FMI discloses risks ahead of Yangon Stock Exchange listing

A reliance on chair Serge Pun’s business relationships and the potential illegality of its existing share trading centre are among the risk factors First Myanmar Investment laid out in a disclosure document yesterday, ahead of the firm’s listing scheduled for later this month.

FMI will be the first company to list on Myanmar’s first modern stock exchange, and will start selling its shares on March 25, the company announced yesterday.

Myanmar Thilawa SEZ Holdings will be the second company to list on the exchange, followed by Myanmar Citizens Bank and First Private Bank within a few months, said Securities and Exchange Commission chair U Maung Maung Thein earlier this week.

All firms planning to list on the Yangon Stock Exchange must publish disclosure documents or a prospectus in advance of their Initial Public Offering (IPO).

A disclosure document is for firms like FMI that are not issuing new shares as part of the IPO, and a prospectus is for those that are, U Tun Tun, FMI’s chief financial officer, told The Myanmar Times.

In either case, the contents typically include the company’s recent financial results, business strategy and ownership structure.

FMI is the first company to publish either a disclosure document or prospectus and the first to present the costs of listing on the YSX, which it expects to total K1 billion. This includes K700 in advisory fees, K200 million in listing fees, and K50 million in printing and advertising.

Disclosure documents also typically present the potential risks a firm faces. Disclosing these risks is key to allowing prospective shareholders to judge the company before they consider buying shares.

A key risk for FMI is that it is “reliant” on FMI’s executive chair Serge Pun, according to the firm’s disclosure document.

Over the years Mr Pun has built up “extensive experience and relationships with government officials and other important persons within and outside of Myanmar”, it said. FMI has benefited from real estate projects and “other business opportunities” brought to the company directly or indirectly through Mr Pun, it added.

FMI has also invested in real estate projects with Yoma Strategic Holdings, of which Mr Pun is the chair and controlling shareholder. FMI does not have an agreement with Mr Pun “that requires him to offer any investment opportunities to us” but does “derive benefits” from other companies in the SPA Group, the company said.

If FMI loses Mr Pun, “some or all of these benefits may no longer be available”, it said.

The loss of Mr Pun is one clear risk. Another is that while he remains at the company he can, as the largest shareholder, control any matter submitted to shareholders for approval, said FMI.

Mr Pun has a “direct and indirect interest” of almost 70 percent of FMI’s shares, which means the other stockholders will have a very limited ability to influence the outcome of any shareholder vote.

FMI’s document also provides a breakdown of its largest shareholders. The firm had 23,480,013 shares outstanding as of September 2015 all of which will be transferred onto the exchange. The top 10 shareholders in FMI hold 87.54pc of the shares, according to the disclosure document.

Mr Pun held 7,933,778 shares as of September 2015. He beneficially owns Yangon Land, which held 7,276,909 shares. SPA Assets Management, of which he is the controlling shareholder, held 1,083,500 FMI shares.

Potential investors often look at the floating stock of a particular company. This is the number of shares available for trading – the total number of shares minus those held by major shareholders, employees and company insiders.

U Tun Tun estimated FMI’s prospective floating stock at 25-26pc, although this definition removed shareholders holding more than 5pc of FMI’s shares, parties related to those shareholders and board members. As a result, his definition of floating stock included some shares held by those who ranked in the 10 largest shareholders, but still held less than 5pc of FMI’s total shares.

FMI in its document noted that there are no restrictions on its ability to issue shares, or on its major shareholders to sell them. Any future issuance “may adversely affect the trading price”, the firm said.

Until now, the only way for ordinary Myanmar investors to purchase FMI shares was over-the-counter through the FMI Trading Centre, operated by FMI subsidiary Yoma Thitsar since 2006.

But there is a risk that Yoma Thitsar may be prosecuted for operating the share centre in breach of Myanmar’s Securities Exchange Law.

Sections 55(a) and 55(b) of this law, which came into effect in July 2013, prevent anyone from engaging in a securities exchange certificate business without a licence, or forming an over-the-counter market or similar business.

Yoma Thitsar does not have a licence to carry out any securities business or operate an over-the-counter market, the firm said.

But the law allows for a transitional period between the Securities and Exchange Law coming into effect and a securities exchange certificate market business being possible.

Under the law the Union government was to specify this period, which it has not done, according to FMI. As a result the firm decided not to inconvenience shareholders, and kept the trading centre open.

FMI does not think Yoma Thitsar has broken the law, but notes that the “penalties for an individual are imprisonment for a term not exceeding five years or a fine or both”. If any of Yoma’s executive directors went to jail this “could have a material adverse effect on our reputation and business”.

The document also lays out risks unrelated to FMI’s business operations. Investors on the YSX may experience problems that include a temporary closure because of extreme market volatility, broker defaults, settlement delays and strikes by brokers, FMI said.

The firm also notes that there is limited access to publicly available information and statistics in Myanmar. Given that environment it may be hard for shareholders to “gauge our performance, which may lead to inefficient pricing” due to incomplete market information, the firm said.


Source: Source: Myanmar Times

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