For AIM-listed Myanmar Investments International Ltd, Myanmar is a long-term growth story. The investment and management company, that started trading on London Stock Exchange’s AIM Market in 2013 and raised $30 million, is exclusively focussed on investing in a diverse portfolio of enterprises in the frontier market.
Its sweet spot bets include physical infrastructure, banking, education, healthcare, manufacturing, tourism, agriculture, consumer goods and logistics, pretty much across the board as the economy opens up gradually.
In a wide-ranging interview with DEALSTREETASIA, Myanmar Investments managing director U Aung Htun says, “Myanmar has so many opportunities, anywhere we look there are good ideas.”
He also talks about the firm’s core investments, the regulatory environment and opportunities in Myanmar and how the AIM listing helped with capital raising. Edited Excerpts:-
How has a listing on AIM helped?
It has helped with capital raising. Myanmar is a long term growth story, I don’t want to be making investment with a sell-by-date stamped on my forehead. If I invest in banks, or microfinance, why would I want to sell, I can see growth for the next 20 years. In the telecom tower, we invested $25 million. If we are a fund, we couldn’t do it. Because we are not a fund and are listed, we have the ability to make investments of any size. For a fund, once you start with a certain size, you’re stuck with that size until you finish investing that money. So if your fund is not large, you are not able to invest efficiently. And, for Myanmar, it is not a very practical way to do it because the investment opportunity comes with different sizes. We can write a cheque of any size. So being listed allows us to raise significant capital whenever we need it. At this stage, AIM is appropriate, but as we get larger, it is normal for AIM-listed companies to move their listing. I am not saying what we will be doing but at all times, my colleagues and I review where we need to be listed, we could stay on AIM or we could move. That decision I think is about a year or two away.
Give us an update on your two core investments, microfinance and telecom towers (Apollo Towers). How much have you invested and how is the money being deployed and are there any add-on investments on the anvil?
We are a holding company and therefore have the ability to hold an investment forever. We raise capital through the stock market. We invest and try to help the company grow as much as we can. So, in microfinance, we and our local partner U Htet Nyi, who has interests in trading and real estate, and Norfund, have together invested about $5 million. We have put the equity capital in and now we’re looking to grow the business through borrowing from $5 million to $7 million.
Our tower company is doing well. We are currently finalising a loan from the US government for $250 million. By all estimates, Myanmar needs about 20,000 towers and today, there is probably no more than about 8,000 towers, there is a lot more growth to come.
You have mentioned in your investor presentation that microfinance is a long-hold strategy while telecom towers is by nature a financial investment from which you would look at a potential exit at an opportunistic time. With consolidation in the tower space taking place in emerging markets and with the new operator joining fray in Myanmar, how would these factors pan out for your investment?
On microfinance, it is very clear. Financial services industries will grow double digits for the next two decades easily. So we want to ride that investment for a long long time.
Infrastructure investments are typically steady income. Once the telecom operator have got national coverage they will only have to add incremental equipment on the towers as they go to 3G or 4G. Myanmar is different from other countries. Starting from zero and suddenly overnight, there are two new operators coming in. So, the first three to four years, there is substantial growth for towers. And as the fourth operator comes in, there will be a lot of growth. But I think 4.5 years from now, the country gets around 20,000 towers and the rate of growth will be slower.
So, at an appropriate time, we would prefer to sell that investment or list it on some stock exchange. We can hold it but if we need cash for another investment maybe we can sell part of the shares of the tower company.
On microfinance, is there a possibility that you will look at going towards seeking a small banking licence?
I don’t think the law today allows for foreign investors to own shares in a bank but if, in a few years time, the law allows us to own shares in banks, we would like that. If our microfinance company can apply and change to a bank, I would seriously consider it. In Cambodia and India, larger microfinance firms can become banks.
Apart from these two core investments, please tell us about the other activities that you are currently engaged in from investment banking to equity or debt investments?
We started in the middle of 2013, between then and now, we had looked at around 150 opportunities and we probably have around 12 at the top of our list that we’re still looking at. Some won’t get to the finishing line but hopefully one or two might. We’re looking at a whole range of sectors: education, healthcare, manufacturing. Myanmar has so many opportunities, anywhere we look there are good ideas. So, we look for good ideas, an experienced and deep management team and well thought out business plan.
The issue in Myanmar is that we find very few who have put together detailed business plan to raise capital. Entrepreneurs start with a very good idea but they do not plan or think it through. I am responsible for shareholder’s money and I need to know that the companies we invest in have thought through their plans carefully and have a team that is capable of executing the plan. The market is really impressive because pretty much everything you look at is an opportunity.
With the opening of the Yangon stock exchange, how do you see Myanmar Investments play a role there? What is your view on this development? How will it change the ability to access finance for Myanmar companies?
It is very good that we’ve got a stock market. The country needs a capital market because this is how savings is channeled to productive use. But it will take time. I understand that initially foreign investors cannot buy stocks. Therefore, we can’t invest in the market just yet. It will take a number of years before it gets going.
The Thai stock exchange started in 1975. It started with 20 companies and the market grew quite well and we doubled the number of listings in about three years and the market collapsed. It then took another three, four years to recover. So, markets take time to develop. In a properly functioning market, you need short term investors, long term individual investors (retail) and domestic and foreign institutional investors. All these participants have different trading patterns and together they give liquidity to a market.
Initially the YSX will probably only have retail Myanmar participants so it will be interesting to see what liquidity there will be. Also companies need to adhere to a high level of governance, ethics, transparency.
Your core focus has been businesses focused on Myanmar and you have been assisting overseas companies in establishing a presence here?
We don’t currently provide financial advisory services but we invest with them. We see a lot of people coming to the country to invest here. Because I worked in Thailand, I can talk to these investors more easily. Thais are very keen to invest in Myanmar. At the moment, we will invest with them but do not yet advise for a fee. That will come one day.
Are you looking at raising a private equity fund or venture capital fund to invest in startups and smaller companies?
Not yet, because MIL itself can already invest in small companies although we won’t write a cheque for less than a million US dollars. So, today we are not looking at raising a venture capital fund for small companies as we do not have the time to focus on this area. One day we will as I think the startup businesses and small cap companies are very interesting. But today we got enough to do.
Tell us about the overall changes in the macroeconomic and regulatory environment in Myanmar. What is needed on an immediate basis to truly open up the economy?
On the macroeconomic front, I think Myanmar needs to work on its manufacturing base, but to do so, you need strong infrastructure. So in the first phrase, we need to build infrastructure, power, water, telecom.
Second, Myanmar needs to work out how to attract investment in the manufacturing sector. Myanmar needs to think which industries it should promote and how.
Third, the government needs to look at making agriculture become more efficient. But at the same time try to get the industry going.
Because Myanmar lacks everything, it is hard to know what the country needs first.
What are the key barriers that overseas investors face before entering Myanmar?
The banking system is a barrier. Today there’s isn’t enough banking infrastructure to support trade that well.
As one of the early movers into the market, what do you think the entrepreneurial ecosystem in Myanmar needs?
Myanmar entrepreneurs are very resilient and resourceful. I’m sure doing business here before 2012 was not very easy. However, more often than not they operate without planning. So I think we need to work together to improve that. Entrepreneurs here are as good as entrepreneurs anywhere else. Only, they don’t plan as much as they should. That’s where investors such as MIL can help. We can help them plan and execute the business to create a truly world class enterprise.