In 2010, Thura Ko Ko returned to Myanmar to join the country’s fledgling private equity market, leaving behind his investment banking career in Hong Kong.
“Funds from the region wanted to add Myanmar as an additional geography […], having expected it to be easy to find some great deals, quickly raise a fund, and get going,” Ko Ko recalled.
However, fly-in-fly-out doesn’t work in a market like Myanmar. Throughout the years, only a few funds with a presence on the ground have stayed in this market.
For overseas investors like the US-based TPG, who had struck big-ticket deals and even sizeable exits in Myanmar, the option has been partnering with local strategic advisors such as Ko Ko’s YGA Capital. CDC Group, which is also a client of YGA Capital, recently doubled down its commitment in this frontier market with the appointment of its country manager.
Even as they scout for opportunities, the funds have to leap over a big hurdle: lack of talent.
Looking for talent in the investment space in Myanmar is like finding a needle in a haystack. “There isn’t a huge amount of knowledge on the Myanmar market outside of Myanmar,” said Nick Powell, managing partner at Delta Capital Myanmar, pointing his finger to limited access to information.
Therefore, investors would need onsite infrastructure and a team to work on due diligence and portfolio management in the country.
It has been backed by data that investors with local connections have kept deal flows in the country stable while the world is at sixes and sevens.
Major investments in Myanmar in 2019-20
|2019||Yoma Strategic Holdings, First Myanmar Investment||Multisector||$238M||Ayala Corporation|
|Shwe Property||Technology||$3M||EMIA, others|
|Shan Orchard||Agribusiness||Over $1M||Anthem Asia|
|Kargo||Logistics||$800,000||Cocoon Capital, others|
|eSchool||Technology||$700,000||Blue Tech Venture, others|
|Royal Golden Owls||Technology||Undisclosed||Daiwa PI Partners|
|Frontiir||Telecom||Undisclosed||Delta, IFU, Norfund|
|DO Microfinance||Financial services||Undisclosed||Daiwa PI Partners, OK Myanmar|
|2020||Yoma Bank||Financial services||$88.7M||GIC, Norfund|
|Wave Money||Financial services||$73.5M||Ant Group|
|Frontiir||Telecom||$26M||Ascent Capital, others|
|Proximity Finance||Financial services||$14M||Finnfund, Nordic Microfinance Initiative, Proparco|
|CPC Plastics||Manufacturing||$12.6M||Delta Capital, Daiwa PI Partners|
|Asia Royal||Healthcare||$12.2M||Deutsche Investitions- und Entwicklungsgesellschaft|
|DAWN Microfinance||Financial services||$7.5M||FMO|
|Yoma Micro Power||Energy||$7M (plus $50M loan)||IFC|
|Myanmar Strategic Holdings||Multisector||$6M||Verlinvest|
|SolarHome||Energy, Tech||$2M||Trirec, Insitor Partners, Anthem Asia, others|
|Bagan Innovation Technology||Media||7-digit USD||Kyuu Roku, Hotto Link, UMJ Ikeya|
|NearMe||Technology||7-digit USD||Sumitomo Corporation|
If general partners are committed, Myanmar actually presents huge opportunities because the country’s private sector needs capital to grow to the next level.
“Most of the venture capital money in Myanmar has gone into very early-stage funding, and there hasn’t been a lot of follow-up capital as yet,” asserted Josephine Price, chairwoman of the Myanmar PE & VC Association and co-founder and managing director at the women-led fund management group Anthem Asia.
She observed that some general partners (GPs) from Singapore have been looking at Myanmar, particularly in the education and healthcare sectors, but the process has been slow for them because of COVID-19. “The sample size of VCs in Myanmar is too small to say whether it is working or not,” Price added.
Thanks to the country’s extensive reforms and investment in telecom infrastructure, Myanmar saw a 126 per cent mobile phone penetration and 41 per cent internet penetration by Jan 2020, according to the ‘Digital 2020: Myanmar’ report by We Are Social and Hootsuite. The development has propelled business ideas and investment interest in technology, which accounted for the majority of deals in both 2019 and 2020.
Meanwhile, new opportunities, that the market did not experience earlier, are also emerging.
Delta Capital’s Powell, whose firm is raising a $100 million third PE fund, said he will be looking at control deals for the vehicle. In fact, Delta Capital struck its first control investment in Commercial Plastics Company in October this year through its current vehicle.
In sectors like logistics and healthcare, the market remains fractured, yielding potential to consolidate and create national champions, Powell opines.
Price added that PE firms might also find access, which they did not have before, to some family businesses that have good fundamentals, but now need money to cover their working capital and expansion plans because of the pandemic’s disruption.
The health crisis has also created some distress opportunities for certain funds. 9Basil, a new Southeast Asia PE platform based in Thailand with a focus on distress, has a pipeline in several markets in the region, including Myanmar. While deals are put on hold due to travel restrictions, 9Basil’s co-founder Kris Panijpan said the firm will set up a local team once things normalise.
“The areas we’re looking at the most in Myanmar are telecom, energy, infrastructure and financial services. We’ve already talked to some people [as potential hires], but I think it will take a little bit of time before things get settled,” he said.
