Sherpa Hossainy's Blog

Foreign investment rules in practice in Myanmar (Part 2)

Posted in Energy and power, Investment, Legal, Myanmar, Telecommunications, Yangon by Sherpa Hossainy on July 27, 2013

Part 2: Oil and gas, telecom, energy

Published in Myanmar Business Today (Vol 1, Issue 17) on May 30, 2013
Recently, international law firm Clifford Chance and VDB Loi have jointly released a briefing note on the practical implementation of the Foreign Investment Law in Myanmar. This is the second part of Myanmar Business Today’s series of sector-wise analysis based on the briefing. This week’s topic is onshore and offshore oil and gas, telecommunications and electricity generation.

The Myanmar government implemented the country’s Foreign Investment Law (FIL) 2012 with two notifications or FIL Rules, creating a practical framework to match the government’s policy of welcoming foreign investment. Both notifications, 11/2013 of the Ministry of National Planning and Economic Development and 1/2013 of the Myanmar Investment Commission (MIC), were released on January 31.

Onshore and offshore oil and gas

Oil and gas exploration, development and production are allowed for foreign oil companies under a Production Sharing Contract (PSC) with the Myanmar Oil and Gas Enterprise (MOGE).

Blocks are awarded through an open and competitive bidding process where technical experience and financial capability weigh heavily, both factors usually being in favour of foreign enterprises.

Upon being awarded a block, operators are required to set up a Myanmar company or to register a Myanmar branch of a foreign company. Once a commercial discovery has been made a new agreement is concluded within the framework of the PSC, for example a gas sale agreement.

“Notification 1/2013 only states that a JV is required for oil drilling using traditional methods with a maximum depth of 10,000 feet, but in practice, investors are required to have a local partner for exploration and production of all onshore blocks,” Edwin Vanderbruggen, co-author of the report and a partner at VDB Loi, a specialised law and tax advisory firm with offices all over Southeast Asia, told Myanmar Business Today.

However, the percentages of ownership of the local and foreign partner are left to the agreement between the parties, he added.

“Processing and construction of petrochemical facilities requires prior government approval, which will only be granted upon advice by the Ministry of Energy (MOE),” Edwin explained.

The importation, transportation, storage, sale and distribution of petroleum/petroleum products and natural gas, also requires prior approval by the MOE, according to the new rules.

Telecommunications

The Government is expected to award two nationwide mobile telecommunications licences by the middle of 2013 through a competitive bidding process administered by the Ministry of Communications and Information Technology (MCIT).

According to the prequalification rules issued by the MCIT and based on Notification 1/2013, there is no formal requirement for a local partner. The prequalification rules are geared towards international mobile operators, but the possibility is created for these operators to conclude a consortium (and, upon awarding the license, a JV) with local or foreign partners.

Vendors of network equipment and service suppliers can, as a rule, be 100 percent foreign-owned in Myanmar. “Depending on the situation, it may be possible to obtain an MIC Permit for investments by network suppliers. The provision of domestic/international mail services and network support services are subject to prior approval by the MCIT,” Edwin said.

Electricity generation

Gas-fired power plants are usually structured as a build-operate-transfer (BOT) in Myanmar, where a foreign investor can own 100 percent of the Myanmar entity that concludes the BOT with the government. The government will normally supply gas to the developer on a pass-through basis, and purchase the electricity at a pre-agreed and indexed tariff. \

“In practice, the government harmonises the tariff cautiously, but there may be differences in various economic terms anyway through negotiation,” Edwin explained.

“Power projects are privately awarded or, more recently, through an open and competitive bidding process. The first step is usually for the developer to conclude a non-binding MOU with the Ministry of Electric Power (MOEP), and to submit a feasibility study. If the feasibility study is approved, which is usually the case, a memorandum of agreement is negotiated, which is essentially a BOT contract. Within the framework of that BOT contract, a Power Purchase Agreement, a Gas Sale Agreement and a Land Lease Agreement are concluded in due course. More or less in parallel, the project company is established and the investment licence (MIC Permit) is issued.”

