Freshfields Spotlight on Myanmar gives you the latest updates on Southeast Asia’s most recently emerging economy. Prepared by a former Freshfields lawyer who is now our consultant on-the-ground in Yangon, Freshfields Spotlight on Myanmar keeps you up-to-date with the key business, legal and political developments in the country.
The Business Section
The Central Bank of Myanmar (CBM) has announced that it will grant a further three to five licences to foreign banks to operate in Myanmar. Last year the CBM licenced nine foreign banks. FollowingANZ’s opening in January this year, all nine have now opened their Yangon branches. The announcement to award new licences so soon after the first round took local and international banks by surprise with many foreign bank representatives claiming that there is not enough business to go around the existing nine lenders. The international banks may only lend to local banks and foreign-invested companies limiting their pool of potential customers. The CBM has announced that banks headquartered in countries from which there is already a representative bank cannot apply in the second round. This rules out lenders from Australia, China, Japan, Malaysia, Singapore and Thailand. Applications are expected from banks from India, Vietnam, South Korea and Taiwan after lenders from those countries missed out in the first round.
A small step has been taken towards the availability of a financial product to hedge the currency risk associated with the Myanmar kyat. Sumitomo Mitsui Banking Corporation (SMBC), one of the Japanese banks which won a licence to open a branch in Myanmar last year, and Kanbawza Bankof Myanmar announced that they have provided a client with a contract to fix the Myanmar kyat to US dollar exchange rate in the future. SMBC stressed that this product is not generally available to its customers and involved only US$100,000 over a period of two weeks. The kyat has remained weak against the US dollar this year after it lost around a third of its value in 2015. Businesses with kyat exposure are eager to limit their currency risk though there is currently no generally available product to
enable them to do so.
Oil and gas:
Woodside Petroleum has announced that its Myanmar joint venture has discovered off-shore gas off the west coast of Myanmar. The company, which operates in Myanmar through a joint venture with Myanmar exploration company MPRL E&P and a different joint venture with BG Group, said that it has found “evidence of a working petroleum system in the Rakhine Basin deep water”. While global oil and gas prices continue their historic slump, 2016 is set to be a busy year for exploration in Myanmar territorial waters in the Bay of Bengal as exploration begins pursuant to several production sharing contracts signed in 2015 between the Myanmar government and multi-nationals such as Woodside, BG Group, Royal Dutch Shell, Total and Eni.
The Legal Section
Before the newly elected members of parliament took up their seats on 1 February 2016, the previous parliament sat for a final session, during which they passed some highly anticipated laws.
The Arbitration Law has been signed into law by Myanmar’s president, ratifying the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards which Myanmar signed in March 2013. Freshfields’ International Arbitration Group has prepared a special briefing which is available here.
It has been reported that parliament also passed the Condominium Law. The text of the act is not yet available pending it being signed into law by the president. The law will allow foreign investment in condominiums with certain restrictions. Previously, it has been illegal to transfer any ownership of immoveable property to foreigners. Supporters of the act argue that allowing limited foreign ownership will provide a huge boost to Myanmar’s economy. Land and apartment prices in Myanmar’s main cities saw a boost following the move to civilian government in 2011 but have stagnated in recent years with limited local demand. Press reports state that up to 40% of a condominium development may be purchased by foreigners. We will provide more details regarding this law once the text is published.
Financial Institutions Law:
The press has also reported that parliament has passed the Financial Institutions Law which is awaiting the president’s signature. The law reportedly provides for more stringent capital and reserve requirements for the country’s banks. Press reports state that banks must now meet a minimum capital requirement of 20 billion Myanmar kyats (US$16 million) and retain 5% of customers’ deposits as cash. The law is expected to bring Myanmar into line with the framework established by the Basel Committee on Banking Supervision.
The Political Section
NLD begins filling key roles:
Following their victory in last year’s elections, the National League for Democracy announced its nominations for speakers of both houses of parliament ahead of the first sitting of the new parliament which began on 1 February. Given the NLD’s majority, the appointments are expected to be confirmed now that parliament has convened. U Win Myint will be speaker of the lower house. One of Aung San Suu Kyi’s close confidantes, U Win Myint is a lawyer who was jailed for his role in the 1988 uprising. Mahn Win Khaing Than will be speaker of the upper house. He is well-known in the country for being the grandson of Mahn Ba Khaing, who was assassinated in 1948 alongside Aung San Suu Kyi’s father, General Aung San. Mahn Win Khaing Than is a Christian from Kayin State and is seen as fulfilling Aung San Suu Kyi’s promise to bring ethnic diversity to parliament.
Speculation is rife in the press and on social media as to the identity of the people who will fill the top executive roles, particularly the president. Aung San Suu Kyi has reacted angrily to any attempts to tease the information from top NLD officials. "Only the NLD chair [Aung San Suu Kyi herself] has the right to speak regarding the issues of NLD policies and transitional matters," the NLD said in a statement. For now, Aung San Suu Kyi is remaining resolutely tight-lipped.
As for the previous president, U Thein Sein will stay active in public life, returning to the role of leader of the military-backed Union Solidarity and Development Party (USDP). The 70-year old will have his work cut out for him following the USDP’s poor showing in last year’s elections in which they won less than 10% of the available seats.