Summary: Welcome to the eighth edition of BLP's monthly Myanmar update in 2017. We have distilled the top news items into this summary 'speed read'.
New Companies Law Bill passes Upper House
On 27 July 2017, the Upper House of Parliament passed the new Companies Law Bill (“Companies Bill”) in an amended form to that introduced. The revised Companies Bill has been sent to the Lower House of Parliament for its consideration and if no further revisions are made and if the President approves the draft, will be passed as law.
The revisions to the previous draft of the Companies Bill, which are for the most part minor, include the following:
- simplified changes to requirements of holding companies in reporting the financial statement of its subsidiaries;
- the deletion of transitional provisions relating to the appointment of an ordinarily resident director and the appointment of an ordinarily resident authorised officer to an overseas corporation; and
- clarification that provisions relating to foreign companies in the Companies Bill do not affect the present operation of the Transfer of Immovable Property Restrictions Law 1987 which prohibits foreigners (including foreign companies) from owning freehold, having a land grant or entering into leases for longer than 12 months.
Members of the BLP team were engaged to undertake the drafting of the new Companies Bill and to lead the consultation process. See our review of the new Companies Bill (in English and Burmese) explaining its effects on companies operating in Myanmar.
If passed, the Companies Bill would replace the Myanmar Companies Act 1914 and would require companies in Myanmar to change their affairs to comply with the new law, for example, to now appoint a Myanmar resident director. Companies will be required to comply immediately in some cases and in others, during a specified transitional period. Other new provisions would also come into force which do not require any changes to a company’s affairs but could provide benefits if such changes are made. We would be happy to provide you with further advice on how you prepare for this significant change to the legal environment.
International trade relations update
U Aung Naing Oo, the Director General of Directorate of Investment and Company Administration (“DICA”), has announced that Myanmar is presently negotiating an Investment Promotion and Protection Agreement with Singapore, which would mutually protect the rights of investors and promote business and diplomatic relations between the two countries. The first round of negotiations occurred in Yangon on 7-8 August 2017 with a subsequent round scheduled for October. It is intended that negotiations be finalised by the end of the year. Singapore was the largest foreign investor in Myanmar as at March 2017 according to DICA figures.
We have previously reported in our May 2017 postcard on the negotiation of the European Union Investment Protection Agreement which is expected to be ready for signing early in the new year.
Myanmar will also likely benefit from “Belt and Road” funding facilitated by the Association of Southeast Asian Nations (“ASEAN”) and Hong Kong Free Trade Agreement. The negotiations, which are still ongoing, are expected to be finalised by the end of the year after three years of debate. It is expected that the increased access to Hong Kong, an international financial hub, and indirectly to China, will increase economic growth in Myanmar, particularly in the agricultural, manufacturing and infrastructure sectors.
Banking and capital markets update
A senior executive manager of the Yangon Stock Exchange (“YSX”) has announced that YSX is presently in negotiations with the Central Bank of Myanmar (“CBM”) and the Budget Department, Ministry of Finance to permit trading of Myanmar government treasury bonds on the YSX. Presently only Myanmar financial institutions are permitted to purchase such bonds directly from the Union government through a recently introduced competitive auction process with other market participants, such as insurance companies, not being not permitted to purchase them. Recently issued treasury bills and treasury bonds have a tenor of between 3-12 months and 2-3 years respectively, with a coupon range of 7-9 percent. A secondary market for these products would likely deepen capital markets in Myanmar as there is presently no corporate bond market to speak of and they would offer an alternative source of government funding, decreasing reliance on CBM funding. We have previously written on the Myanmar lending environment in our May 2017 postcard.
On 24 July 2017, Yoma Bank and Kanbawza Bank undertook Myanmar’s first interbank repurchase (“repo”) transaction which was processed through the new CBM clearing and settlement system CBM-NET. Repo transactions involve the sale of government securities on a short-term basis on the agreement that they be repurchased in the near future for a set rate. Repo transactions typically offer a higher yield than other investment structures and whilst the market is in its initial stages, it is reported that AYA Bank, CB Bank and Australia and New Zealand Banking Group intend to increase their participation in this space. This is an exciting development and it is hoped that a more developed interbank market, including any future participation from insurers, will increase liquidity.