The production or sale of hydropower electricity or coal-powered electricity requires the foreign owners to enter into a JV or BOT with the government. Under the agreement with the government, a royalty or a production share will usually be payable in the form of free electricity supply up to a certain threshold, Edwin said.

In virtually all cases, the investor must prepare an Environmental Impact Assessment for approval by the Ministry of Environmental Conservation and Forestry.

A gas-fired power plant with a capacity of 10 megawatts or less is not permitted to be wholly foreign-owned. The trading of electricity is prohibited to foreign investors, according to the rules.

Advertisements

Foreign investment rules in practice in Myanmar (Part 1)

Posted in Investment, Legal, Myanmar, Real estate and property, Yangon by Sherpa Hossainy on July 27, 2013

Part 1: Real estate and property

Published in Myanmar Business Today (Vol 1, Issue 24) on May 9, 2013

 

Recently, international law firm Clifford Chance and VDB Loi have jointly released a briefing note on the practical implementation of the Foreign Investment Law in Myanmar. Myanmar Business Today will publish a sector wise analysis based on the briefing, starting with real estate and property.

The Myanmar government implemented the country’s Foreign Investment Law (FIL) 2012 with two notifications or FIL Rules, creating a practical framework to match the government’s policy of welcoming foreign investment. Both notifications, 11/2013 of the Ministry of National Planning and Economic Development and 1/2013 of the Myanmar Investment Commission (MIC), were released on January 31.

Notification 1/2013 sets out the permitted activities for foreign investors and the activities which require a joint venture (JV), and notification 11/2013 introduces various regulations on applying for an investment licence or MIC Permit, the use of land, transfer of shares, remittance of foreign exchange and the taking of security on land and buildings.

By and large, investment with 100 percent foreign ownership is permitted for the vast majority of business activities, including telecommunications, power generation, services, infrastructure projects, agriculture, hospitality and non-food manufacturing.

Retail and wholesale activities have been opened to foreign investment as well, subject to certain conditions. A relatively limited number of activities require a local partner, such as food production, beverage production, plastics and certain chemical industries, mining and real estate development. However, even for those restricted sectors, foreign investors may hold up to 80 percent of the shares.

Notification 11/2013 strengthens the land use rights by foreign-invested companies, including the possibility to lease land from anyone, and to take security on land and buildings. It also, in conjunction with other measures in Myanmar and abroad (such as the general licence issued by the US Treasury easing sanctions with respect to four Myanmar banks), made it easier to remit foreign currency overseas.

“Myanmar is a country where there are often significant differences between the theory and the practice. In our overview of how foreign invested projects work in Myanmar, we base ourselves not just on the laws and the new regulations, but on our on-the-ground experience with getting projects from inception to completion,” said Edwin Vanderbruggen, co-author of the report and a partner at VDB Loi, a specialised law and tax advisory firm with offices all over Southeast Asia.

Calling upon on-the-ground experience with ongoing investment projects and financing transactions, we tried to clarify how power projects are licensed, which approvals are granted in practice to distribution and retail, and how the authorities allow foreign investment in real estate, Edwin said. Joint venture requirement for foods manufacturing, beverages and mining and the new possibilities for taking security on land and buildings were also elaborated in the report.

Real estate development

“In practice, the ownership structure of a foreign-invested property project will very much depend on the land rights for the project in question,” Edwin said.

In Myanmar, freehold, granted land and government leased land are in practice the most relevant types of land when it comes to foreign investment.

For land that is privately owned, which has been granted to a local partner, or where the local partner holds a government lease, a JV is required for development of most types of property, including buildings, condominiums, apartments, offices, commercial space, houses in industrial zones and low-cost housing, the briefing note said.

In this case, the local partner will receive shares in the JV in return for transferring the land rights to the company, it added.

The report said a JV is also required for the construction and development of new townships, golf courses, recreational areas, factories and mills, bridges, highways, underground railroads and construction related to transportation.

“If the land is directly leased by the government to the project company, such projects are usually conducted under build, operate, transfer (BOT) basis and foreign investors may hold 100 percent of the project company,” Edwin said.

