Myanmar: a waiting game

As Myanmar continues its tentative steps towards democracy, it’s attracting interest from frontier-focused private equity firms. But is it still too early to invest?

Last month’s swearing-in of Aung San Suu Kyi (known as “The Lady”) as a member of Myanmar’s parliament represented the country’s “Berlin Wall moment”, according to one European official.

It may be too early to agree with that description – but with Myanmar’s ongoing political reforms potentially resulting in a compelling commercial story, it’s apparently not too early for private equity firms to start sniffing around the country.

Leopard Capital aims to launch a $100 million fund for the country by the end of 2012, according to founder Douglas Clayton; Bagan Capital and Yoma Strategic Holdings are also raising opportunistic Myanmar vehicles. Singaporean sovereign wealth fund Temasek Holdings has been “seriously looking for deals” on the ground, according to industry sources, while TPG Capital co-founder David Bonderman recently visited business and political leaders, according to The Financial Times

From a macro view, Myanmar has a pretty good story. The European Union has suspended sanctions and the US has pledged “targeted easing” of the ban on US financial services and investment. The GDP growth rate is climbing steadily: it is forecast by the Asian Development Bank to reach 6 percent in 2012 and 6.3 percent in 2013. 

Tokyo-based Patricia Higase, who has Burmese heritage, recently launched a Myanmar-focused private equity fund called Link Road Capital Management. She notes the real estate opportunities in Myanmar. “In eight years in a closed economy, residential property [values] went up three-fold. So if you think about the country opening up and all these foreign investors coming in and the lack of supply, I think residential demand easily can go up 10 to 20 times.”

Myanmar also offers an abundance of natural gas, jade, timber and oil. However, Chinese “buccaneers” and the Chinese government have been buying up these resources, according to Thomas Holland, head of Asia at alternatives manager Cube Capital. This means valuations may not be as cheap as some hope – but the Chinese did at least “fill a void” (as Holland puts it) during the sanctions era when foreign investment was restricted.

With a stock market not due until 2015 and the currency only just floated, private equity is likely to be the first form of investment, says Higase. 

But her enthusiasm is qualified. Sanctions have only been suspended, not lifted. And those fund managers waiting for the gates to open may suffer from their lack of local knowledge, she suggests. “There will be a lot of new surprises; I think it will be a very different climate in some ways from Vietnam [and] Cambodia.” 

Then there’s the shaky legal system and lack of a credit system. “The major thing is getting your money in and feeling comfortable that your money can come out,” warns Holland. “The whole system is untested really.”

Nonetheless, Myanmar’s transformation will require economic growth: roughly one quarter of its 60 million population live in poverty. Foreign investment – and therefore private equity – clearly has a role to play here.