restricted.”

“However, we are interested to invest in the cement industry in Myanmar as they have available raw materials. If Bangladeshi entrepreneurs are interested and Myanmar agrees to supply the raw materials we can go ahead and set up cement factories here,” Quader said. We also welcome any Myanmar investors who are interested to invest in Bangladesh, he added.

“We are very hopeful that there will be positive development. The Bangladeshi businesspeople who came here said they received overwhelming response from the Myanmar side.

“There is a huge trade prospect for both countries. The whole world is trying to establish their presence in Myanmar now. As a next door neighbour we shouldn’t just sit idly and let the opportunities fly past,” the Minister said.

IFC estimates Myanmar’s microcredit demand at $1b

Posted in Banking, Finance, Microfinance, Myanmar, Yangon by Sherpa Hossainy on July 9, 2013

Published in Myanmar Business Today (Vol 1, Issue 4) on February 14, 2013

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Demand for microfinance in Myanmar exceeds supply four times as the country’s economy expands following decades of isolation, highlighting the need to build up sustainable microfinance institutions, a study finds.

The study estimates that the total of outstanding loans in Myanmar currently stands at around $283 million whereas demand for microcredit is estimated at $1 billion.

The report, entitled “Microfinance in Myanmar – Sector Assessment,” released on January 29 by IFC, a member of the World Bank Group, and CGAP, a policy and research, said the demand is particularly high among farmers in Myanmar’s rural areas where more than two-thirds of the population lives.

“Myanmar’s microfinance law of November 2011 allowed the development of a nascent microfinance industry. Now there is an opportunity to support existing institutions and bring in new organisations to build a commercially sustainable microfinance network that improves access to finance for small and medium entrepreneurs and rural clients,” said Paul Luchtenburg, IFC’s Microfinance Program Manager in East Asia Pacific and one of the report’s co-authors.

The joint IFC/CGAP report is the first comprehensive publicly available assessment of the microfinance landscape in Myanmar since the enactment of country’s microfinance law in late 2011.

It highlights that the financial sector is underdeveloped compared to the rest of the East Asia Pacific region. Myanmar is one of the poorest countries in the region and increased access to financial services would greatly benefit its population and help the nascent small and medium enterprises, which form the backbone of Myanmar’s economy, grow and create jobs.

The report finds that Myanmar’s banking sector so far has found it commercially challenging to extend financial access to the poor. As a result, fewer than 20 people out of 100 have access to formal financial services, with most people relying on family savings or costly alternatives such as informal money lenders. At the same time, the market among Myanmar’s total population of around 60 million is large enough to attract domestic and international banks that could significantly improve outreach and contribute to innovation in the sector.

“With Myanmar’s breathtaking speed of change, government authorities and regulators are faced with the challenge of quickly bringing policies and regulations in line with the growing economic activity in the country,” said Eric Duflos, CGAP’s Regional Representative for East Asia Pacific and one of the report’s co-authors.

“The current microfinance law clearly signals government commitment to financial inclusion. We recommend that Myanmar’s financial regulators and supervisors adopt international good practices for microfinance as quickly as possible.”

The IFC last month announced that it had ventured into the microfinance sector by lending $2 million to Cambodia-based Acleda Bank for its microfinance project in Myanmar.

Myanmar gets total debt relief of $6b

Posted in Banking, Finance, Myanmar, Yangon by Sherpa Hossainy on July 9, 2013

World Bank and ADB writes off debt; aid flows set to rise

Published in Myanmar Business Today (Vol 1, Issue 3) on February 7, 2013

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Myanmar has cleared its arrears to the World Bank and Asian Development Bank and secured a huge debt write-off by creditor countries grouped in the Paris Club, clearing the way for aid donors to step up work to support the government’s reforms.

On January 28, the Asian Development Bank (ADB) said the arrears owed to it had been cleared with the help of Japan, so it could resume operations in Myanmar. It offered a $512 million loan for social and economic projects.

The World Bank said Myanmar had also paid the money owed to it, again with the help of Japan, and it had responded with a $440 million credit.

The government said in a statement it had met creditors grouped in the Paris Club on January 25 and they had agreed to cancel half of the arrears Myanmar owed them in two stages, rescheduling the rest over 15 years, with seven years’ grace.

Norway had cancelled all the $534 million owed to it, while Japan was cancelling more than $3 billion, it said. “These agreements result in total debt relief of around $6 billion, more than 60 per cent of total debt,” the government said.

Myanmar stopped payments on its old loans about 1987, making it ineligible for new development lending.

