Singapore’s Fraser & Neave Faces Tussle in Myanmar; Military-Controlled Partner Wants to Take Over Brewery Venture

August 29, 2013, 11:07 a.m. ET

Singapore Firm Faces Tussle in Myanmar

Fraser & Neave Says Military-Controlled Partner Wants to Take Over Brewery Venture

CHUN HAN WONG and SHIBANI MAHTANI

SINGAPORE—Fraser & Neave Ltd. F99.SG -0.87% said its partner in a Myanmar brewery is attempting to gain control of their joint venture, a move that could dislodge the Singaporean conglomerate from one of Southeast Asia’s most promising economies. The spat highlights the risk of doing business with Myanmar’s state-owned enterprises and could damp confidence of investors seeking opportunities in a country still emerging from decades of secrecy and isolation under military rule. The dispute is over Myanmar Brewery Ltd., which serves 83% of the Myanmar market. Fraser & Neave, controlled by Thai billionaire Charoen Sirivadhanabhakdi, owns 55% of the brewery. The rest is owned by the military-controlled Union of Myanmar Economic Holdings Ltd.UMEHL has given notice that it plans to seek arbitration over a potential claim under the joint-venture agreement, which would allow the Myanmar company to buy out its partner’s holding, Fraser & Neave said Thursday in a filing to the Singapore Exchange.

Fraser & Neave said UMEHL had “no basis” for its claim and that the Singaporean company planned to “vigorously resist the claim.” Fraser & Neave’s statement didn’t elaborate on UMEHL’s claim. A spokeswoman for the Singaporean company didn’t return a request for comment.

UMEHL couldn’t be reached for comment.

Myanmar Brewery, set up in 1995 as one of the country’s first joint ventures, makes Myanmar Beer, Myanmar Double Strong and Andaman Gold. The brewery is Fraser & Neave’s only beer asset, after the company sold its stake in Asia-Pacific Breweries Ltd. last year to Dutch brewer Heineken HEIA.AE +2.16% NV.

Average annual beer consumption is about one gallon a person in Myanmar, well below the 6.9 gallons of Thailand and 7.9 gallons of Vietnam. While that means Myanmar Brewery’s contribution to Fraser & Neave is modest, the market holds substantial promise. It expanded at a compounded annual rate of 17% from 2005 to 2010, and Fraser & Neave said its Myanmar beer business posted double-digit revenue growth in the six months through March.

Fraser & Neave—which has interests in property, publishing and food and beverages—said it was assessing the potential impact of its dispute with UMEHL.

Regardless of the outcome, a spat between one of Myanmar’s largest state-owned companies and a foreign partner could have broader repercussions for the country’s economic development.

“If Myanmar Brewery terminates its agreement without due process, which is a good possibility, investor confidence will be negatively affected,” said Arvind Ramakrishnan, Asia head for U.K.-based risk-consulting firm Maplecroft. “Myanmar has virtually no recent history of modern arbitration or proper legal enforcement of judgments of international courts or tribunals.”

Nonetheless, “this news is unlikely to result in investment into Myanmar drying up,” although investment has slowed this year, he said.

While UMEHL is controlled by Myanmar’s military, its precise ownership is ambiguous even to its foreign partners. The company remains on a U.S. Treasury blacklist because of its military ties, even though the U.S. lifted the bulk of its sanctions against Myanmar last year.

With far-ranging interests including in transportation and tourism, UMEHL and its subsidiaries are popular partners for many foreign investors seeking access to Myanmar’s nascent market of 60 million people.

Yet concerns linger about the conglomerate’s business record and corporate hierarchy, and some foreign investors have found their local reputations tainted through association with UMEHL.

A joint venture between UMEHL and China’s Wanbao Mining Ltd. last year was the target of protests against a planned copper mine in northwest Myanmar.

Villagers said opposition in part was a result of the mine’s association with the military, which remains widely feared and distrusted in the country.