SEC delay hinders groundwork for stock exchange

SEC delay hinders groundwork for stock exchange

Published on Monday, 23 June 2014 23:49

The Myanmar government is expected to launch a Securities Exchange Commission (SEC) in the next few months to pave the way for establishing a stock exchange in 2015.  

The Daiwa Securities Exchange Group, who is helping the government, say that delays have hindered the preparation process as a local stock market needs a regulatory body to oversee it first.

"Only the Ministry of Finance knows at what stage the formation of the SEC is at," said Soe Thein, former director of the Myanmar Security Exchange Centre.

Although Parliament passed a Securities Exchange Law on July 31, 2013, it has been slow at implementing necessary by-laws and regulations that the government insists are necessary to form the SEC.  

"The SEC could have been formed since the [securities exchange law] was passed. There is no need to wait for by-laws. If the SEC had been formed then, it would have gained momentum by now," added Soe Thein.

The Central Bank of Myanmar is working to set up a local stock market together with the Japan Exchange Group (formerly the Tokyo Stock Exchange), and the Daiwa Institute of Research after signing a memorandum of understanding on May 12, 2012. 

Since then the Ministry of Finance has worked closely with the Japanese government to formulate the rules and regulations and to develop IT systems. 

The prolonged delay in forming the SEC has caused some anxiety with the Japanese and a spokesperson from Daiwa said it could impact the entire preparation process. Nevertheless, as long as there is no change in government policies, they would try to launch the stock market by October 2015.

Enough Public Companies? 

There are currently only 142 registered public companies in Myanmar which raises questions about the successful emergence of a capital market. In fact, 21 public companies were formed under the previous military junta and are still endowed with special privileges, including access to land and government contracts. 

An executive at Daiwa admitted that if a crony company met the criteria for listing and submitted an application to join the exchange it would have to submit to the same regulations as everyone else. 

"This is why the regulator is essential. Whether the company is owned by a crony or whether it is a Myanmar national or foreign company, it will have to operate under the same regulations and the same level of scrutiny," he explained. 

The number of public companies has increased significantly, but many experts say there are still not enough for a viable bourse. Most companies remain private, and there are numerous reasons why they are either unable or unwilling to turn themselves into public companies.

In the first six months of establishing the stock exchange about five to 10 companies are expected to get listed, one being the Asia Green Development Bank. 

"We've agreed that AGD Bank will be listed. Discussions are ongoing. At the same time, we've agreed to offer advisory services for initial public offering services to other companies," said Daiwa's spokesperson.

Potential for Businesses

Any company that can meet the requirements of the stock exchange can become a listed firm, which proponents of the bourse say will give them added competitiveness. 

"We've studied about 60 companies and talked with their owners. We noticed that banks, airlines and telecommunications firms are quite interested in an IPO," the Daiwa spokesperson said. 

"The rules of game are going to change … foreign firms will enter the market. Being listed on the stock exchange will make a company more attractive," he added. 

Some Myanmar companies have already sold shares to the public using methods used by public companies. But with the lack of a market place to buy and sell shares the number of shareholders vary enormously, according to Daiwa Securities Exchange Group Director Shinsuke Goto. 

"The number of shareholders between listed and unlisted companies is quite varied. Anyone can invest in a listed company regardless of their citizenship," he explained.

 He also raised concerns about the number of companies that have started selling shares recently. Some are not in compliance with the requirements of the Myanmar Company Act, he said. The law requires them to briefly explain their business when they register, but many do not. 

Goto also raised questions about the validity of their shareholder lists. 

"If the current share selling practices continue they could have harmful long-term effects, including undermining trust in the capital market when the stock exchange launches in 2015," he said.

Limits on Foreign Investment

Some foreign investors are known to have purchased shares in local public enterprises that plan to go public in future in the hope of boosting their capital. 

These purchases are currently illegal as the Myanmar Companies Act places limits on foreign ownership of nationally registered companies, generally in the form of ratios between foreigners and Myanmar nationals. 

New rules will be required in the stock exchange to ensure these ratios are sustained and the foreign investment act may also need amending to deal with foreign share purchases on the stock exchange. 

He added that it was also important to work out foreign ownership issues, but said that the Myanmar Companies Act would also need to be amended but this was not even on the table yet. 

The Challenges Ahead 

Establishing the SEC remains the first priority and laying the regulatory and legal ground work to be able to encourage companies to go public and investors to buy shares. 

"Worries are growing that Myanmar's stock exchange might end up like those of Cambodia and Laos, which have only two or three companies listed on them," Daiwa executives said.

However they stressed that with the right foreign assistance and sharing of expertise and knowledge, they were confident that the stock exchange could succeed. 

For that to happen, however, laws limiting foreign investment such as the Myanmar Companies Act will need amending so as to both protect local businesses as well as encourage foreign capital. 

An effective and reliable regulatory body is also necessary to limit the percentage of shares owned by foreign investors as well as make sure that there is a level playing field.

 

Source: http://www.news.myanmaronlinecentre.com/2014/06/24/sec-delay-hinders-groundwork-for-stock-exchange/