Finance Minister Win Shein said in the statement this marked “an era of new relationships in which Myanmar is committed to fully cooperate with all members of the Paris Club”. He promised that resources freed up by the debt relief would be used for development projects and poverty reduction.

The Manila-based ADB said bridge financing provided to Myanmar by the Japan Bank for International Cooperation (JBIC) this month allowed the government to pay off arrears to the ADB of about $500 million.

The World Bank, in its statement from Washington on January 27, said its new loan would be used in part to “help the government meet its foreign exchange needs”, which included repaying a JBIC bridge loan used to clear arrears. The World Bank arrears had been put at about $400 million.

The World Bank said its credit would support reforms to strengthen macroeconomic stability and to improve public financial management and the investment climate.

“Myanmar has come a long way in its economic transformation, undertaking unprecedented reforms to improve people’s lives, especially the poor and vulnerable,” the statement quoted the World Bank’s Myanmar Country Director Annette Dixon as saying.

“The Bank’s engagement, together with the ADB, the Government of Japan and other partners, will help attract investment, spur growth and create jobs,” Dixon said.

The ADB, which reopened an office in Yangon, Myanmar’s commercial capital, in April 2012, said the clearing of arrears allowed it to provide its first loan to the country in more than 30 years.

U Thein Sein’s government has had to start practically from scratch in developing a modern economy. Reflecting that, the ADB said it would focus on “the building blocks for stability and sustainability”. Among other things, it would look at improving public finances and developing the finance sector.

The loan would be used to “finalise arrears clearance and sustain government efforts to revamp the national budget process and modernise tax administration,” the ADB said.

“In rural areas, where development has been hindered by lack of infrastructure, restrictions on land usage, poorly developed support services and limited access to financial services for farmers, ADB funding will help develop a strategy to make banking services more widely available,” it said.

The government outlined a detailed programme at a big aid donors’ conference in the capital, Nay Pyi Taw, on January 19-20.

The World Bank said it had already provided an $80 million grant for improvements to rural infrastructure, including schools, health clinics, roads and irrigation schemes in about 640 villages across Myanmar over six years.

The International Monetary Fund said on January 17 the government had asked for its help to pursue reforms and craft economic policies so that Myanmar could become part of the global economy.

Myanmar had run up $8.4 billion in debt during the socialist regime of the late Gen. Ne Win between 1962 and 1988, and $2.61 billion of debt after a new military junta took over in 1988, making for a total of just more than $11 billion.

The largest creditor before 1988 was Japan, with loans of $6.39 billion, and the biggest post-1988 creditor was China, with $2.13 billion.

State-run banks losing shine in export financing

Posted in Bangladesh, Banking, Business, Dhaka, Export and Import, Finance by Sherpa Hossainy on January 4, 2012

Published in The Independent on 4 January 2012

Read the article on Independent website

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The state-run banks are becoming a lacklustre option for export financing despite the fact that they offer lower interest rates and have better access to funds, exporters say.

Exporters nowadays are rather opting for private commercial banks, which provide fast and well-organised service, while the government banks are fraught with inept and complex procedures, bureaucratic red tapes and sluggish service. However, exporters still rely on state-run banks when it comes to big volume financing as arranging vast amount of cash is often hard for private banks.

“The processing of simple loan applications in state-run banks is very lengthy and it’s difficult to go through all the voluminous paperwork,” said Abdus Salam Murshedy, president of the Exporters Association of Bangladesh (EAB).

The EAB chief said the state-owned banks played an extraordinary role in industrialisation and export financing during the 80s and 90s but couldn’t keep up with the changing needs of exporters and struggled to provide efficient service.

“The private banks slowly took over the financing of export-oriented sectors because of their superior services. They also maintain better customer relations,” Murshedy told The Independent. The state-run banks are performing poorly in industrial loan recovery, he added.

The private banks’ top-notch service and hassle-free financing had made an increasing number of exporters move away from state-run banks.

Anowarul Islam, a garment exporter, said, “Private banks have state-of-the-art facilities and they are proactive in communication. Opening letters of credit and availing loans are much easier in private banks.”

The state-run banks, on the other hand, claim that they are providing better facilities such as lower lending rates and easy access to loans.

Md Abdur Razzaque, assistant general manager of Foreign Trade Department of Janata Bank, said, “State-run banks’ interest rate for exporters is 7 per cent, while the private banks charge 18 per cent. We have no extra fees and ‘hidden charges’ like private banks.”