The talent challenge
Myanmar is still “a very thin market” when it comes to investment professionals, said Price from the Myanmar PE&VC Association, which was founded with a mission to provide training within the industry, among other things.
“Even if you add up all the employees of our members, it’s a small community – we all know each other,” she said. “It takes time to encourage local people that by being involved with private equity, they’re part of a very big, exciting industry that will help build and develop businesses and bring prosperity in what we expect to be a key Southeast Asian economy.”
Part of the association’s job is to connect members’ employees to the wider investment world, showing them that the PE investment space is a career that people want. “But there is no quick fix to that,” Price lamented.
According to a survey by local HR company JobNet, released earlier this year, 72 per cent of CEOs from local and international firms were of the view that the most challenging obstacle for their businesses in Myanmar was finding and retaining good talent.
While acknowledging that the quantity of candidates has increased, the survey indicated that the quality of the workforce has not come up to employers’ expectation.
Overall, education — be it tertiary or vocational training — is one of the elements holding back the Myanmar economy, according to Ko Ko. “It has changed over the past four to five years, but there is still a whole lot more to do. We need to get more and more people up the management level, and in larger businesses as well,” he elaborated.
“The scarcity of well-educated and skilled workers is exacerbated by an education system that does not focus on developing the widening array of skills needed in a modern economy,” the ADB’s Asian Development Fund said in an update on Myanmar in November 2019.
Decades of underinvestment in education and training threaten to trap the local economy in a low value-added model and has left large numbers of youth underemployed and unable to benefit from, and fully contribute to, Myanmar’s transformation, the ADB report added.
The regional development bank is helping Myanmar tackle this challenge through a slew of initiatives and sponsorships to cover the country’s Sustainable Development Plan by 2030, which includes assisting at least 4.4 million youth with the flexible soft skills needed in a modern economy, as well as vocational training programmes.
Bradley Kopsick, Myanmar country manager for Insitor Partners, which deploys venture capital funding in emerging and frontier Asian markets, says there has been a growing emphasis in Myanmar on teaching critical thinking skills at younger ages. “If this is continued in the coming years, we will see a growing pool of qualified and skilled professionals coming to the sector,” he asserted.
A long-term market
Given the status of a frontier market, which opened up only in 2012, Myanmar requires patient capital. In this regard, talent hunt is an immediate head-scratcher, but that will change over time.
“The training and events and networking activities [organised by the Myanmar PE&VC Association] have helped to build relationships and foster camaraderie within the investment community, and also to highlight the growing number of funds and investment professionals in the sector,” commented Kopsick, who is also a member of the association.
While it would take several years down the road to see a major shift in the labour force, there are new paradigms to help investors adapt to the post-COVID-19 world to continue investment activities.
“We’re getting much more used to doing due diligence on Zoom. Investors are getting smarter. And I think Myanmar should benefit from that,” Price reckoned.
Her association will be launching a deal share platform to help highlight companies in the country that are looking for funding from overseas investors.
Deal making looks like pausing because it is taking longer to execute, and general partners also need to concentrate their resources on supporting their existing portfolio, but Price said the funds were wearing two hats. Deal flow is still strong and local funds are looking for new opportunities.
What history has taught us is that crises — even as they made it harder to invest — is actually the right time to invest. Cases in point for this include FedEx to technology giants such as Microsoft, Netflix, and Airbnb.
Closer to home, the past recessions have created Southeast Asia’s unicorns and soonicorns of today including Singapore’s Sea Limited, Indonesia’s Tokopedia, and Vietnam’s VNPAY and MoMo.
“From a global PE perspective, if you look at private equity performance on a deal basis and go back about 10 or 20 years to previous financial crises, you’ll find that people who invest now will get better returns,” Price said.
Myanmar opened up its economy to the world much later than other parts of the region, which also made it less impacted by global turmoils. But going forward, the country will inherit the development pattern that its ASEAN peers have experienced.
“Vietnam was a frontier market itself 5-7 years ago. Now it has grown and become one of the most attractive markets,” Navis Capital’s senior partner David Ireland said during the Asia PE-VC Summit in November.
The Kuala Lumpur-headquartered manager is raising a $150 million Navis CLMV Co-Investment Fund, which will look at buyout deals in CLMV countries and will co-invest alongside Navis Asia Fund VIII.
“We’re interested [in frontier markets] because we’ve been down this path in other countries, and it’s become more mainstream,” Ireland said.
Which is also ratcheting up confidence in the Myanmar market is political certainty secured by the second landslide victory of the National League for Democracy.
“It gives them a very strong mandate to continue reforms and liberalisation. Myanmar has relative political stability, so the risk profile of politics is considerably different now,” commented Powell.
That means Aung San Suu Kyi’s ruling party can continue carrying out its goal under the Myanmar Investment Promotion Plan to attract more than $200 billion investments over the next two decades.
“It’s a massive advantage,” Powell burst out. “You’ll see especially continued reform in financial services liberalisation, and a big build-in infrastructure. Those two things alone are going to power the next leg up in economic growth.”
More stability would also ginger up new investment interest, according to Ko Ko. “You will find new private equity names coming in, including larger ones, who have been looking at Myanmar from afar to see what was possible,” he remarked with hope.