Major investments into Myanmar on hold after coup, reputation risks abound

FILE PHOTO: Tear gas and fire extinguisher gas surround demonstrators as they run away from police during a protest against the military coup in Naypyitaw, Myanmar, March 8, 2021. REUTERS/Stringer/File Photo

Major investments into the coup-hit economy of Myanmar are being put on hold as investors reassess risks in the country, including possible connections of local businesses to the junta.

Earlier this month, Yoma Strategic Holdings (YSH) announced that the long-stop date for the stake sale of its fintech unit Wave Money to Chinese financial services giant Ant Group has not been extended.

The proposed $73.5-million investment was expected to prepare Wave Money to potentially become the first unicorn of Myanmar, YSH CEO Melvyn Pun told DealStreetAsia earlier.

YSH has also extended the long-stop date of selling another 5.1% stake to the Philippine conglomerate Ayala Corporation. A long stop date is a date within which the transaction has to be completed.

In what could have been the second-largest investment into Myanmar, shareholders of Irrawaddy Green Towers (IGT) had last December agreed to sell the telecom towers operator to CVC Capital Partners at a reported $700 million value. In February this year, Globalcapital.com reported that a $390-million loan to back the deal by bookrunners including Bank of China, Bank SinoPac, DBS, OCBC Bank, among others, was put on hold.

There were allegations of IGT’s contribution to human rights abuses through business relations with the Myanmar military, called Tatmadaw, according to the Business and Human Rights Resource Centre.

Meanwhile, Malaysian telco Axiata’s $500-million sale of edotco is also being stalled as a result of the adverse impact of the political crisis. edotco’s assets include 33,600 towers across Southeast and South Asia, of which 3,150 towers are in Myanmar.

CVC Capital Partners and Ayala Corporation did not comment for this article, while YSH and IGT have not responded to DealStreetAsia’s query.

“edotco is closely monitoring the current developing socio-political climate in Myanmar. We have been consistently communicating with all stakeholders, including all of our employees, customers, and vendors in Myanmar to manage impacts amidst the challenging environment,” a spokesperson at Axiata told DealStreetAsia via email.

“We continue to assess any business, operational and financial risks and continue to stay focused towards fulfilling our existing commitments to the customers in Myanmar.”

Deals put on hold in Myanmar

Expand Table

Target asset/companyBuyerValueUpdate
Irrawady Green TowersCVC Capital Partners$700MNo completion announcement made
edotcoSeeking investors$500MOn hold
Wave MoneyAnt Group$73.5MLong-stop date not extended
Yoma Strategic HoldingsAyala Corporation$46.4MLong-stop date extended to September 30, 2021
Ayeyarwaddy Farmers Development BankKbank35%No completion announcement made
Myanmar Finance InternationalThitikornNANo completion announcement made

The Myanmar coup has made it harder for every type of business to raise capital for operations, as capital flow might find alternative markets. And, investments in the financial sector are delayed even after securing legal approval.

Private equity firm Delta Capital Myanmar had earlier planned to raise its third fund with a target of up to $120 million. The firm and other PE firms in the country said they were still monitoring the situation, without giving comments on the impact of the coup.

“The country desperately needs foreign investment, so the impact on the economy is going to be noticeable,” said Daniel Patton, director of business intelligence at Control Risks.

Fear of reputational risks

“Many foreign companies across sectors are pulling out either to avoid sanctions or because they fear reputational damage from being seen to work with the junta,” noted Gregory Poling, a senior fellow for Southeast Asia and director of Asia Maritime Transparency Initiative at the Centre for Strategic and International Studies.

Some of the investors are examining these reputational risks, according to Patton, because they think there could be a path where they could still remain an investor in the country. “But all that hinges on a certain number of variables, first and foremost a decrease in violence,” he said.

A lot of companies have faced boycott groups criticising them for paying taxes and other fees to the Tatmadaw.

India’s Adani Ports and Special Economic Zone recently said it could abandon a Myanmar container terminal project and write down the investment if it is found to be in violation of sanctions imposed by the US after an Australian human rights group in March alleged that Adani will pay up to $30 million in land lease fees to military-controlled Myanmar Economic Corporation.

Last month, New Zealand Super Fund (NZ Super) was reportedly asked by local parties to face a parliamentary select committee concerning the superannuation fund’s investment in Adani.

NZ Super was later exposed to have invested as much as $100 million in 24 companies that have current or historic links to the Burmese military, per an RNZ.co.nz report on May 12.

Golriz Ghahraman, member of parliament at New Zealand’s Green Party, has expressed her concern that the Super Fund needs to be more transparent, per the report.

When contacted by DealStreetAsia, a spokesperson for the Guardians of NZ Super said in an email statement: “It is important to note we don’t reflexively exclude companies when issues emerge. We use international experts to monitor the business practices of the more than 6,000 companies in the portfolio and our preference is to engage with individual companies where concerns arise.”

The spokesperson said the superannuation fund has a framework for companies that have been linked to Myanmar, and the Guardians may consider the exclusion of specific companies that show breaches of legal or ethical issues.

“Companies are operating in an opaque market, where the military has vast commercial interests. They have tried to avoid the military as much as they can, but it’s hard,” Patton opined.

A big dilemma

While new investors and companies have put their Myanmar entry plans on hold, those who already have a presence in the frontier market are at a crossroads.

“They are asking themselves first how to protect their people. Second, is it responsible for them to leave the country or to stay?” observed Patton.

Norwegian telco Telenor had to write off $783 million of its investment in Myanmar, a market which last year contributed 7% of its earnings, the company said in its Q1/2021 performance call. Telenor CEO Sigve Brekke told Reuters that while the company plans to stay for now, “the future is uncertain”.

In another example, Japanese trading house Marubeni Corp said it had no plans to book impairment losses on its Myanmar business this financial year, and the firm will not give up on Myanmar.

The frontier nation has been a strategic market for certain investors. The past crises showed some foreign investors did not leave the country en masse. “They scaled down their operations, but they maintained a representative office so that when the country started to normalise and open up again, they could go at full speed,” Patton said.

“Companies [that choose to stay] should be prepared to respond to these situations, and say here’s our positive contribution to be a responsible investor in the country,” he added.

Gloomy scenario

Since the Tatmadaw seized power in February, Myanmar has face disruptions in critical sectors such as financial services, telecom, transportation networks and port services.

“The civil disobedience movement supported by the majority of Burmese citizens is intentionally trying to sabotage parts of the economy to deprive the military of cash and make it impossible for the generals to effectively govern. The situation is going to get worse, and more violent in the months ahead,” Poling predicted.

Patton added that the most likely scenario in Myanmar is going to be an “unfinished coup”, where the military will continue to exercise some force to maintain power, while civil disobedience also persists.

“Businesses have to deal with those disruptions, so they’re operating at a reduced capacity,” Patton said. “We don’t see strong indications of a compromise being reached.”

Even if a revolution could eventually lead to a new democratic system, it could only be obtained after much hardship or state collapse, Poling asserted.

“None of those [scenarios] are attractive to foreign investors in the short or medium term, so they will continue to pull out,” he concluded.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.