Razzaque said private banks are reluctant to help small clients and state banks are still the solution to  them. He said the regular collateral ratio is 1:1.5, but for exporters it is either 1:1 or collateral-free.

He said the state banks are serving a big customer base and that could sometime lead to slow service. “If a private bank serves 10 clients, we serve 110. They have a selective customer base, we serve everyone,” Razzaque said.

Razzaque said state-run banks are working in line with the government’s export policy and give highest priority to the export sector. The state banks arranged quick cash during Eid for the garment exporters to pay their workers which helped avert labour unrest, he added.

Financing exports at a subsidised rate also makes it hard for the state-run banks to make any profit. “Sometimes we even make losses, but we are following government policy to help exports,” Razzaque said.

However, private banks defended their high interest rates, citing rising inflation and monetary policy pressures. “On top of the inflationary growth and tight fiscal policy, we have to think about availability of funds and the costs of running an operation. If you consider these things I’d say we are not charging high interest rates,” said Muhammad A (Rumee) Ali, chairman of BRAC Bank.

Murshedy said state banks can afford lending at a lower rate because they face much less liquidity crisis and get big funds from the government. “The private banks collect money from the public and they have a much higher risk factor,” he said.

He, however, said, “When it comes to big loans, there is little to do but to go to the government banks. Private banks have to form consortiums to put together such big amounts.”

At present, the government under the Export Credit Guarantee Scheme provides Export Credit Guarantee (Pre-shipment), Export Credit Guarantee (Post-shipment), Export Payment Risk Policy (Comprehensive Guarantee) and Whole Turnover Pre-shipment Finance Guarantee, covering risks on export credit as well as probable commercial and political risks occurring abroad.

The government also provides loans and venture capital on easy terms and low interest rates from the Export Promotion Fund (EPF) for the exporters. The Export Policy 1997-2002 also ensured incentives such as rebate on insurance premium, income tax rebate on export earnings, duty drawbacks, tax holiday and cash subsidies.

FAS to disburse $660m car, housing loans

Posted in Bangladesh, Business, Corporate, Dhaka, Finance by Sherpa Hossainy on November 3, 2011

Published in The Independent on 30 October 2011

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FAS Finance and Investment, a leading financier in Bangladesh, is going to provide financing worth $660 million (Tk 5,000 crore) in housing and car loans by 2013, a top official of the company said.

“We are expecting to disburse Tk 700 crore by March 2012, Tk 2,500 crore by December 2012 and Tk 5,000 crore by December 2013,” said Abdul Matlub Ahmad, chairman of Fidelity Assets and Securities (FAS) Finance and Investment Ltd.

In a bid to introduce the financing concept, FAS, a sister concern of Nitol-Niloy Group, has arranged a year-long fair termed “Gari-Bari Mela” at Hotel Abakash in Dhaka. The fare will be held every Saturday.

Ahmad said that presently customers suffer from non-delivery of housing units and abnormal time to complete housing projects by various builders. “This fair will help buyers to get immediate possession of flats and cars without hassle by supporting them with instant sanction of loan advice,” he said.

“Customers would be able to purchase low cost homes, office spaces or shops, which have already been built or would be built in a year or more, by availing loans from FAS,” Ahmad said.

Moniruzzaman Akan, assistant vice president of FAS, said this [the fair] is a one stop service to cover two prime needs of middle-class customers.

“If buyers pay 30 per cent of the price of a flat or a car on the spot, they will get the rest 70 per cent as loan from FAS. Upon payment of the loan, the customer will get the ownership of the flat or the car,” Akan said.

Ahmad expressed satisfaction over the proceeding of the fair, and said that more than four units of houses and six units of vehicles were sanctioned on Saturday, the opening day of the fair.

“Numerous offers from proposed buyers had been received which will soon mature into positive sales. We are very happy with the tremendous response from public,” he said.

Twelve companies — nine realtors, one insurance company and two vehicle dealers — are participating in the fair. The companies include Concord Group, Rupayan Group, Mega Builders and Tropical Homes. FAS will also provide financial support to the builders in installing generators, LP gas and solar panels in their apartments to ensure timely hand-over of the flats, Ahmad said.

“Some banks namely State Bank of India, Pubali Bank Ltd and Mutual Trust Bank, already gave their go-ahead to finance this project and I hope more banks will be interested,” the FAS chairman said.

Modernisation of tax payment

Posted in Bangladesh, Business, Dhaka, Economy, Finance by Sherpa Hossainy on September 14, 2011

Published in The Independent on 7 September 2011

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Digitisation of the country’s tax collection system is now under process for a better revenue income for the government.

