YANGON, Myanmar—Private-equity firms are divided over whether Myanmar will be
a source of huge profits, or just another place to endure losses.
Some private-equity funds already are scrambling to raise cash to pour into
the Southeast Asian nation, which has only just cracked open to Western
investors after a secretive military junta stepped down in 2011. They see big
opportunities in health care, real estate and other businesses that were starved
of capital during five decades of military rule, while other Asian nations
zoomed ahead. Yet many other firms, including big-name players such as KKR & Co. and Blackstone Group LP,
are holding back.
The clash of views has important implications for Myanmar, which struggled to
raise money during the years of military control and still has limited options
for tapping international finance, despite more than a year of reforms. Western
governments have lifted most of the sanctions they imposed over the past two
decades to punish Myanmar for alleged human-rights violations.
But while multinational firms such as General Electric Co.
and PepsiCo Inc. are looking for opportunities in
Myanmar, many have focused mainly on selling products here rather than investing
capital to build factories or other assets. To make matters worse, local banks
still don't have lending systems in place to finance many major corporate
expansions.
Silk Road Finance, an investment firm that recently opened an office in
Yangon, says it has raised $25 million so far from private investors. Cube
Capital, an investment company with offices in London and Hong Kong and $1.3
billion under management, recently invested in two Myanmar property deals worth
more than $20 million. The firm is looking to raise up to $200 million for deals
in several emerging Asian markets, with about one-fourth of the funds targeting
Myanmar.
Others in the hunt include Leopard Capital, whose chairman is veteran
emerging-markets fund manager Marc Faber, which is seeking to raise $150 million
for two Myanmar-focused funds. Bagan Capital, with offices in Hong Kong and
Myanmar, is also seeking to scoop up $75 million for Myanmar deals.
Some investors, however, worry that the political and economic risks in
Myanmar are still too big, and that asset prices are getting pushed beyond
reasonable levels. Others figure any deals to be had will simply be too small.
And there are lingering questions about legal protections for foreign
investors, and how the funds will be able to exit their investments even if they
do well. Myanmar has no corporate bond market or stock exchange of note, and
only a rudimentary banking system, limiting the ability of investors to cash out
of their investments through the local markets.
"I assure you that all the projects now in Myanmar will fail," said John Van
Oost, founder and managing partner of Yishan Capital Partners, an investment
firm with offices in Singapore and Indonesia that specializes in real estate.
Land prices already are too inflated there, he said, and it isn't yet clear
which local partners are reliable.
"A lot of people are rushing into Myanmar. We don't think that market's
ready," said Ming Lu, regional leader for KKR in Southeast Asia.
To be sure, business leaders, both foreign and local, widely expect Myanmar
to become one of Asia's fastest-growing economies if overhauls continue. But a
failure by companies to get capital from outside investors could delay economic
growth. In turn, a sputtering economy could dash the hopes of Myanmar's 60
million people, many of whom are expecting to see benefits from recent
changes.
More skeptical private-equity players in Asia say they have learned from
previous market openings—especially Vietnam in the 1990s—that first movers don't
always make money, in part because changes rarely move as quickly as investors
hope.
Myanmar also has seen private-equity investments go sour before, during a
brief economic opening in the 1990s. Still, more adventurous investors are
betting that they will be able to secure relationships with the most reputable
local entrepreneurs and lock up some of the best opportunities.
"It's the first in, the early mover, that benefits from the best deals and
the best relationships," said Kenneth Stevens, a managing partner at Leopard
Capital.
Alisher Ali, who previously launched an investment bank in Mongolia and now
runs Silk Road Finance in Yangon, said he became convinced Myanmar's reforms
were real on April 1, when famed dissident Aung San Suu Kyi was elected to
Myanmar's Parliament after 15 years under house arrest. A few weeks after his
first trip to the country, Mr. Ali moved from Mongolia with his family.
By September, he had raised $25 million from wealthy individuals in Russia,
Kazakhstan and Mongolia, he said, money he plans to invest in media companies,
telecom firms, health-care providers and other businesses. Although there are
"massive risks," the opportunity is too big to pass up, he said.
source: WSJ
http://online.wsj.com/article/SB10001424127887324784404578144944078046734.html
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