If a legacy building is involved, then a conservation management plan is also required. Large scale property projects require an Environmental Impact Assessment (EIA), the report said.

The provision of architecture services, construction consultancy services, production of construction materials supporting the urban housing sector, prefabrication of construction materials, construction of disaster-proof buildings, and the fixing and commissioning of machines and their parts are subject to a Mutual Recognition Arrangement (MRA) and must follow the Myanmar National Building Code’s rules and regulations, the note added.

Use of land by foreign investors

Foreign investors cannot actually purchase land, according to Transfer of Immoveable Property Restriction Act of 1987, but they can lease land from the government or from private parties (since this year) with the permission of the MIC.

“In practice, when the project involves the use of land, foreign investors need to agree to a draft lease agreement with the (public or private) land owner before submitting their investment proposal to the MIC,” Edwin explained.

The government can lease land directly to the foreign-invested company (often in the context of a BOT agreement), but it is more common that a local partner who has already obtained the government lease contributes the land rights to a JV company in return for shares, he added.

Taking security

Until recently, there was largely no regulation in Myanmar on taking security over land and buildings. Notification 11/2013 now specifically allows creditors to take security over land and buildings.

“The taking of security on bank accounts, receivables and movable goods is in theory possible, but it remains virtually untested and very uncommon in practice,” Edwin explained.

Every type of security, mortgage or charge taken by a company in Myanmar must be registered with the Deed Registration Office within 21 days of creation.

Toshiba opens Yangon branch

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

 

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

PDF

Japanese electronics giant Toshiba last week in Yangon opened a branch office of their Singapore-based subsidiary, Toshiba Asia Pacific Pte Ltd, to establish a stronger presence in Myanmar.

Toshiba said in a release that the company will fully leverage “our technological progress and leading edge product capabilities to offer Myanmar people a better future.”

“Toshiba is delighted to make this new step forward in Myanmar,” said Hidejiro Shimomitsu, corporate senior executive vice president of Toshiba Corp. “We hope to contribute to Myanmar’s development across our product lines, from infrastructure solutions to home electronics. Our home appliance business in Myanmar started since the 1980s via distributors and our automatic washing machines are still the most popular brand in Myanmar.”

“Toshiba can support providing stable power generation and transmission solutions that provide the backbone for economic growth in Myanmar,” Tetsuya Yoneda, chief representative of the Yangon branch office, said.

“Currently in Myanmar, the power distribution per population is still limited to 25 percent, and this is planned to be expanded in the coming years. Toshiba has supplied equipment for Sedawgyi hydropower plant in 1985, and we aim to contribute more to the country infrastructure,” he added.

Toshiba said ensuring sustained growth will require broad investments in social infrastructure, including power generation and distribution, and Toshiba’s Yangon branch office will investigate the market and promote business in social infrastructure and other areas, such as consumer products.

Founded in 1875, Toshiba operates a global network of more than 590 companies, with 206,000 employees and annual sales of over 5.8 trillion yen ($61 billion).

 

Tagged with: , , ,

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

PDF

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.

Foreign investment rules in practice in Myanmar (Part 4)

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

Part 4: Manufacturing of foods and beverages; non-food manufacturing; agriculture, forestry, livestock and fisheries

Published in Myanmar Business Today (Vol 1, Issue 22) on July 4, 2013

PDF

Recently, international law firm Clifford Chance and VDB Loi have jointly released a briefing note on the practical implementation of the Foreign Investment Law in Myanmar. This is the fourth and final part of Myanmar Business Today’s series of sector-wise analysis based on the briefing. This week’s topics are manufacturing of foods and beverages; non-food manufacturing; agriculture, forestry, livestock and fisheries.

The Myanmar government implemented the country’s Foreign Investment Law (FIL) 2012 with two notifications or FIL Rules, creating a practical framework to match the government’s policy of welcoming foreign investment. Both notifications, 11/2013 of the Ministry of National Planning and Economic Development and 1/2013 of the Myanmar Investment Commission (MIC), were released on January 31.

