Myanmar, which is described as the last frontier market of southeast Asia, saw deal-making gain momentum in 2019 even as private equity investors commit more dry powder to the region’s investment landscape that is said to require patient capital.
We have put together top deal trends and an outlook for 2020 on the Myanmar market.
More PE funds hit the market in 2019
The year saw more private equity funds betting on the frontier market. In addition to Ascent Capital, which is raising its $100-million debut vehicle, Japan’s Daiwa PI Partners also launched its $30 million Myanmar Growth Fund within the year.
Delta Capital, the biggest fund manager in the country with total assets of $120 million, said it was working on a new deal that would see the second investment vehicle deploy around half of the capital.
In total, there is about $200-300 million in dry powder available for PE investments in the country, Josephine Price, co-founder of Anthem Asia and inaugural chairperson of the Myanmar PE&VC Association, told DealStreetAsia in a recent interview.
Table 1: Major PE funds in the market by 2019
|No.||Manager||Fund||Target/Total fundraise||First close|
|1||Daiwa PI Partners||Venture Fund||$30M||NA|
|2||Ascent Capital Partners||Ascent Myanmar Growth Fund I||$100M||October 2018|
|3||Anthem Asia||Myanmar SME Venture Fund||$50M||August 2018|
|4||Belt Road Capital Management||Fund II||$100M||NA|
|5||Delta Capital Management||Myanmar Opportunities Fund II||$70M||Fund closed, 2018|
The year also recorded an increase in deal-making activity. There were six private equity deals in the market in 2018, totaling about $64 million, according to public data. In 2019, the number of announced investments rose to eight, of which the value of six disclosed deals crossed the 2018 level.
“Though the [investment] sizes may be [generally] small now, we feel Myanmar is steadily gaining attraction from investors,” commented Alok Kumar, CEO of online travel and ride-hailing firm Oway, which raised $14.7 million in 2018 and is looking to raise its next round.
Table 2: PE deals in Myanmar in 2019
|Shwe Property||Proptech||EMIA, 500 Startups, Simon Baker, Vostok New Ventures, others||$3M|
|Royal Golden Owls||Lifestyle and fashion||Daiwa PI Partners||$4.5M|
|Yankin Kyay Oh Group of Companies||F&B||Yoma Strategic Holdings||$12.6M|
|Frontiir||Telecommunications and IT||CDC Group||$30M|
|Frontiir||Telecommunications and IT||Delta Capital Management, IFU, Norfund||NA|
|KEB Hana Microfinance||Financial services||International Finance Corporation||$13M|
|Shan Orchard Myanmar||Agritech||Anthem Asia||$1M|
|Yoma Bank||Financial services||International Finance Corporation||5%|
Financial services attract investor attention
Financial services are seen as the most appealing sector to investors keen on the country and will continue to stay robust in terms of attracting new capital.
Financial services have become the top sector of focus for general partners such as Delta Capital Myanmar and Daiwa PI Partners.
“Myanmar comes from a low base of financial services penetration and infrastructure. But regulations are improving, the people are going digital, and retail consumption is becoming much better,” Nick Powell, firm’s managing partner, opined.
According to Savoeung Chann, CEO of DO Microfinance – a newly established joint venture with Japanese investor Daiwa PI Partners, Myanmar has about 200 microfinance institutions, but only around 30 of them operate at a scale of serving more than 100,000 customers with a loan portfolio of more than 10 billion kyats.
That translates into a lot of opportunities to transform the sector. “Financial service model in Myanmar can be embedded with social impact. That’s a big opportunity for us,” said Chann.
In addition to personal financing, DO Microfinance will provide loans to small and medium enterprises, which is an unmet demand in the market.
International Finance Corporation has also been an active investor in the space as it made a $13-million investment in KEB Hana Microfinance and acquired a 5 per cent stake in Yoma Bank.
“2020 is the year where investments made in past years will start flourish. We can expect new sectors like insurance to start taking off commercially which would propel economic activities in Myanmar,” said Kumar.
Myanmar 2020 outlook
The general election due in late 2020 is probably the most anticipated event in this frontier market. Investment sentiment will slow down, and the country will see less significant investment activity, opined Jumpei Nakamura, Daiwa PI Partners’s director of international investment.
Nakamura acknowledged that it was difficult for foreign investors in Myanmar as there were processes unwritten by law. However, he said PE firms in Myanmar “are making efforts together to activate the market”.
“We believe there are things we can do to educate Burmese companies about private equity investment and the benefits for them upon receiving the support of private equity investors.”
In fact, fund managers in the country are positive that the political situation will be stable.
“Generally, the political and macro background in Myanmar now is the most stable that it has been,” added Delta Capital’s Powell.
2018 was a tough year in terms of how investors perceived Myanmar, but in 2019, things are more stabilized, according to Ascent Capital founder Chong Chong Lim. In 2019, the same investors have started to understand that holding back is not going to help the situation, so they have started to re-engage with the country, he added.
The confidence in the market has also been boosted by a spate of major M&A deals sealed in 2019, including Golden Myanmar’s $500-million acquisition of Yangon HtanDaPin Technology Park, acquisitions in the financial sector by Nippon Life Insurance and Taiyo Life Insurance, as well as deals with local conglomerates such as the latest partnership between Philippine major Ayala and Myanmar tycoon Serge Pun’s businesses Yoma Strategic Holdings and First Myanmar Investment.
Yoma Strategic Holdings is listed on the Singapore Exchange, while First Myanmar Investment was the first stock admitted to the Yangon Stock Exchange (YSX) in 2016.
More Burmese companies are expected to list in the future, but not limited to the local stock exchange, according to analysts.
Currently, with merely five listed companies, the MYANPIX [Yangon bourse index] has plummeted by more than half, and market capitalization also went down over 33 per cent compared to its peak.
“A lot of Myanmar companies are aiming to list on YSX. But in the current situation, if they want to tap foreign capital, and for Myanmar corporations aspiring to grow not only in the country but in a wider region, Singapore is the hub,” Janeshwar Pachigolla, head of M&A at PwC Myanmar, on the possibility of overseas listings.
Advisors said at a recent summit by the Singapore Association of Myanmar that the government was offering subsidies to help local businesses to list on SGX. At the same time, the government is looking at allowing foreign investors to participate in the YSX. However, Pachigolla asserted that Myanmar still needs to get the bourse ready for more companies by improving its backend infrastructure, compliance and regulatory frameworks.
Until then, trade sale remains the most viable exit channel for investors. The fund managers are building a precursor for exits by co-investing with big foreign investors and adding value to the investees to grow them to a level where foreign institutional capital wants to invest.
“Myanmar needs patient capital. Daiwa Securities Group has been in Myanmar for 25 years, and we continue to be bullish,” said Nakamura, opining that he would expect investment returns in Myanmar at the same level with the regional markets.