International donors are expected to hold a meeting next week with the National Board of Revenue (NBR) on financing modernisation of the system.

Asian Development Bank (ADB), International Finance Corporation (IFC) and International Monetary Fund (IMF) delegates are likely to discuss supporting NBR for its automation project on September 11.

“We will seek financial and technical support from the donors in the meeting for the modernisation process of NBR,” Nasiruddin Ahmed, chairman of NBR, told The Independent on Tuesday.

The modernisation plan includes online tax payment system and tax return submission, arranging intra-organisational connectivity and building up a well-organised tax collection system.

The revenue collection authority will also use these funds to provide training for NBR officials and develop the backbone for the online system, Ahmed said.

Executive Committee on National Economic Council (Ecnec) on August 2 approved the NBR Automation Project across the country that aims at bringing one crore people under tax net within the next three years.

The Ecnec also approved the online tax return filing and digitalised taxpayers’ information service centre project last week.

Some income tax offices, including the Large Taxpayers Unit (LTU), have already introduced the online tax return submission system, while the NBR plans completion of  its online tax return filing and submission process by 2013.

According to the project working paper of NBR, Bangladesh has the lowest ratio of direct tax and GDP in the sub-continent — only 2 per cent. The tax-GDP ratio in India is 6 per cent and in Pakistan 4 per cent.

“We hope to get support from the donors to implement our five-year modernisation plan that would raise the tax-GDP ratio to 13 per cent by 2016,” Ahmed said.

Another NBR study also revealed that there are one crore capable tax payers in Bangladesh but only 10 lakh submit their tax returns on a regular basis. Currently, the number of Tax Identification Number (TIN) holders is around 32 lakh.

The NBR would need around Tk 700 crore for its automation and streamlining the tax administration, NBR sources said.

The tax administration received an urgent fund of Tk 61 lakh from the finance ministry early last month to develop a training institute for the customs officials.

The NBR chairman also hoped for continued support from the finance ministry in this regard.

FDI flow in Bangladesh surges to $913 million

Posted in Bangladesh, Business, Dhaka, Economy, Finance by Sherpa Hossainy on July 30, 2011

Published in The Independent on 27 July 2011

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Bangladesh received $913 million in foreign direct investments (FDI) in 2010, marking a 30 per cent rise from the previous year, the Board of Investment (BoI) has said.

According to the the World Investment Report 2011, released by the country’s investment promotion agency at its office on Tuesday, much of the foreign investment has gone for acquisition of old assets rather than setting up Greenfield companies.

“It was up to the foreign companies to decide whether to purchase the existing companies or set up new ventures,” said SA Samad, executive chairman of BoI.

He acknowledged that FDI flow in acquisition did not help enlarge the economy.

Telecom sector received $360 million, while manufacturing sector bagged $238 million in FDI. Foreign entrepreneurs invested $145 million in textile industries under the manufacturing sector, while leather sector received $46 million.

Samad said the country should have received $5 to $6 billion in FDI as the country has a huge market and growing economy.

Political instability, military intervention, lack of capacity in the public sector, bureaucracy and natural disaster are some of the major risks of investment in Bangladesh.
However, it is a good sign that the risk factor perception of foreign investors is gradually declining, he said.

Samad said if Bangladessh gets FDI of about 30 per cent of its GDP, up from the existing 24 to 25 per cent, the GDP growth rate would hit about 8 per cent.

“If a country has a sustainable growth rate, the FDI will come automatically,” Samad said, adding that the 65 per cent literacy rate is another factor that attracts FDI.

“If the country has 8 to 10 per cent growth rate for three consecutive years and literacy rate keeps increasing, more FDI would pour in,” he added.

Explaining the high flow of FDI in 2008, Samad said the military-backed government had “friends” from outside also.

“An investment of $300 million came in the telecom sector in 2008 and it accounted for the surge,” he said.

Samad said BoI welcomed global beverage company Coca-Cola’s announcement to invest $50 million to set up a plant in Bangladesh. “We invited them in February to register with BoI to set up the plant,” he said.

“I just came from Moscow and Gazprom also wanted to set up its office in Dhaka,” he added.

The government is negotiating with Gazprom to strike deals to supply gas production-related equipment. It may be a regional office of the Moscow-based multinational company, he said.

The United Nations had set up United Nations Industrial Development Organisation (UNIDO) office to raise the capacity of the government to promote investments in the country, Samad said.

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