Manufacturing of beverages

A joint venture (JV) is in principle required for the “production, blending, distilling, bottling, and distribution of beverages,” according to the rules. A JV is also required for barley fermentation and the production and distribution of products made from barley fermentation. In addition, a JV is required for all “purified water enterprises”.

“In practice, the commercial tax, a combination of an excise duty and a turnover tax, dictates how a producer of beer or spirits should be structured in Myanmar. The commercial tax weighs heaviest on the importation phase and the manufacturing phase of the supply chain, and investors may need to carefully devise a supply chain over different entities in Myanmar, keeping in mind unnecessary tax imposts and licensing restraints,” Edwin Vanderbruggen, co-author of the report and a partner at VDB Loi, a specialised law and tax advisory firm with offices across Southeast Asia, told Myanmar Business Today.

The rules say for the production, distribution and sale of soft drinks and other beverages, the investor must use at least 20 percent local raw materials for the first three years of production. Afterwards, the investor must use at least 60 percent local agricultural raw materials.

Manufacturing of foods

A JV is as a rule required for the “production, canning and distribution of foodstuffs except dairy products”, according to the rules. However, the foreign investor may hold up to 80 pecent in the JV as per current regulations.

“In reality a foreign investor would not purchase shares from an existing Myanmar shareholder in a local company, or subscribe for shares issued by such existing Myanmar company. In other words, the JV company would not be the existing company of the local partner. Instead, a new JV company is established under the FIL. Licences, assets and land leases are transferred from the local partner company to the new JV company through a contribution in capital. The transfer is done based on the terms agreed between the parties, subject to MIC approval,” Edwin said.

For the production, distribution and sale of vegetable and animal oils, at least 80 percent local raw materials must be used, while for production of Monosodium Glutamate (MSG), local raw materials must be used for the first three years of production.

Non-food manufacturing

Generally, there is no requirement for a local partner when manufacturing non-foods. A JV is required only for a few selected sectors including the production, distribution and sale of cotton threads, various types of paper, rubber, plastic and leather.

“Notification 1/2013 does not set out a lot of local content requirements in non-food, cosmetics and cigarettes being the main exceptions, but in our experience the Ministry of Industry may request the use of a certain amount of local raw materials,” Edwin explained. The Ministry of Industry provides recommendations to the MIC about the feasibility of proposed manufacturing investment projects.

Land used for manufacturing that is leased from the government or private parties must be obtained with the permission of the MIC. “Generally a minimum capital amount of $500,000 is required for manufacturing companies with an investment permit,” Edwin said.

Agriculture, forestry, livestock and fisheries

“Currently, we mostly see interest in palm oil, sugar, rubber, rice and livestock. Although some agricultural and livestock activities feature on the list of activities that require a JV, it is our view that the government may in practice decide to allow large investment projects in this field that are considered particularly beneficial to the country on a fully foreign-owned basis,” Edwin said.

In most cases, the government can offer land to the investor that is suitable for the project, either through the Ministry of Environmental Conservation and Forestry or the Ministry of Agriculture and Irrigation. Different lease prices and maximum sizes of plots apply depending on the authority and the status of the land.

Forests are normally not available for investment projects, but degraded forests may be leased for various projects, including wood-based industries and reforestation. Although the union government in theory has final say, the local authorities also need to cooperate with the allocation of land for a project. If the land is already in use by local farmers or residents, the resettlement and compensation may be particularly challenging and at times a major risk to the completion of the project.

A JV is required for small-scale agricultural businesses, as well as for agricultural businesses that do not use modern machinery. A JV is also required for the “growing and planting of traditional medicinal herbs (plantations),” as well as the “production and distribution of hybrid seeds”, the rules say.

A foreign investor involved in the development of modern farm land, production and distribution of seeds, fertiliser, pesticides, mechanised farm tools and machinery or crops must obtain a confirmation from the Union Government Board and comply with the guidance of the Ministry of Agriculture and Irrigation.

For livestock and fishery activities, a JV is required for small-scale livestock businesses, livestock businesses that do not use modern machinery and fishing in lakes, inland waters and from shores. Investors wishing to fish offshore in Myanmar territorial waters for saltwater fish, shrimp and other marine animals must operate through a JV and obtain the prior permission of the government.

