April 19, 2016 7:00 pm JST
MOTOKAZU MATSUI, Nikkei staff writer
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| This brewery outside Yangon is run by a Myanmar military-owned conglomerate. |
On March 31, the Union of Myanmar Economic Holdings, or UMEHL, the country's largest military-owned company, said it had applied to the Ministry of Planning and Finance to become a "public company" under the country's companies act. UMEHL is currently a government-affiliated "special company" under the special company act.
The aim is to make it easier for the company to draw money from private investors by allowing part or all of its shares to be traded without restrictions. Among Myanmar's major private companies, some 200 are registered as public companies. Their shares can be traded over the counter and owned by foreign companies. Only public companies can be listed on the Yangon Stock Exchange, Myanmar's first stock exchange, which opened in late March.
UMEHL was set up in 1990, primarily by the armed forces. It is jointly owned by the military and the army-led Ministry of Defense's procurement organization. The conglomerate runs Myawaddy Bank, a major local financial institution, and Myanmar Brewery, the country's largest beer-maker. It also operates many commercial buildings and hotels in the economic capital of Yangon as well as owns jade and ruby mines in the north.
According to Myanmar authorities, UMEHL paid the fifth largest amount of corporate taxes in the year to March 2015. Group sales are estimated at around a few billion dollars.
UMEHL's plan to ease restrictions on share transfers was likely prompted by the handover of power. In November, Aung San Suu Kyi's National League for Democracy won a sweeping electoral victory on pledges to, among other things, create a transparent market economy. The NLD came to power in late March and will likely start reforming state-owned companies with dubious management, including UMEHL.
UMEHL apparently hopes to survive during the NLD's reign by touting its own reform efforts, such as trying to gain pubic company status.
In February, commander-in-chief Gen. Min Aung Hlaing told a newspaper that he intends to privatize all military-owned companies at an appropriate time. The list would include Myanmar Economic Corp., or MEC, which mainly operates in the heavy and communications industries.
In August, Japan's Kirin Holdings took a stake in Myanmar Brewery.
Once parent UMEHL becomes a public company, the privatization of group companies will likely accelerate, raising hopes that the military's vested economic interests could give way to foreign businesses.
One challenge in reforming military-owned companies is U.S. economic sanctions that ban U.S. companies from investing in Myanmar and importing goods made in the country. Since Myanmar began on the path to democracy in the spring of 2011, the U.S. has eased its sanctions in stages. But the Treasury Department's Specially Designated Nationals List still includes companies that were close to the military-led government, UMEHL and MEC among them.
Although the list only binds American companies, in principle, it also deters non-Americans from doing business with designated companies out of fear of damaging their reputations and potentially not being able to conduct financial transactions with American institutions.
Can Suu Kyi change this? She has a good relationship with the U.S., which has supported her democratization movement. How far she can lower the sanctions on her first visit to the U.S. as the effective head of Myanmar will be a litmus test of her diplomatic skills. Such a trip could come by the end of this year.
