U Aung Htun, managing director of London-listed Myanmar Investments International (MIL), believes in the long term investment potential inherent in Myanmar. “This is a market where every type of infrastructure needs to be improved.

Power and transport are important as well as financial, medical and educational infrastructure. Trade facilities, interbank lending and liquidity in the stock market are all required to make things work,” he said.

Topping U Aung Htun’s list of sectors with good potential for return on investments (ROI) is financial services and banking. Specifically, MIL is now eyeing opportunities to invest in insurance and corporate banking. Investment banking and securities trading as well as credit provision and mobile payments will take off, he said.

All forms of financing, such as hire purchase, will do well too. In transport, for instance, hire purchase arrangements for vehicles such as cars, motorcycles and trucks are in demand.

In the agriculture sector, one of the easiest ways to reap short term returns is by financing farming equipment such as tractors and harvesters to improve farmers’ productivity. “The agriculture export business in Myanmar is lucrative, but will take time to scale. In the meantime, farmers need help getting access to the needed equipment,” said U Aung Htun.

While tourism is a great business to be in, U Aung Htun is looking to invest in companies that have a longer term view of the industry. “When people get excited about tourism, they usually start building a lot of hotels. But we’re looking for companies with a responsible and long term view of tourism, such as those who want to invest in developing world heritage sites like Bagan, Inle and Kayah,” he said.

Patient, intelligent capital

Yet, investing in Myanmar is no straightforward matter as it requires a great deal of patience and a deep understanding of market trends and local culture. “For all its prospects, this is a very inefficient market where the legal framework does not easily allow foreigners to invest. Myanmar is no doubt a long term growth story for investors and things will take a few more years to change,” said U Aung Htun.

Take the energy sector. Only a third of the population has access to reliable electricity in Myanmar, so power generation from all sources is in demand. But while solid, returns from this sector are likely to be low at least for now. “Electricity prices are heavily subsidised in Myanmar. The government cannot afford to sign anymore agreements selling electricity at a loss. Can they raise prices to be more viable? It has to happen but it will take time,” said U Aung Htun.

Retail is another example. Backed by rising incomes and exposure of Myanmar consumers to the internet, demand for goods from mobile phones to hair gels and lipstick has risen exponentially in recent years. U Aung Htun warns though, that most products and services can realistically only be adopted in Yangon and Mandalay, at least for now. “Don’t be fooled by the 50-plus million population. Due to transport, network and affordability issues, only 8-10 million people are readily accessible at this point,” he said.

Stay culture conscious

For foreigners, the key to investing successfully in Myanmar is securing the right local partners. “We need to find partners whose interests are aligned with ours. We want to put money into a company in which management is vested in its growth, not simply buy shares from owners who want to exit,” said U Aung Htun.  Importantly, all businesses will go through a tough time at some point here, so spending lots of time in dialogue and networking is worthwhile if it leads to local partners who are reliable and flexible to change, as this will be key to getting through those periods.

Foreign investors should also be aware of a general mistrust among the locals towards them. The way Aung Htun tells it, some local groups still see foreign competition as a concern. “In our years establishing networks and relationships here, we have found local companies to be confused over what they want. On one level, they want foreign investments for the knowledge, growth and jobs. But on another level they are still wary of competition from abroad,” he said.

This was clearly reflected in the new Myanmar Companies Law approved last year, which, when implemented, will permit foreigners to own up to 30pc in local companies. “The new legislation is helpful of course, but in Cambodia foreign companies can invest as much as they want in any business,” he said.

“We have been surprised by this attitude among some of the locals in a country that needs so much investment. Slowly though, more mom and pop store owners are realising that new job and business opportunities do emerge when a large foreign firm comes in and builds a mall.”

Exit strategy

Having an exit strategy in place before investing in Myanmar is crucial as the country’s capital markets still lack depth. Since its launch in 2016, trading on the Yangon Stock Exchange (YSX) has been dismal. Meanwhile, interbank lending and corporate banking are virtually non-existent, so fund raising and restructuring exercises are still impossibly difficult.

“To create more equity market depth, we need to have a range of investors actively trading on the YSX,” U Aung Htun said. These include long term institutional investors like pension funds and insurance companies, as well as short term speculative traders. “For the stock market to be liquid, we need all these investors in play. Myanmar regulations have yet to evolve to the needed level that support liquidity and efficient exit plans for investors.”

“Because of this, our strategy is to invest in and build up the net asset value (NAV) of businesses that have long term growth potential in the country,” he added. “We are staying invested for the long haul.”

MIL is the only Myanmar-focused company to list on the London Stock Exchange. Established in 2013, its strategy is to invest in Myanmar-based companies in sectors with long term potential for growth.

The company first invested in the country in 2015 with a $30 million injection of funds for a 14.2pc stake in Apollo Towers, the second largest independent telecom tower company in Myanmar with 13pc of the country’s 13,000-odd towers now under its management.

MIL’s other investments include a 37.5pc stake in microfinance provider Myanmar Finance International (MFIL), which currently has 51,000 borrowers and a loan book of up to K10.6 billion, representing average growth of 70pc and 109pc, respectively, since 2014.

Last year, MIL established a joint venture with Medicare Vietnam and another shareholder to set up Medicare International Health & Beauty, a modern pharmacy chain which has since rolled out four stores in Yangon. MIL has so far invested $895,000 for a shareholding of 47.1pc in Medicare and expects to invest up to US$5 million to open more over the next few years.

The company also established Myanmar Voyages, a tourism company, with two local tourism entrepreneurs. It has committed to invest $800,000 for a 97pc stake in Myanmar Voyages, with potential acquisitions in a hotel management agreement to run the Serenity Inle Resort and a 30pc stake in the company that operates the Mingalabar Balloon in Kandawgyi Park, Yangon.

For the six months September 30, 2017, MIL registered a loss after tax for the period of $1.4 million compared to a loss after tax of $1.1 million from the same period the year before. As at September 30, 2017, MIL’s NAV amounted to around $35 million, or 95.2 cents per share. Shares of MIL closed Friday at $1.375, giving it a market capitalisation of $50.6 million, according to Bloomberg.

“Because of the needs of the country, there are many investment opportunities. As long as you are in it for the long haul, you can make good returns. The bottom line is patience and intelligence is the way to make money here,” U Aung Htun said.

Source: https://www.mmtimes.com/news/patience-key-investing-myanmar.html