According to the rules, investors involved in fresh or saltwater fish breeding may not breed such fish as would affect Myanmar’s biodiversity. The production of bee products must be conducted in accordance with Good Manufacturing Practice (GMP) technology. Investors involved in lab testing of marine products must perform such tests in accordance with ISO 17025, the rules say.

Foreign investment rules in practice in Myanmar – Part 3

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

Part 3: Mining; distribution, wholesale and trading; retail, supermarkets and hypermarkets; hospitality and foreign currency remittances

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

PDF

Recently, international law firm Clifford Chance and VDB Loi have jointly released a briefing note on the practical implementation of the Foreign Investment Law in Myanmar. This is the third part of Myanmar Business Today’s series of sector-wise analysis based on the briefing. This week’s topic is mining; distribution, wholesale and trading; retail, supermarkets and hypermarkets; hospitality and foreign currency remittances.

The Myanmar government implemented the country’s Foreign Investment Law (FIL) 2012 with two notifications or FIL Rules, creating a practical framework to match the government’s policy of welcoming foreign investment. Both notifications, 11/2013 of the Ministry of National Planning and Economic Development and 1/2013 of the Myanmar Investment Commission (MIC), were released on January 31.

Mining

“Most large-scale mining projects are subject to the requirement of having a local partner, although there have been exceptions to this in the past,” Edwin Vanderbruggen, co-author of the report and a partner at VDB Loi, a specialised law and tax advisory firm with offices across Southeast Asia, told Myanmar Business Today.

Mining concessions take the form of a Production Sharing Contract (PSC), where the government’s take comprises royalties, production sharing and income taxes, he said. According to the report, under the current rules, foreign investors may hold up to 80 percent of the capital in a large scale mining enterprise.

However, mining of minerals from riverbeds or near rivers, the surveying and production of jade and other gems, and all small- and medium-sized mineral production enterprises are prohibited for foreign participants, the report said.

“A joint venture (JV) is required for small- and medium-scale mining extraction, the exploration and testing of industrial raw materials related to mining, and the large-scale mining of minerals,” Edwin said. A JV with the government is required for the production and sale of rare earths, strategic minerals, radioactive minerals and gems and investors involved in exporting raw minerals such as granite, stone or coal must first obtain approval from the government.

For investors involved in large-scale mining, the production period may not exceed 15 years, but it is extendable four times for periods of five years each with six months’ advance notice, and for investors involved in the production of pearls, the limit is 15 years, but it may be extended twice for up to five years each, with one year’s advance notice, according to the new rules.

The time limit for investors involved in carrying out mining feasibility studies is two years, while for prospecting and exploration the limits are two and three years respectively.

Distribution, wholesale and trading

The distribution of goods manufactured by investors themselves in Myanmar was already allowed under the previous regulation. “There are no limitations on who investors can sell to. A foreign invested manufacturing company can sell its products directly to retailers, for example,” Edwin said.

Previously, “trading” was considered a prohibited activity for all foreign-invested companies, even JV companies. In the wake of the new FIL, this policy is evolving, according to the report.

“The limit on what the government is prepared to allow in terms of distributing goods without manufacturing is not yet entirely clear,” Edwin said.

Wholesaling is also allowed for foreign investment, but is subject to the receipt of an opinion by the Ministry of Commerce beforehand. In addition, a JV is required for all “packaging enterprises.”

Retail, supermarkets and hypermarkets

“The government’s policy is aimed at facilitating foreign investment for large modern trade,” Edwin said regarding foreign investments in the retail sector. Foreign investors are permitted to own and operate “supermarkets” so long as the store surface is between 12,000 and 20,000 square feet, and they may own and operate “hypermarkets” so long as the store is at least 50,000 square feet. For smaller surface areas, retail shops are not allowed to be located in close proximity to local businesses and they must sell mainly local products, according to the new rules. If a retail shop is operated through a JV agreement, the local partner must have at least a 40 percent shareholding.