In other news, on 15 August 2017, 55 public companies (including some listed on the YSX) were given permission by DICA to trade their shares on the over-the-counter (“OTC”) market. The Securities and Exchange Commission has clarified that its approval must also be sought pursuant to the Myanmar Securities Exchange Law. Presently only two companies, Yangon Bus Public Company and Myanmar Agro Exchange Public, are permitted to sell shares on the domestic OTC market.
Updates on recent SEZ activities
China and Myanmar are likely to sign a Memorandum of Understanding (“MoU”) relating to a national-level framework for a deep-sea port project in the Kyaukphyu Special Economic Zone (“SEZ”). It was previously understood that China’s CITIC consortium intended to take an 85% stake in the project but following recent negotiations it is expected that the deal will result in a 70% stake for CITIC and a 30% stake for the Myanmar consortium, which comprises 53 local companies.
CITIC controls two out of three projects to develop Kyaukphyu SEZ, which started in 2015 with a 35-year project timeline and a total value of US$10 billion. The projects at the Kyaukphyu SEZ include the deep-sea port, located on the Bay of Bengal, and an industrial park. However, to date only two small dams have been constructed and a land survey in relation to the industrial park has been undertaken.
Following the signing of the MoU, there will be seven new available contracts, but negotiations for these are expected to take around a year and a half.
Commercial operations have also begun at the Thilawa SEZ, with 32 companies commencing operations there. A total of 87 companies from 17 countries have invested in Zone A of the Thilawa SEZ, 69 of whom are in the process of building factories in preparation for commencing operations. The first phase of Zone B, which includes 101 hectares of land, is estimated to be completed in mid-2018, and investors will be invited to rent plots at the end of 2017. The total value of investments into the Thilawa SEZ by local and foreign companies has reached US$1.14 billion.
Offshore opportunities following gas discoveries
Earlier this month, gas was discovered by Woodside Petroleum at Block A-6 off the coast of southern Rakhine State at water depths of up to 4,570 metres. This was the deepest gas well ever drilled in Myanmar and follows on from two earlier findings in the same area over the past five years.
Discovering gas is a start but infrastructure for the production, storage and transportation of gas must also be developed, in particular, new pipelines, deep-water ports and liquefied natural gas terminals. In an initial step, the Myanmar Investment Commission (“MIC”) recently approved an application by Myanmar Chemical & Machinery Company to build an offshore supply base on nearby Made Island, Rakhine State which will assist the flow of supplies and personnel for deep-water gas production. Several other offshore supply bases have also recently received approval in the Ayeyarwaddy Region and Mon State (the latter on a 50 year Build-Operate-Transfer basis). Presently the closest international standard offshore supply bases are in Singapore and Thailand and the presence of local Myanmar bases will significantly cut down cost and time associated with drilling.
UK businesses looking to invest in Myanmar's railways and airports
In a country with a great need for new infrastructure, the news that UK businesses are keen to leverage their expertise to support Myanmar's transport and infrastructure development is significant. Andrew McNaughton, the UK Prime Minister’s Business Ambassador for infrastructure recently visited Myanmar, following on from a scoping visit conducted by the Department of International Trade (“DIT”) in December 2016 and has spoken to the press this month regarding the UK’s interest and future role in Myanmar infrastructure, commenting that Myanmar may benefit post Brexit.
The December DIT visit identified a number of infrastructure projects as good opportunities for British firms to work alongside local partners. The sectors studied in the May follow-up visit included transportation, water and healthcare infrastructure. Myanmar’s transportation sector, especially rail and aviation, is reported to be of most interest to UK business in the short term to assist connectivity between cities (and therefore logistics) and Yangon’s urbanisation.
British expertise in project finance and management, urban planning and professional services will be valuable to Myanmar’s infrastructure pipeline in the long term, with expertise in the development of legal and regulatory frameworks a necessary first step to attracting foreign capital.
In keeping with this interest, the Ministry of Transport and Communications, Department of Civil Aviation has recently released an Expression of Interest (“EOI”) with respect to the development of three airports to be delivered under a Public-Private Partnership (“PPP”) model. The EOI contemplates that Heho, Kawthaung and Mawlamyine airports would be developed, financed and operated by a consortium of local and foreign companies. EOI documentation will be available in English from 4 September until 8 September 2017 and all final EOIs must be submitted by 13 October 2017. Please get in touch for further information.
