Myanmar Strategic Holdings plans to raise over $4m with LSE debut next week

Photo: Supplied. Ostello Bello is a premium all-inclusive hostel present in both Italy and Myanmar.

Tourist hostel and English language training school operator Myanmar Strategic Holdings (MSH) is on course to list on the main market of the London Stock Exchange in a week even as it targets mopping up $4 million through an initial public offering, according to co-founder and CEO Enrico Cesenni.

MSH has already established a portfolio of consumer-focused businesses around Myanmar since about 2014, holding a 100 per cent ownership for the operations in the country for two brands, Ostello Bello and Wall Street English.

Ostello Bello, present in both Italy and Myanmar, is a premium all-inclusive hostel. They have established three hostels, in Bagan, Mandalay and Inle lake in Myanmar while setting sights on other regions across Myanmar.

In the education space, MSH has secured the franchise right for Wall Street English, a Pearson-owned franchise founded in Italy in 1972 and grown across Europe and very quickly to China, Thailand, Vietnam and Indonesia. In Yangon, MSH is looking to open its second branch around November this year and continues to scout for opportunities in the vocational training and other traditional education training space.

In an interview with DEALSTREETASIA, Cesenni discusses MSH’s hospitality and tourism businesses and its focus on Myanmar’s fast-growing consumer sectors.

Edited excerpts:

Could you talk about the potential of these two consumer-oriented sectors that Myanmar Strategic Holdings’ (MSH) is currently focussed on in Myanmar?

I see substantial growth in the two sectors. We decided to start in hospitality because it is one of the largest and fastest growing sectors in Myanmar and it is one of the sectors that opened up relatively quickly to foreign investment and to international travellers. When we started looking at the country in 2011, international tourist arrivals per year were about 1 million and it has reached over 4 million to date, seeing an exponential growth. On the supply side, we saw the opportunity to categorize the market that was not well covered, which was the lower end of the market. So, we introduced a product called a boutique hostel. It is an exciting concept with a mix of private and shared rooms with a sizeable F&B (food and beverages area) on the bottom or top of the building where like-minded travellers can share experiences, partake in activities, converse with one another and meet new friends. By now, we have three hostels, one in Bagan, Mandalay and Inle lake under the Ostello Bello brand, which originates from Italy. We have a fourth location opening by November in Bagan while at the same time, looking into other locations across the country such as Hpa-an, Hsipaw, Kyaik-hti-yo and others. We are evaluating all the opportunities across Myanmar, not just in hostels but more traditional products in the tourism market. It could be tours and activities that are meaningful for people to come to Myanmar more than once in a year. The problem today is people come to Myanmar once in a year and in order for Myanmar to be successful in tourism, they need to come more than once a year. The same way that happens in Thailand.

(For the education space) The reason why we decided to invest was that we wanted to build an exposure on the soft infrastructure of the country. People focus on degrees and higher education but I think the basic ones are vocational training and language training. We thought English will be in fact a great opportunity to capitalize on this and we also think Wall Street English is an established brand that has been the best in Asia over the past few years. All of the franchises across different countries have been very successful and we think there is an opportunity to do the same in Myanmar. Anybody coming into our school, by within a few months or year, can really see changes in life through English.

Are you open to investing in other consumer sectors in Myanmar?

The vision for the group is to be a strong consumer-focused company that will give its investors an exposure to the consumer market in Myanmar and in particular to the growth in disposable income and discretionary spending overtime. We are indeed looking at other sectors within the broader consumer space. I see good opportunities in retail, but in a way growth is also constrained due to factors like infrastructure and the spending power of the people.

What are the fast growing segments or verticals that are attractive to you?

In general, Myanmar starts from such a low base, that there is so much opportunity to grow across multiple sectors. Tech will grow but in order for tech to be successful, you need to have an ecosystem around. On the other hand, I see the opportunity to bring technology across multiple sectors and accelerate growth. There are a lot of opportunities to bring new technologies into the traditional sectors.

MSH leverages its entrepreneurial expertise working in the frontier markets to develop business. Can you explain more?

MSH’s expertise is mainly in Myanmar. We have investors who have invested before in growth markets in Asia and in Europe. We have a team which is by now mainly locals (180 staff). Most of these people have incredible experience in Myanmar and I think we can offer this to our investors.

What is the ticket size you usually put in the investee companies?

We do a lot of greenfield (investments) in a way. We create businesses from scratch and we are entrepreneurs. As a developer and operator of consumer businesses, we look at any investments from zero to about $20 million and we usually take a majority stake. We typically operate the business directly. We are potentially open to do other things in the future, mainly business with strong entrepreneurs who also wants to run the business on a day-to-day basis.

We bought exclusive rights as a franchise for the businesses in Myanmar which we have built from scratch.

 How much stake would you prefer to hold in a company?

Today, we own 100 per cent in all the businesses. But we could be open to have smaller stakes. We are not interested in taking minority stakes because we really want to build a stronger group and we want to make sure that we control our investments.

What do you look for in potential investee companies?

I think we are looking for an ideally solid and clear position in the market. We are looking for people who have been established here for a while. Ideally, we are looking for something that has a knowledge component in it and a premium positioning. One of the important traits of both hospitality and education is that we bring in new products to the market and we try to bring the best possible product for a certain category. We are a premium operator, even in the budget category.

Looking at the PE/VC space in Myanmar and the startup ecosystem, what kind of contributions do you find is required from both the private and the government side?

It won’t be taking long before these spaces pick up. There are many other priorities (for the government) starting from peace to power before you get into startups which is a totally deregulated market. On the other hand, I do see an opportunity to test things and grow without being necessarily pushed by stronger regulators.

I also think there is a great opportunity for local startups to participate and collaborate with international players. My only concern and advice is not to focus on copycats and global models. I think people should really understand and build on their competitive advantage. It doesn’t necessarily be IP but it should be a solid advantage because all these companies will come.

What are you plans about becoming a listed company?

We plan to list in a week’s time on the London Stock Exchange’s main market.

There are three main risks linked to investing in Myanmar: market risk, limited liquidity and lack of transparency. Being listed gives you a little bit of liquidity. It is not tremendous liquidity when you are young but it gives some liquidity. Finally, there is transparency. Myanmar is a market that has a bad PR in the past so the question is how can you make sure that the people feel confident that you have a good reputation, an independent board and experienced professionals. A listing also brings to the company access to capital markets so as we approach larger projects in the future, MSH will have more access to finance and a very good way to position ourselves to become a potential partner which could bring good value to anybody working with us.

Because MSH is only focused in Myanmar, do you think the investors in the West will show interest to buy the shares?

Absolutely. Hundred per cent. The more I think about it, the more I realize that there is more interest in Myanmar from European investors than from Asian investors. An interesting thing for Myanmar is that you have the potential to revert to being one of the richest countries in Southeast Asia, as this was the case after the second world war.

How’s the issuing of an IPO going to be?

Our market capitalization will be about $23 million and we are raising $4 million. So it will be about 19 per cent of the capital. All of that has already been confirmed and should be finalised shortly.

Could you talk to us about your existing investor base?

They are mainly high net worth individuals from Europe, family offices, people who saw the opportunities in Myanmar and are committed for the long term. This is an important point as we are really looking for people who are committed to Myanmar for the long term. The key employees are also investors in the company. I’m being one of the investors, we are all based in Myanmar and even for the foreign employees, we all spend our time here and really pushing the business every single day.

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