Retail enterprises other than those mentioned above are expected to be permitted as of late 2015 (except car and motorbike retailers), but will require a minimum capital investment of $3 million. Such enterprises will be given no tax exemptions, and special rules apply for the retail of alcohol or tobacco products.

Hospitality

For hotels classified as three-star or above, 100 percent foreign ownership is permissible, while lower ratings will require a JV. Hotels constructed on government land are usually organised through a build-operate-transfer structure. “In this structure, the investor has the ownership and management of the hotel for a period of 15 to 30 years, after which the buildings are transferred to the government,” Edwin explained.

The government, often through the Ministry of Hotels and Tourism, receives an annual lease fee which is either a certain amount per square metre, or a percentage of the hotel’s revenue. A substantial payment to the government may also be due at the outset of the agreement for obtaining the land right.

Myanmar is also preparing for the licensing casino enterprises. Casinos will require government permission, must follow the rules and regulations of the Ministry of Hotel and Tourism and the Ministry of the Interior and must be located in restricted areas of hotels. They can only be accessed by foreign nationals. Wellness or spa enterprises must be located in 3-star or above hotels or boutique hotels, the new rules say.

Foreign currency remittances

The new FIL allows for the remittance of foreign currency through banks authorised to make such transactions at prescribed rates of exchange. According to the Foreign Exchange Management Law foreign-invested companies have the right to hold foreign currency and a foreign currency bank account and there are no limitations on inward/outward remittances from a current account.

The rules also say foreign currency may be retransferred overseas after examination and approval from the MIC or from the Central Bank.

“In practice, a foreign-invested enterprise is required to open a capital remittance account in Myanmar for the inward remittance of the capital and monies raised through loans. In terms of outward remittances, the company is allowed to open any bank account with a licensed Myanmar bank in a foreign currency and in kyat,” Edwin said.

Payment of dividend, interest and repayment of capital on loans by a foreign invested enterprise with an MIC Permit must be approved by the MIC before the bank is allowed to execute the outward remittance, according to the rules.

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

PDF

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.

A shift of power within MIC

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

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

PDF

The balance of power within Myanmar Investment Commission has noticeably shifted towards the Ministry of Finance and Revenue in a bid to pick projects that are financially and socially favourable for Myanmar, experts said.

The structure of Myanmar Investment Commission (MIC) saw a massive shakeup last month as new chair and members were appointed, according to a notification from the President’s Office.

The position of MIC chair changed from Minister for the President’s Office and former Minister for Industry U Soe Thein to U Win Shein, minister for finance and revenue.

More importantly, a bulk of evaluation and verification of investment proposals are now assigned to the departments of the finance ministry such as the Internal Revenue Department (IRD) and the Customs Department (CD).

The number of representatives of other ministries on the MIC has also dropped as the government increased the private sector representatives from two to five, out of a total of 11.

These three trends have combined in a remarkable power shift in MIC, investment experts say, as the finance ministry is now set to play an increasingly central role in getting an investment licence.

“We have only seen a few meetings under the new chair, however, from now on we expect proposals to be more carefully scrutinised. The MIC seems more careful and better equipped to assess whether the explanation of the applicant holds water or whether the proposal is properly substantiated. The government does not want to give away tax holidays for projects that are not sustainable or correctly represented,” Edwin Vanderbruggen, partner at VDB Loi, a leading law and tax advisory firm, told Myanmar Business Today.

Edwin, whose company’s investment licensing team in Myanmar helps foreign investors obtain MIC permits for investment projects, said the financials of the investment proposal have also become crucial.

“With the IRD and the CD taking care of more of the evaluation effort, more emphasis is put on the financial planning of an investment. The capitalisation, funding, capital expenditure, revenue, labour and other key points of the MIC’s investment proposal template now seem to receive even more attention.”

Social issues are now playing a bigger role too, Edwin said. “There has been some turbulence in local media about the MIC supporting projects that had adverse social consequences. With five private sector members out of 11 MIC members, it is likely that social issues will be given more weight,” he added.

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

PDF

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

PDF

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.

%d bloggers like this: