Jun 12, 2016

Myanmar Military’s Vast Conglomerate Goes Public

Myanmar Economic Holdings Ltd., the military-run conglomerate with sprawling interests as diverse as cigarettes and construction, has become a public company and is preparing to start selling shares as it embarks on a corporatization effort, a Myanmar Investment Commission official said Friday.

The secretive company announced in a military-run newspaper in late March that it was intending to go public. Aung Naing Oo, the director-general of the Directorate of Investment and Company Administration under the Myanmar Investment Commission, said that the military conglomerate has “completed all formalities” to become a public company, and is no longer a state-owned enterprise.

“Officially, it is a private business,” said Mr. Aung Naing Oo, adding that the conglomerate aspires to “be more business-oriented and developed with…a long term vision to be listed on Myanmar’s stock exchange.” The company, known as MEHL, is now reforming its share structure and will start selling certain classes of shares over the counter, a process that could take several years.
MEHL’s holdings include a partnership in this copper mining project in Sarlingyi township, where protesters against the mine clashed with police in 2012. ENLARGE
MEHL’s holdings include a partnership in this copper mining project in Sarlingyi township, where protesters against the mine clashed with police in 2012. Photo: Reuters

These efforts to become a corporate entity mark the start of a dramatic turnaround for one of Myanmar’s most closed-off conglomerates. It also underscores the military’s efforts to become a more modern, transparent entity that is more attractive to foreign partners, including investors, although MEHL is still subject to U.S. sanctions, preventing American companies from doing business with it.

Since it was founded in 1990, MEHL shares have been owned only by the defense ministry and active soldiers, as well as veteran defense personnel. Khin Zaw Oo, a retired general who was the head of the conglomerate until 2014, said that only certain classes of shares will start being sold, at first to employees working for the army in an administrative capacity as well as those who work for garment factories, consumer goods factories and other MEHL investments.

Private investors will later be allowed to purchase shares in the company, which offers about a 30% dividend currently, the former general added.

“We want our profits to go to soldiers, their families and also our own employees,” Mr. Khin Zaw Oo said.

MEHL, one of two military-owned conglomerates, for years exemplified the army’s lock on the economy and critics accused it of using its status to grab land and avoid taxes. But as military rule ended in 2011, so did the company’s privileges, including tax-free status and monopolistic control over certain sectors. Since then the company has begun rebranding itself, hiring public relations consultants and actively courting foreign investors. In 2015, it was fourth on a list of top taxpayers in the country, according to government data.

Losing their tax exemption “has put pressure on the [military] conglomerates and their subsidiaries to modernize and be more competitive, especially given that they are an important source of revenue for the military,” said Nyantha Maw Lin, managing director of the political consulting firm Vriens & Partners in Yangon.

In 2013, MEHL tried to buy out its foreign partner in Myanmar Brewery, Singapore-based Fraser & Neave, leading to a lengthy dispute between the two companies that was later settled in MEHL’s favor at an arbitration tribunal in Singapore. Analysts said MEHL’s willingness to submit to foreign arbitration helped boost investor confidence in the company. Japan’s Kirin later bought F&N’s stake in Myanmar Brewery, the country’s largest brewer.

Other regional investors have also teamed up to work with MEHL. Korea’s Inno Group is building a US$120 million mixed-use project, “Inno City,” in partnership with the military conglomerate. MEHL is also a partner in various Chinese-led projects, including a copper mine in central Myanmar.

The company has few prospective Western investors, however, at least for now. Analysts said there is significant reputational risk that goes with doing business with Myanmar’s military.

Source: The Wall Street Journal