Myanmar Farmland Gets Closer to Vision as Economic Engine; Company Behind Japanese-Backed Investment Zone Prepares to Issue Shares

Myanmar Farmland Gets Closer to Vision as Economic Engine

Company Behind Japanese-Backed Investment Zone Prepares to Issue Shares

SHIBANI MAHTANI

Feb. 23, 2014 8:07 p.m. ET

THILAWA, Myanmar—A field littered with roaring tractors and herds of cows ambling in the distance doesn’t look like the future of Myanmar’s economic reforms.

But as the company behind the Japanese-backed Thilawa Special Economic Zone prepares to issue shares next month—hoping to raise $21.7 million to fund the project—the vision of this rural Yangon suburb as Southeast Asia’s next manufacturing hub is inching closer to realization.

Shares will be sold starting March 3 at 10,000 Kyats ($10.16) per share, Set Aung, a Myanmar government official and chairman of the Thilawa Special Economic Zone’s management committee said at a news conference last week.

The project, handled by Myanmar Thilawa SEZ Holdings Public Ltd.—a joint venture between a consortium of Myanmar companies, which have a 51% stake, and a Japanese consortium of the country’s largest trading houses—will arrange for these shares to be bought through Myanmar banks.

Other prominent Myanmar-based companies, including businessman Serge Pun’s First Myanmar Investment Company Ltd., will also be involved as initial shareholders.

Money raised, Mr. Set Aung added, will go toward the initial development of a 400-acre tract that will soon offer plots for sale to manufacturing companies. The industrial park, Thilawa’s first phase, will plan to first attract light-industry manufacturers, according to a prospectus reviewed by The Wall Street Journal, and later “manufacturers from a wide range of industries from around the world.”

The 2,400-acre development, a 45-minute drive south of Myanmar’s commercial capital Yangon, broke ground last November after months of planning. Billed as a marquee project of Myanmar’s post-junta government, the special economic zone promises to create tens of thousands of jobs, attracting prominent manufacturers to this once-sleepy agricultural area.

The Japanese investors behind the projects— Mitsubishi Corp. 8058.TO +0.15% , Marubeni Corp. and Sumitomo Corp. 8053.TO +0.45% —are pumping unprecedented sums of money into the country with the backing of their government, which has pledged an additional $3.28 billion to aid in infrastructure, electrical systems and transportation. The companies didn’t immediately reply to request for comment.

Back in 2012, when Myanmar’s new, nominally civilian government signed a memorandum of understanding with the Japanese government for the joint development of Thilawa, their plans were met with skepticism. Critics were doubtful that the countries had the capital or willpower to see the project through. Myanmar, then and now, remains plagued by infrastructure hurdles and legal risk. Even the 15-year old Thilawa deep-sea port, a key component of the zone, doesn’t handle much more than the import of secondhand Japanese cars.

But apart from the sizable investments already planned, Myanmar’s government is reworking old laws to help the project attract investment. Its legislature last week passed a special economic zone law offering companies tax breaks if they plan to invest in these projects. A central management committee comprising government officials will also be set up to govern the areas, allowing companies to escape the bureaucracy that often deters investment in the frontier market.

The new law would allow investors to “bypass the red tape” in Myanmar, said Amarjit Singh, a senior risk analyst at IHS, making investment there more attractive.

Myanmar’s Port Authority is also chipping in, upgrading works on the Thilawa port this year to facilitate the special economic zone. Mr. Serge Pun’s Yoma Strategic Holdings is also building a 135-acre premium residential development minutes away from the special economic zone, with 9,000 apartments to cater to the middle-class workers expected to be working there.

More than just a potentially thriving economic zone, experts say that the Thilawa project could showcase the fruits of Japan and Myanmar’s flourishing bilateral relations, at a time where the Southeast Asian country’s relations with its northern neighbor, China, is growing colder and when East Asian rivalries are running high. Though China remains Myanmar’s biggest source of foreign direct investment as of January this year, with Japan trailing in 10th position, Chinese investment has fallen sharply. Only $407 million in new investment was pledged during the fiscal year ended April 2013, down from $12 billion invested in the preceding four years.

Conversely, Japanese investors pledged $54 million in the same fiscal year, up tenfold from the year before that. Japan, experts say, is seen as pledging capital where its close ally, the U.S., can’t, still held back by sanctions that prevent it from working with prominent Myanmar businessmen considered cronies of the military regime, but working toward the same end—containing China’s longtime dominance there.

The Chinese wanted Myanmar to view the promises made by Western countries and their allies as a reward for democratic reforms as “just lip service,” said Yun Sun, an expert on Myanmar-China relations at the Stimson Center in Washington, D.C. “But that is not happening, because money is pouring in.”

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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