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PROPOSED LISTING ON AIM AUNG HTUN - MANAGING DIRECTOR MIKE DEAN - FINANCE DIRECTOR June 2013
This is Burma, and it will be quite unlike any land you know about
Rudyard Kipling, 1891
A Burmese spring: After 50 years of brutal military rule, Myanmars democratic opening has been swift and startling
The Economist, May 2013
Myanmar could grow at 7%8% per year for a decade or more and raise its per capita income to $2,000$3,000 by 2030
ADB, August 2012
Probably the best investment opportunity in the world right now is Myanmar. In 1962, Myanmar was the richest country in Asia. They closed off in 1962, and now it's the poorest country in Asia. I see enormous opportunities there because they're now opening up. It's like when China opened up in 1978. There were unbelievable opportunities going forward. The same is true in Myanmar now in my view
Jim Rogers, July 2012
We very much appreciate your efforts and leadership in leading Myanmar in a new direction. We want you to know that the United States will make every effort to assist you on what I know is a long, and sometimes difficult, but ultimately correct path to follow.
President Obama to President Thein Sein, 20 May, 2013
Executive Summary
Why Myanmar ? o Strategically located between China, India and Thailand
o o o o o
Resource rich (oil, natural gas, water for hydro power, minerals, arable land, tourist sites, long coast line) Poor infrastructure (telecom, electricity, transportation) Large population (with less access to consumer goods available elsewhere in Asia) Underdeveloped financial industry Limited export industries
EU, Australia, Norway and Canada revoking most sanctions and the US reducing them A surge in foreign investment and trading interest
Numerous investment opportunities as Myanmar seeks to upgrade its infrastructure, boost capacity to meet domestic demand and export opportunities, tap into Asias tourism boom However, the Directors believe that experience of Asian business culture, investing practices and frontier economies is essential
Executive Summary
Why MIL Management o A wide ranging network of contacts in Myanmar
o o o
Hands on experience in managing and building businesses Experience in investing in, managing and exiting companies in Southeast Asia especially in the emerging economies Management is investing and has an aligned compensation package linked to share price performance
To develop a diversified portfolio of strategic (core) and private equity style holdings and, over time, fee generation capabilities The Directors believe MIL will be the first Myanmar focused investment vehicle admitted to the London Stock Exchange
An AIM quotation will provide pricing, transparency, visibility and in due course liquidity
o o
Deliberately starting small and will raise capital as opportunities are identified Unlike private equity funds there is no fixed commitment amount or fixed investment timeframe; the Company intends to carry out subsequent rounds of fundraising to increase exposure Seeking to raise US$5-10 million on IPO (indications of commitments in excess of US$5m from experienced Asian investors)
William Knight, Chairman Chairman China Chaintek Plc, Abingworth Bio Ventures II, JP Morgan Chinese Investment Trust Plc; Director Fidelity Asian Values Trust, Ceylon Guardian Investment Trust. Formerly head of Far East merchant banking of Lloyds Bank Group Aung Htun, Managing Director Executive Chairman of Thai Strategic Capital Management; Director KT ZMICO Securities Ltd, Draco PCB Plc, Wuttisak Clinic Inter Group Ltd, Nam Seng Insurance Plc. Founder and formerly CEO Seamico Securities Plc Mike Dean, Finance Director Independent Director Petra Food. Formerly CFO Epic Shipping Group; Head of Corporate Finance and Co-Head of Private Equity CLSA; and PPMV (Prudential Plcs Asian private equity group). FCA, qualified with Arthur Andersen
Craig Martin, Independent Director Managing Partner CapAsia. Formerly Investment Director, Prudential Plcs Vietnam private equity business; and Standard Chartered Private Equity group. Has worked and lived in Cambodia and Vietnam
Chris Appleton, Independent Director Formerly HSBC Private Banking; Managing Director, Salomon Smith Barney; and Head of Asia for FoxPitt, Kelton
Further details are in the Appendix and Pathfinder admission document Advisers Nominated adviser: Grant Thornton UK LLP Solicitors to MIL: Reed Smith (UK & Singapore) Auditor: BDO Broker: Allenby Capital Solicitors to MIL: DFDL (Myanmar)
Investments will be made and held through Singapore registered SPVs because of the ASEAN and Double Tax Treaties with Myanmar.
