How many shares do you need to launch a stock market? According to Myanmar’s outgoing government, the answer is zero.
The Yangon Stock Exchange was opened to much local fanfare on December 9. It marked the culmination of an economic plan, first announced in 2008 by the outgoing military-backed government to open a bourse by 2015.
The former pariah state’s establishment of a stock exchange is a deliberate proclamation of its desire to modernise and become an appealing investment destination. But while the ribbon-cutting ceremony may have garnered international headlines, the bourse itself is empty.
Maung Maung Thein, who is both the deputy finance minister and chairman of the Myanmar Securities and Exchange Commission, revealed six initial listing candidates when the YSX opened its doors, a mix of banks, holding companies, and agri-businesses (see table). However, he offered no firm timetable for their likely debuts.
To cap all of this, a new government formed by the main democratic opposition takes the reins at the end of March after easily winning Myanmar’s first democratic national elections in decades.The SEC wants shares in up to six of these companies to begin trading by March, before the current government leaves office. But by the beginning of February no clarity had yet been offered about the number of shares on offer or the percentage of ownership these companies intend to list, or indeed about their respective balance sheets. So even getting one company listed by March could be ambitious.
The country’s SEC, which is controlled by the outgoing administration, wants to get stocks trading before the start of the new regime but in its haste it risks damaging the very bourse it is meant to oversee.
There’s a simple reason for the stock exchange’s hasty launch: pride.
Myanmar spent most of 2015 preparing for its first free elections in 25 years. For months before the November 8 election it was obvious the ruling Union and Solidarity and Development Party, which is affiliated with the military, would lose to the National League for Democracy party, headed by national icon and former political prisoner Aung San Suu Kyi.
In the end the NLD won by a landslide, gaining 80% of the available seats in the House of Representatives. The MPs took their seats on February 1 but the NLD can only form a new government at the end of March, once the term of current president Thein Sein expires.
That has left the outgoing government with a small window to cement its financial legacy by launching the YSX.
Thein has made the most of the new, stock-less exchange, presiding over its launch and attracting widespread coverage as international business editors scrambled to tell their readers about the latest frontier market for investment.
Local reports also indicate that up to 10 securities companies have been granted licences, subject to them putting up the requisite capital, to operate as underwriters on the YSX. One of these, AYA Trust Securities, is a wholly owned subsidiary of AYA Bank, which has plans for its own initial public offering further down the line.
Even so, with time pressing, the speed of the government’s IPO plans has left many bemused.
“The new government takes over from April and the current government wanted to start the exchange [and list some companies] by March,” Takashi Takahashi, deputy director for Myanmar Securities Exchange Centre, told FinanceAsia. “So people were very confused.”
Takahashi is one of four bankers seconded from Daiwa Group to work in MSEC, a joint venture with Myanma Economic Bank.
CONFLICTS OF INTEREST
The close links between the government and SEC is one that Soe Thein, the former deputy director general of the SEC, has been openly critical about for some time.
“I left the SEC in 2013 because we had different visions of the future,” he told FinanceAsia in his paper-filled office in Yangon. “I wanted a very independent SEC and to recruit talented people from outside the country but the Ministry of Finance disagreed. It had just lost control of the central bank and wanted to control the SEC. Plus it was not willing to pay SEC members decent salaries. This situation has not changed.”
Myanmar’s central bank formally became independent of the Ministry of Finance in 2013. But the MoF’s ongoing relationship with the SEC is not the only unusual one relating to the stock exchange.
Takahashi met FinanceAsia in the dusty old three-storey headquarters of Myanma Economic Bank. The Japanese banker was given two weeks to brush up on his English in late 2014, before being relocated from Tokyo to Yangon.
Daiwa has worked with the SEC since 1996 to get an exchange up and running and it has overseen the implementation of its IT systems. It also set up MSEC, and has separately established a local investment bank adviser, called Myanmar Corporate Strategic Advisory.
But rivals say these multiple roles mean it too has conflicts of interest.
“Maybe in another country this situation would not be allowed,” Takahashi said. “But Myanmar has many programmes and wants to open the stock exchange as soon as possible, so they especially allowed us to support the Myanmar exchange and [create] the securities company and the investment banking company.”
TAKING TIME
The best thing the SEC and YSX can do would be to publish definitive listing, corporate governance, and financial requirements for any companies seeking to list. This should include their adherence to modern IFRS accounting standards countersigned by reputable accountancy firms.
The YSX can then approve companies that meet its criteria and these companies can then, in association with lawyers or securities companies, issue detailed financial prospectuses.
It would also be wise to ensure that at least five securities companies are fully ready to go, with IT systems, sales and trading staff, and research teams capabilities all in place.
Lastly, and most importantly, it would be wise for the regulator and securities companies to take their time to educate the thousands of potential investors about the risks and rewards of listed equities investing.
Of course, that would likely take a few years. But it’s what would make a healthy, sustainable stock market more likely in the long run.
Ultimately, it’s down to the incoming government. Its politicians would be well advised to pressurise the outgoing government to slow this breakneck stock market rollout.
President Thein Sein’s outgoing government may wish to leave a legacy – but surely a stillborn stock market isn’t what it has in mind.