New Industrial Design Rights Bill
A new Industrial Design Rights Bill (“ID Bill”) was published in government newspapers for public consultation on 27 July 2017 in a move to bolster the country’s rather limited intellectual property rights protections. Included in this move is the introduction of a suite of other intellectual property bills including the Patent (Right for Innovation) Bill and the Trademark Bill which we will provide commentary on in due course.
The ID Bill, which repeals the Myanmar Patents and Designs (Emergency Provisions) Act 1964, aims to protect the rights and interests of industrial design owners and creators, thereby supporting industry and the development of industrial design technology. If passed, the Union Ministry of Education would oversee the new law and would establish a new department and an Intellectual Property Rights Committee to regulate intellectual property rights, including to make recommendations about Myanmar’s entry into relevant international intellectual property treaties and conventions. A system of registration of industrial design rights is contemplated in the ID Bill as well as specifications about which industrial designs will and will not be afforded protection. The ID Bill sets out the permitted uses of industrial design rights as well as penalties for intellectual property misuse. Industrial design rights would be protected for an initial 5-year period, renewable up to a maximum of 15 years.
Tax exemptions on specific goods approved
On 8 August 2017, Parliament approved an exemption to special commodity tax (“SCT”) for diamonds and emeralds for the 2017-2018 financial year under the Union Tax Law 2017 (“Tax Law”). The production, sale, export and import of emeralds and diamonds would otherwise attract SCT at a rate of 10% (raw stones) and 5% (processed stones) respectively. Diamonds and emeralds set in jewellery will still attract commercial tax at a rate of 5%. Gold nuggets were also announced to be exempt from commercial tax for the same financial year.
The Tax Law provides tax exemptions for 87 basic commodities such as rice and beans, but Parliament has discretion to exempt further items. These recently announced exemptions are a reflection of this. The move is intended to develop the jewellery manufacturing and gem processing sector and to reduce informal import of precious gems by reducing the tax burden of legal trades. The removal of commercial tax on gold nuggets is intended to increase liquidity of gold nuggets, which can now be used as collateral for bank loans.
We have previously written on the tax treatment of precious gems in our March 2017 postcard.
MIC investor services update
The MIC announced on 21 July 2017 that it would establish a One Stop Service Board (“OSS Board”) pursuant to the Myanmar Investment Rules, facilitating a “one stop” service for foreign investors in Myanmar.
The OSS Board is comprised of 14 representatives from various Ministries and is led by U Than Aung Kyaw, Deputy Director General of DICA. The OSS Board is charged with providing guidance to investors, accepting submissions from investors on behalf of various governmental Departments and Ministries, assisting the Investment Assistance Committee to deal with investment grievances from foreign investors or local aggrieved parties and to accept requests for information from investors regarding governmental decision making.
The MIC has further announced the establishment of an Investment Assistance Committee and a Proposal Assessment Team, which were each envisaged by the Myanmar Investment Rules. The new Proposal Assessment Team will assist MIC to review applications and to screen investment proposals in accordance with the Myanmar Investment Law and is led by U San Myint, Deputy Director General of DICA. The new Investment Assistance Committee, led by U Toe Aung Myint the Permanent Secretary of the Ministry of Commerce, will have a liaison role in implementing foreign investment and resolving any disputes. A formal dispute resolution mechanism is to be established within two years.
Personnel update – CBM and Ministries
On 14 August 2017, the President of Myanmar announced the new CBM Board of Directors following approval by the Lower House. The Board consists of U Kyaw Min Tun (an incumbent), U Myint Thein Tun, U Soe Paing, Daw Yi Yi Win and Daw Khin May Hla. The term of a CBM Directorship is 4 years and candidates are not permitted to serve more than 2 consecutive terms. Three new Deputy Governors of the CBM were also appointed.
On 31 July 2017, U Set Aung was appointed as new Deputy Minister of Planning and Finance, having previously held the same role in 2012-13. It was further announced that U Win Khaing, Minister for Construction would be permitted to perform the role of Minister of Electricity and Energy whilst retaining his existing role at the Ministry of Construction. U Phay Zin Tun, the previous Minister of Electricity and Energy resigned on 1 August 2017.