Jan 24, 2012

Developer of Myanmar's Dawei megaproject seeks funding

The clay model of Myanmar's ambitious Dawei deepsea port and special economic zone sprawls across a long table on the 43rd floor of the headquarters of ItalianThai Development Pcl. Glossy posters hail it as the "new global gateway of IndoChina".


But moving ahead with the first phase of the project is proving slow, despite the dramatic reforms sweeping Myanmar and the gradual lifting in Western sanctions as the former British colony emerges from half a century of isolation a prospect underlined on Monday by plans by the European Union to ease some punitive measures.

In a rare interview, a senior executive at ItalianThai Development outlined on Monday the company's farreaching plans for a project that would transform the wild scrubland of southern Myanmar into Southeast Asia's largest industrial complex.

Superhighways, steel mills, power plants, shipyards, refineries, pulp and paper mills and a petrochemical complex are part of the $50 billion project, as are two golf courses and a holiday resort all strategically nestled between rising powers India, China and Southeast Asia with a port on the Andaman Sea.

The company hopes to secure $8.5 billion by yearend to finance infrastructure and utilities under the first phase of the project, and is confident it will find partners, but it also acknowledges that convincing investors remains tough, particularly given Myanmar's low level of infrastructure, visa restrictions and urgent need for currency reforms.

Somchet Thinaphong, managing director of Dawei Development Co Ltd, controlled by ItalianThai, told Reuters the first phase of construction roads, a telecoms network, utilities and a port would be completed within threeandahalf years, along with a power plant, but it remains unclear what energy source the plant would use.

Myanmar's government abruptly halted construction of a 4,000 megawatt coalfired power plant on Jan. 10, citing environmental concerns.

Somchet said its power plant partner, Ratchaburi Electricity Generating Holding Pcl, would decide on fuel type within three months, including the possibility of using natural gas funneled to the site on a 50 km (31 mile) pipeline from fields within Myanmar.

In the year to date, ItalianThai shares have underperformed those of its peers and the overall market due to uncertainty over the Myanmar project. The stock closed down 1.16 percent on Monday, while the broader market rose 0.37 percent.

ItalianThai has an "Analyst Revision Score" of 10, far lower than Ch Karnchang's 32 and SinoThai Engineering's 66. This is a StarMine model that ranks stocks according to changes in analyst sentiment, with 100 representing the highest rank.

"DOOR THAT IS OPENING"

"We think this project is visionary. It is a door that is opening Myanmar. At the same time, Myanmar has to open this door," he said.

As Myanmar embarks on its most dramatic political changes since a 1962 military coup in what was then Burma, megaprojects like the 250 sq km (97 sq mi) Dawei Special Economic Zone hint at a rapid acceleration in both investment and development.

But Somchet also illustrated some of the challenges that vex investors in Myanmar.
While they have completed construction of a road that will link Dawei to Bangkok 250 km to the east, the border is not fully open due to disputes between Myanmar and Thailand over its exact demarcation.
Construction of the highway was delayed last year by ethnic Karen rebels who have since signed a preliminary peace deal with the government.

Customs facilities still need to be built.

Somchet is confident all that will be resolved. And while the road on the Myanmar side is not yet paved, he expects that, too, to be completed in about three years, creating a stable route for transport cargo that has been sent to Dawei from the Middle East and Africa for shipping to Bangkok and beyond in Southeast Asia,
bypassing the lengthy and congested Strait of Malacca. Other challenges include Myanmar's dual exchange rate.

While the currency is pegged at six kyat to a dollar, it changes hands unofficially at rates more than 120 times higher, forcing the government to seek help from the International Monetary Fund.
ItalianThai is looking for partners for the various parts of the project and the main ones are likely to come from China, Japan and South Korea, he said.

A quarter of Dawei Development is now held by Max Myanmar Group, owned by Burmese tycoon Zaw Zaw, whose close ties to the Myanmar government put him on the U.S. targeted sanctions list in 2009.
A Nov. 15, 2007, U.S. diplomatic cable described Zaw Zaw as an "up and coming crony".
That might have been a problem last year, when some potential partners, according to Somchet, were reluctant to express their interest in the project publicly for fear of upsetting business allies in the United States.

But since U.S. Secretary of State Hillary Clinton's visit to Myanmar in December, the mood has changed dramatically, he said.

Although he has had no major expressions of interest in the project by Western investors, potential Asian partners are decidedly more open.

Somchet said he met recently with Japanese Trade and Industry Minister Yukio Edano, for instance.
ItalianThai hopes Dawei could be a location for Japanese firms to build parts to be used at car manufacturing plants in neighbouring Thailand, among other uses.

An investment roadshow in South Korea is scheduled for late February.

Thailand's top lender, Bangkok Bank, is advising on the power project and Siam Commercial Bank on the whole project.

Source: The Star Online 

 
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