Now that the doors of Myanmar have opened, the business world has been holding it breath, waiting to see if Myanmar can succeed in joining its neighbors in prosperous trade and international investment. The opening of the Yangon Stock Exchange (YSX) is but one of the many signs that the country is moving in that direction. While it had a slow start, opening in December 2015, it finally began trading in March 2016. To shed some light on how the YSX has performed thus far, limitations on foreign investors, and why U.S. investors should tread cautiously when considering trading on the YSX, we spoke with seasoned international corporate and securities lawyer Jamie Benson, Director at Duane Morris & Selvam.
Conventus Law: The Yangon Stock Exchange (YSX) opened for business in December 2015 and began trading in March 2016. What is the YSX doing to raise retail investor confidence and promote trading to ensure its success?
Duane Morris & Selvam: The YSX is offering courses for investors to learn about share trading. In addition, in order to avoid excessive daily price movements in shares, the YSX has imposed daily limits on increases and decreases in a share price, the amount of which depends on the closing price on the previous day. For example, if the previous day’s closing price was between 20,000 – 40,000 kyats, the maximum price change is 5,000 kyats, and if the previous day’s closing price was between 40,000 – 100,000 kyats, the maximum price change is 10,000 kyats.
CL: Now that the exchange has opened, what progress has it seen?
DMS: On March 25, 2016, the shares of First Myanmar Investment Co., Ltd. (FMI) began trading on the YSX. FMI is the first and, so far, the only company to be listed on the YSX. FMI’s shares rose on the first day to close at 31,000 kyat (US$25.70), the upper limit for trading for the day, after they were initially listed at 26,000 kyat. A total volume of 112,845 shares changed hands, for a trading value of 3.50 billion kyat (approximately US$2.90 million). Based on the first day’s closing price, FMI's share market capitalization is 727.88 billion kyat (approximately US$603.55 million).
CL: Only six public companies are currently shortlisted for listing on the YSX out of the 200+ public companies in Myanmar. How difficult is it for a company to list on the YSX?
DMS: The YSX’s listing requirements are less onerous than most stock exchanges. The following are the key listing requirements applicants need to comply with:
• A minimum paid up capital of kyat 500 million (approximately US$400,000) on the date of the application.
• Profit in the two years immediately prior to the date of application.
• Compliance with existing Myanmar tax laws;
• Good corporate governance and internal management.
• Appointment of a compliance officer, who is responsible for ensuring that the company has an effective system to comply with applicable laws, rules and regulations.
• A business plan containing business design, the business process environment and the risk factors that the company faces.
• The setting up of a system to prevent insider trading.
CL: When the new Myanmar Companies Law comes in effect, will foreign investors and foreign companies be able to participate in the exchange? If yes, will there be limitations on their investments?
DMS: As of now, only Myanmar citizens and Myanmar companies are be able to trade shares on the YSX. Foreign investors will not be allowed to trade on the YSX until after the new Myanmar Companies Law has been promulgated. Under the current draft of the new Myanmar Companies Law, foreigners will be able to own up to the prescribed ownership amount of the issued shares of a Myanmar company. The Minister of National Planning and Economic Development will be responsible for setting the prescribed amount for each company, the amount of which is expected to vary from industry to industry, although no proposed limits have been announced yet.
CL: One issue that has been a topic of discussion is the fact that the Myanmar Economic Bank (MEB) has a 51% stake in the YSX, which may pose a problem for U.S. firms or funds interested in the YSX since the MEB is listed as a sanctioned entity by the U.S. Department of Treasury due to its ties with the old junta. From a legal perspective, is this a real concern? How may U.S. firms and funds navigate around this potential obstacle?
DMS: Yes, this is a real issue for U.S. persons. Pursuant to U.S. sanctions regulations, U.S. persons are prohibited from, among other things, dealing with entities where at least 50% ownership is held by an individual or entity listed on the SDN List. The YSX is owned and operated by Yangon Stock Exchange Joint-Venture Company Limited, a joint venture company owned by MEB, Daiwa Institute of Research and Japan Exchange Group, with each entity’s ownership being 51.00%, 30.25% and 18.75%, respectively. MEB is listed on the SDN List and since it has more than a 50% ownership stake in the YSX, U.S. persons are prohibited from dealing with the YSX. There are potentially severe civil and criminal penalties for breaching the U.S. sanctions regulations. As such, we recommend that U.S. persons do not trade shares on the YSX until such time as MEB is removed from the SDN List or the U.S. Treasury issues a general licence allowing MEB to engage in share trading with U.S. persons. In February 2013, the U.S. Treasury issued a general licence to MEB and three other Myanmar banks on the SDN List allowing them to engage in financial transactions with U.S. institutions. Given the Myanmar government is now controlled by the National League of Democracy, which is led by Daw Aung San Suu Kyi, there seems to me no good reason why the U.S. Treasury would not issue such a licence to MEB if it is asked to do so.
For further information, please contact:
Jamie Benson, Director, Duane Morris & Selvam