irrawaddy14 June 2013

Photo: Inside the headquarters of KBZ Bank, one of Burma’s largest (and most transparent) public companies (Alex Bookbinder).

(as Marcus J. Butler)

Thura Swiss, a Rangoon-based economic research and consulting firm, on Thursday released the first equity research report to ever be written about a Burmese company.

The report is the first in a planned series, according to Thura Swiss chief executive Aung Thura, and is intended to encourage more transparency in Burma’s equity markets and to help investors make informed decisions.

The report, on Burmese tycoon Serge Pun’s First Myanmar Investment Company (FMI), details the company’s historic financial performance and future prospects, assigning a “hold” rating to the company’s shares.

There are currently very few public companies incorporated in Burma. Most of these were formed after October 2012, in the wake of new rules passed by the Directorate of Investment and Company Administration (DICA) making it easier for them to form.

But in Burma, even public companies remain shrouded in secrecy. “There are companies here that are public, but nobody knows anything about them,” Jeremy Rathjen, vice president of research at Thura Swiss and the author of the report, told The Irrawaddy. “It’s kind of a strange dichotomy—you’re public, but you’re not really public.”

While a bourse known as the Myanmar Securities Exchange Center (MSEC) has been operating in Burma since 1996, it only trades shares for two listed companies. Poor infrastructure means shares are traded the old-fashioned way: on paper at the center itself.

Shares in the majority of Burmese public companies not listed on the exchange are generally traded in private, among small groups of investors. A lack of developed capital markets means that Burmese companies also tend to turn to informal channels for financing. The opacity of these funding sources raises the specter of corrupt practices and money laundering, underscoring the importance of establishing modern and accountable capital markets in Burma.

Despite the speculative hype surrounding Burma’s “frontier” economy, foreign investment has been slow to actually arrive. President Thein Sein claimed in May that Burma attracted US$1.4 billion in foreign investment in the fiscal year 2012-13, a tiny fraction of the incoming capital that will be needed to jumpstart Burma’s long-moribund economy.

A large reason for this slow investment is a lack of reliable information about local companies available to prospective investors, says Rathjen. “It’s a good thing to be more transparent because they [local companies] will attract more investors,” he said. “If you’re not transparent, you have a small group of friends or whatever, they might invest in you because they know you. But if you want to attract more capital, from the public, you need to… show people what you’re doing. We see ourselves as trying to push in that direction.”

FMI is a subsidiary of Serge Pun & Associates (SPA), a sprawling conglomerate chaired by Serge Pun, one of Burma’s most prominent tycoons. Pun’s companies are already reputed among observers of Burma’s economy for their transparent business practices, and Rathjen admits that Thura Swiss’ future research subjects might not be as forthcoming with accurate data. “FMI has been very transparent and helpful to us, so they’re maybe easier [to analyze] than some other companies are going to be. So we’ll see how it goes,” he said.

Burma’s anemic securities exchange is set to be replaced in 2015 by a brand-new, computerized stock exchange, which will be established using funds and technical expertise provided by the Tokyo Stock Exchange and Daiwa Securities Group, which helped set up the existing bourse. The establishment of the exchange should serve as an important step toward developing functional capital markets in Burma, but Rathjen says barriers to entry will be high. “We’re only expecting maybe five to six companies to be listed [at first],” he said. “From our conversations with Daiwa and other key players, we know that the requirements to list are quite stringent.”

A draft of the rules for companies to list on the exchange include a minimum capitalization of 500 million kyat (US$5.3 million), as well as two years’ proven profitability. “There are all these requirements that we think a lot of companies will probably not be able to meet,” Rathjen said.

By issuing equity research reports on companies that are either unable or unwilling to list on the new exchange, Thura Swiss hopes to promote good corporate governance and accountability. “So should we say that because you’re not listed, transparency isn’t important? I don’t think so,” Rathjen said. “In terms of those companies that don’t list, or have other plans, we still want to encourage transparency for them.”

Whether Thura Swiss can convince more of Burma’s secretive public companies to expose themselves to this kind of scrutiny remains to be seen.

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