US$ denominated capital To be admitted to trading on AIM as an Investing Company Raising a minimum of US$5 million through a Placing of between 5 - 10 million ordinary shares at US$ 1.05 / ordinary share
o
All IPO investors will receive 1 warrant for each ordinary share subscribed, exercisable at US$ 0.75 between the 2nd and 5th anniversaries of the IPO
Investment Strategy
Over the long term MILs primary objective is capital appreciation through investments in a diversified portfolio of companies and sectors Investments will range from minority holdings to control positions and in private or public companies Investments will fall into two categories:
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Core Investments Businesses that are essential to the domestic economy Limited availability of licenses that create a medium term barrier to entry Capable of being built into leading franchises Interesting sectors include; financial services, telecommunication, certain retail franchises ROE and dividend yield driven May list the investee companies in due course but not necessarily to sell them until such time that growth moderates
Financial Investments Private equity style investments in any sector Investment decision driven by capital gains and liquidity potential
Fee generation o Where an investment is larger than MILs appetite or does not fall within MILs investment scope, MIL may seek to generate fee income through placement or syndication activities as well as earn a carried interest o MIL may also selectively establish, seed fund, and manage specific industry focused investment vehicles While the primary objective is to build capital, once the portfolio has matured, the intention is also for MIL to make regular dividend payments as well as cash distributions from the sale of investments
Deal Flow
Management will source investment opportunities primarily from its network but will also maintain relationships with intermediaries both in Myanmar as well as in other countries in the Southeast Asia region Opportunities are expected from:
o o o
Established local companies seeking expansion capital to cope with increased demands Local entrepreneurs taking advantage of new opportunities Foreign companies wanting to have a locally based partner
The Directors believe that, unlike in the more mature ASEAN markets where opportunities are well structured and the intermediary communities are well established and knowledgeable, in Myanmar most intermediary and advisory firms are recent startups and the local business community has very limited exposure to international financing options. Consequently MIL is likely to have to work closely with potential investee companies to develop the relevant opportunity
A minimum of 5,000,000 Ordinary Shares to be issued at IPO (IPO Shares) May issue up to a further 5,000,000 shares IPO Shares issued at US$1.05 / share 1 Warrant issued for every IPO Share subscribed, exercisable quarterly between the 2 nd and 5th anniversary at US$0.75 Both the Ordinary Shares and the Warrants will be traded on AIM
Co-investment
o o
At the Directors discretion Cornerstone Investors are entitled to co-invest with MIL on normal commercial terms Only for first 3 years
Management incentive
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Share Option Scheme equal to 10% of the fully diluted capital will be issued to Management. Options are unlisted, have a vesting period over 3 years and exercisable at a 10% premium to the IPO price. For each subsequent MIL share issue additional, pro rata, options will be issued at the same 10% exercise price premium, vesting period and exercise dates The options align interests as they are long term and at a premium to the IPO price and subsequent capital raising prices
Board will be investing in the IPO Executive management will defer half of their remuneration until the time that the IPO funds are substantially invested If the Company does not substantially implement its investing policy within 18 months and shareholders do not grant an extension, the deferred portion will be waived
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APPENDIX
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Why Myanmar ?
Large opportunity, scalable prospects
Myanmar, which is larger than Thailand, has a population of between 48 and 60 million of which 13 million are aged between 15 and 28. This is approximately 40 per cent. of the working age population. They will not only be productive but will become consumers
Strategic location
Myanmar is geographically positioned between China, India and Thailand. This strategic location has historically made it the bridge between east and west New road and rail connections that are currently being built will integrate ASEAN countries with China and India through Myanmar The ASEAN Economic Community (AEC) Agreement which is due to be completed by 2015, will remove trade barriers between ASEAN members. This will substantially facilitate intra ASEAN trade Myanmar with its low labour costs and strategic location could become a major manufacturing and export country. In 2009 Myanmars exports totalled US$ 7.5 billion (cf. Thailand with US$ 150 billion) most of which was from the sale of natural gas
Resource rich
Myanmar is rich in natural resources. It has an estimated 7.8 trillion cubic feet (tcf) of natural gas - cf. Thailand which is considered a large regional producer with 9.9 trillion tcf Its hydropower potential is estimated to be more than 100,000 megawatts. It also has deposits of antimony, zinc, nickel, copper, tungsten, gold, lead, marble, limestone and precious stones and jade With its long coastline and landmass (over 65 million hectares) it has abundant agricultural and fishery potential
