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Myanmar Companies Act approved

President U Htin Kyaw signed the Myanmar Companies Act at the Pyidaungsu Hluttaw Wednesday, approving the most anticipated piece of legislation in the country this year.

Under the new Myanmar Companies Act, foreigners will be permitted to take up to a 35 percent stake in local companies. It also stipulates that businesses with foreign stakes of more than 35pc will be classified as a foreign company.

The move paves the way for more foreign investor participation in the Myanmar economy. Mainly, it will allow them to invest in sectors that were previously closed to foreigners such as industrial equipment and pharmaceuticals, said Chester Toh, co-head of law firm Rajah & Tann’s Myanmar Practice.

In the past, foreigners could only invest in selected sectors such as brand new car distribution, fertilisers and construction materials.

Furthermore, foreigners will now be able to take stakes of up to 35pc in companies listed on the Yangon Stock Exchange (YSX). They were not able invest in YSX-listed companies in the past.

Currently, trading on the YSX is limited because foreigners are not able to participate and invest, said U Ye Min Aung, managing director of Myanmar Agribusiness Public Cooperation. He added that large investments from foreigners are needed to improve trading volumes. “The Myanmar Companies Act is an urgently needed legislation to improve business,” he told the Myanmar Times.

“According to that law [1940 Companies Act], shares cannot be sold to foreigners. With the new law, it can be done,” U Maung Maung Thein, former deputy minister for planning and finance who founded the YSX, said. He added that there isn’t much strength from domestic investment and thus foreigners must be allowed to invest.

The move paves the way for greater liquidity and more activity on the YSX. “In the past, companies did not want to list because there was no liquidity in the market, given that only local investors were permitted to invest,” said Mr Toh.

“Now, with foreigners able to take stakes of up to 35pc, it broadens the pool of investors, including private equity and emerging market funds, which introduces significant liquidity to the market.”

It also comes amid a liquidity crunch across Myanmar, with many local businesses facing difficulties raising funds to expand due to a lack of collateral and track record. In addition, existing regulations prohibit local companies from borrowing from the 13 foreign banks operating in Myanmar. “Only foreign companies can borrow from foreign banks,” said Mr Toh.

With foreigners expected to participate more actively in the local economy, fresh injections of capital and greater access to debt-financing may be forthcoming, allowing many local companies to take their business to the next level.

“While 35pc is still a relatively low threshold for many investors, it nevertheless opens up the opportunity for foreigners to invest in quality companies locally. Once you get more foreign investors in, the value-add to local businesses, such as technical assistance, transfer of know-how and access to shareholders’ loans, which was not permitted before, is much more significant.”

There are 476 sections in the enacted Myanmar Companies Law. A subsection in Section 63 states that the company director can sell the shares or bonds to anyone at anytime by stating the rules and regulations.

The entire Act encompasses a wide range of regulations which will affect local and international investors, including share transactions, dividends, reduction of initial capital and shareholder authorities

“It is a significant step forward for corporate governance and embraces modern company law principles, enhancing Myanmar’s legal framework for investors,” said Cheah Swee Ghim, partner at local law firm Kelvin Chia Partnership.

Source: https://www.mmtimes.com/news/myanmar-companies-act-approved.html