With Myanmar making headlines as Asia’s frontier market, and as it prepares for more investments, advisory firms like Sandanila see an increased opportunity in helping local and foreign investors make inroads into the country. Sandanila – co-founded by Thiri Thant Mon in late 2015 – is currently in the process of closing a couple of investment deals in Myanmar. Formerly with Yoma Strategic Holdings and Morgan Stanley in London, Sandanila co-founder Mon shares insights on the emerging opportunities and challenges of investing in Myanmar, in an interaction with DEALSTREETASIA. “Myanmar is seen as the next frontier. A lot of investors are excited, people are looking at Myanmar, but the big rush has not come yet. The kind of rush that Vietnam or China experienced,” he added. Edited excerpts:
Sandanila describes itself as an investment firm that will invest its own capital as well as third party funds into Myanmar. Could you take us through the progress on this front to date?
Sandanila is a financial intermediary business, specifically focused on capital flow into the country. What we would like to enable is not only investment capital coming into Myanmar, but capital ideally coming with know-how that can improve Myanmar companies. There is a big need for all sorts of capital – financial capital, human capital, technological capital. We would like to be a bridge for capital into the country, which is the traditional role of a financial intermediary, such as a bank. We intermediate between both the buy side and the sell side, that is the companies as well as the investors. We help Myanmar companies prepare themselves so that they put their best foot forward, understand what it means to take foreign capital and partners so that they are able to structure a deal that is mutually advantageous. We don’t want the local partner to lose out but also help them understand what their investing partners need in terms of protection and return. On the side of the foreign investor, we help with local knowledge, navigating a particular sector they are interested in and assessing which partners would be suitable to invest with. We would also like to position ourselves to look at where we can help with larger deals. For example, a lot of government state owned enterprises these days are not operating well. State owned enterprises usually are either operating below efficiency or losing money. It is going to be a priority for this government to reform state owned enterprises. The typical way of state owned enterprises to reform is either outright privatization or corporatization. We would like to get involved in the process as well especially from the angel of bringing investment into the country.
What kind of own investment are you targeting? And also the quantum of investment that you are looking to raise?
We look at own investment as well and we have a small pot of our own capital. We also have some partners who are interested in investment into the country. We are not a private equity fund and we are currently not looking at that space. When we do invest, we would like to invest for slightly longer term or at least not be constrained by a typical private equity timeline.
Almost every sector in Myanmar seems to be attractive from a demand-supply gap perspective. So what are your investment sweet spots. What are the sectors that you are likely to invest in or recommend investors?
I think it depends on the investors’ interest, risk appetite and time horizon. There are opportunities across many sectors but it is a market that is still very much for people with patience and a strong stomach. And it is not easy to execute. I would focus on sectors that have a direct correlation to the real economy. Correlation to consumer, what’s going to grow in the future, along with the middle class that is going to grow. So consumer related industries, anything in agriculture, depending on what kind of niche in agriculture. For people that understand it, leveraging on the mobile platform, Internet related services would be interesting. Myanmar is in a way still very early. There are already established incumbents that are operating quite well, but the entire ecosystem of the economy is still being completed. There are challenges – infrastructure and institutional as rules and regulations are not stable. In the long run, as long as the government is focused on keeping the economy healthy and keeping the political situation stable, this country will grow. I believe that this country has the capability to grow in high single digits for a few decades or so.
There are a handful of firms that are operating in the similar space in Myanmar who are raising capital and expertise to help run local businesses. How do you differentiate yourself?
In this particular industry, you need experience and capability and it is also about trust and relationship. We have a small team but we have experience from outside and in the country. Other firms also bring their own expertise to the table and we all have different networks and connections. It is a people business where you have to have expertise and skills but beyond that it matters, whether you are going to be a good advisor to a particular company or investor.
What is your assessment of the regulatory environment and ease of doing business in Myanmar?
It is difficult to do business in Myanmar. If you go to a government office, the paper work takes time. Even if you go to a private commercial bank, it takes much longer to withdraw money and deposit. Any process takes time, and it is part of the evolution and transition that we are going through. If the government can deliver on getting rid of corruption, I think it will create a more stable and healthy environment. Businesses just need to know what the rules are. And that they will not change. The issue in this country has been that the rules are always either not defined or not applied the way they are written or that they keep changing. So a lot of people have developed a trading mentality where you try to do business that returns capital quickly rather than building for the long term. I believe it is changing for the better. This government has been in power for less than half a year – so, I think we need to give them time to communicate their economic policies. Will it be helpful if they did? Yes, of course. Right now the entire business community is waiting and you can feel the economy slowing down. If the government can articulate the policies and follow up the actions that support them, the country will move again.
What are the exit options available for an investment firms and how would you advice about the kind of time horizon to stay invested?
Traditionally PE exits would be through listing on a stock exchange or selling on to another investor or strategic investor. The stock exchange in Myanmar is very nascent and foreign owned companies cannot be listed yet. I believe this country requires investors to have longer time horizons.
Could you tell us about the investors that you are talking to to raise investment capital for Myanmar? What is their outlook for the frontier market? What are their expectations?
We just started business two months ago, we talked to a lot of investors, businesses and we’re working on a few deals at the moment. Myanmar is seen as the next frontier. A lot of investors are excited, people are looking at Myanmar, but the big rush has not come yet. The kind of rush that Vietnam or China experienced. So, whatever we’ve seen so far has been the first kind of few steps. Myanmar is small, in terms of ability to invest. Many big investors would like to invest $100 million minimum into a fund and to find deals of big sizes is difficult here, and again the exit is still not clear. Myanmar still needs to travel more before big financial investors are interested. A lot people are excited, interested but observing and waiting. Strategic investors are different. If you are an FMCG like Coca-Cola you would like to enter a market early to influence consumer habits. So, those types of investors are here. You see telecom companies have come here because it was a great opportunity where you have a sizable country with very little market development or penetration. Telecom also worked because the law and the licensing process were clear and transparent.
What is your view on the overall macroeconomic environment of Myanmar and what needs to improve in order to spruce up investments? What sectors need to really attract big ticket investments?
For the macro economy to develop, we need stable, efficient, clear rules and regulations and a clear policy direction of how we want to develop. We need to attract both aid and investment. Aid to build up big infrastructure, electrification, in areas where it is difficult for private enterprise to invest and also encouraging outside investment into the private sector. The government also needs to recognize that the private sector is an efficient and important engine for growth and to support and allow the private to join hands with the government. If the government can enable the private sector to deliver the goods and services that the people need, what you will have is increased production of goods and services, prosperity, job creation, increased tax collection, better government balances.