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Only 26 per cent. of the population has access to electricity. Even in the major cities, including Yangon, there are frequent blackouts Antiquated and limited infrastructure will require significant investment. Road density is 2KM/1000 people (cf. ASEAN average of 11) Low penetration of most consumer products and services Limited availability of commercial space and retail space will require investment not only in their development A basic financial services industry that will expand rapidly with the advent of increased trade, exports and investment activities as well as from pent up demand from consumers that have never had little or no access to credit Minimal annual tourist arrival with c. 791,500 tourists in 2010, compared to almost 16 million visiting Thailand
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Demographic
The Republic of the Union of Myanmar is situated in Southeast Asia and borders India, Bangladesh, China, Laos and Thailand with a 1,930 km coastline on the Andaman Sea 40th largest country in the world by landmass with 676,577 sq.km. It is the largest mainland country in Southeast Asia Strategically placed between India, China and Thailand 24th most populous country in the world with population of 48 to 60 million (an estimated 4.2 million live in Yangon and 1 million in Mandalay). However, it has a population density of only between 71 and 88 people per sq.km., one of the lowest in Southeast Asia With a new capital Nay Pyi Taw, Myanmar has a total of 14 regions and states with 135 distinct ethnic groups. The three largest being Burmans (68%), Shan (9%) and Karen (7%) 89% of the population are Buddhists A member of WTO and ASEAN Myanmars nominal GDP in 2011 was US$ 51 billion (around 1/7th of Thailand) GDP per capita in 2011 of US$ 824 (Thailand US$ 5,395)
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Economy
In the 1960s Myanmar was one of Asias leading economies. Its per capita income in 1960 at US$ 670 was more than three times Indonesia and more than twice that of Thailand
Key factors inhibiting growth over the following 5 decades included: low investment (due both to self imposed isolation in the 60s and 70s and latterly to external sanctions), limited integration with global markets, dominance of state-owned enterprises and frequent periods of macroeconomic instability
Driven by the recent suspension of sanctions which should improve Foreign Direct Investment (FDI) as well as strong export earnings from resource commodities, the ADB forecasts that growth in the fiscal year ending 31 March 2013 reached 6.3 per cent. External debt / GDP in 2011 was a manageable 22.8 per cent. Myanmars exchange rate has been unified and is a managed float. Currently Kyat 870 / US$1 Due to an underdeveloped banking system and, until recently, no ATMs or credit cards, Myanmar is essentially a cash economy.
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balance its foreign relations, trade and investment partnerships and reduce its dependence on China reduce poverty modernise its industries
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Release of political prisoners Aung San Suu Kyi has taken a seat in parliament, travels internationally and in December 2012 was appointed to chair a high level commission to investigate the dispute / clashes at a Chinese operated copper mine Ceasefire agreements signed with the Karen and Mon but tentative negotiations with the Kachin have broken down and hostility has resumed Recent sectarian violence in Rakhine State underscores the fragility of the achievements Freedom to demonstrate and strike have been restored Press censorship has been substantially reduced. A leading dissident newspaper has returned to open an office An independent Human Rights Commission established Cancellation of two high profile but environmentally controversial projects (power plant in Dawei and Myitsone Dam)
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Myanmar will Chair ASEAN for 2014 and host the 2013 Southeast Asian Games EU has removed sanctions as has Norway, Australia and Canada US has suspended some sanctions Visits from Barack Obama (the first time by a US President in over 50 years), David Cameron, Ban Ki Moon and others President Thein Sein visited President Obama in May 2013 US has restored full diplomatic relations and the EU and World Bank have opened an office in Yangon Japan is reported to have written off debt of US$3.4 billion from Myanmar and is negotiating a bilateral trade and investment agreement The International Labour Organization (ILO) has removed sanctions. This will allow EU to reinstate GSP in 2013
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The Opportunities
The Directors believe that Myanmar is poised to benefit from decades of investment that will be needed to upgrade its infrastructure Myanmars lower cost and large labour pool should allow it to build up a significant manufacturing capacity both domestically and for export Sectors that are expected to benefit from Myanmars projected growth include:
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Construction and construction materials Financial services Retail Telecoms Travel and Tourism Resources Manufacturing Transportation and logistics Education services Healthcare
Sensible investing should allow Myanmar to leapfrog the technology and process curves to more quickly narrow the gap with other Asian/Emerging economies
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2010
2000
(years)
2010
Education expenditure
4.3 2.8 0.3 4.1 2.8 0.8
The above table illustrates a number of points: 1. Myanmar in 2010 was further behind where Vietnam was in 2000; 2. The phenomenal growth and improvements in Vietnam over these 10 years can Myanmar replicate this?; 3. And yet how far Vietnam and Myanmar still have to go to catch Thailand
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