There is only one listed construction-related firm on the Yangon Stock Exchange (YSX) at the moment. Joining the YSX will not boost the construction companies to raise capital for real estate projects in the short term.
KBZ Bank deputy managing director U Bo Bo Wai Maung said that local construction companies should consider joining the YSX in order to access more investments for the property sector.
“In other countries, construction companies are listed on the stock exchange. That boosts investments and helps develop the construction sector. Local businesses should follow suit and join the YSX as listed companies,” he said at a Myanmar financial outlook seminar on February 5. The seminar was held by the Republic of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) and was attended by former deputy minister of finance U Maung Maung Thein, who also served as chair of the Securities and Exchange Commission for the former administration, and the spokespersons from three local banks.
As customers have more trust in companies which are listed on stock exchange, experts say that the more listed companies a stock exchange has, the higher the market demand in trading shares.
There is a standardisation in various operations and corporate compliance issues for the listing process on YSX. To qualify for YSX listing, companies should have a minimum of three years since establishment and another two years of profitable operations. The listing process involves maintaining a level of transparency for their activities and financial positions.
According to listing criteria published in state media in August 2015, companies that wish to go public on Yangon’s stock exchange need to submit “relevant corporate information” and facts the public should know to the Securities and Exchange Commission of Myanmar (SECM) and the Yangon Stock Exchange.
“For disclosure of corporate information, it [the company] shall prescribe especially and precisely on the matters which have a considerable impact on investment decisions” such as risk factors and basic potential business activities, said the criteria.
Meanwhile, the listed firms must “disclose corporate information and earning information in the forms prescribed by the Exchange,” said Cheah Swee Gim, Yangon director of law firm Kelvin Chia.
But critics say the stock exchange rules are weak and insufficient. Last year, one industry expert called the rules on disclosure “basic and unclear in certain areas” and said they needed bolstering with guidelines on running companies.
“When you look at YSX listing rules in terms of disclosure requirements, they refer to company information,” said the expert. “It’s not clear what company information is, so it’s very vague … and in my opinion the big issue here is that the listing rules are not supported by any corporate governance code.”
Currently, there are only four YSX-listed companies so far. Among them, only First Myanmar Investment (FMI), a conglomerate with interests from hospitals to airlines, is construction-related. The firm is involved in real estate projects such as Thanlyin Estate Development and FMI Garden Development.
The Myanmar Agro Exchange Public Company (MAE), a food market and supply chain firm partly owned by local tycoon U Win Aung, will apply for listing within the next two years, according to the company’s press statement.
MAE is in the wholesale food market and supply chain business, and received a contract from the Yangon Region government in early 2016 to build and manage the Danyingone Wholesale Market in Insein township.
MAE stated that they will apply for listing at the earliest opportunity, but that the corporation was established in September 2015 and so it has not satisfied the three-year requirement for listing. Upon fulfilling the minimum criteria, it will obtain a permit from the YSX.
Interestingly, the company is at the moment offering shares to the public via other channels. It started selling shares to the public on January 16 after receiving approval from the Securities and Exchange Commission of Myanmar. It planned to have over half the firm in public hands, which would mean selling 500,000 shares.
There are only two firms which are selling shares with the approval of SECM and which are (still) not yet on the YSX list. The other one is the Yangon Region Transport Authority (YRTA), which was recently formed to manage the new bus system.
If the construction companies are listed on the stock exchange, they can raise more capital by selling shares to the public. The capital can then fund more real estate ventures. However, this depends on the assumption that there is healthy demand at the stock exchange market. The present state of the local stock exchange market is not healthy and hence most of the construction businesses are reluctant to be listed there, explained U Yan Aung, general manager of Asia Construction.
“Stock exchange started recently and local firms are not familiar with the mechanism,” he said. The only construction company listed is FMI, which is no stranger to the stock exchange market.
“FMI is an affiliate of Yoma Strategic Holdings, which in itself is a public company listed on the Singapore Exchange [SGX]. Other local companies are not familiar with stock exchange like that,” he said. SGX-listed Yoma affliate FMI has access to the operations and challenges of how to run as a publicly-traded stock, while other local firms do not have that exposure and thus are not familiar with the system.
Although there are many people who are interested in the local stock market, the market potential is not realised due to the lacklustre performance of the stocks. The prevailing trend of listed stocks has not reflected the level of enthusiasm and support which the business community expected. As a result, companies are hesitant to join the game, he added.
Another financier agreed.
The trading activities of the stock exchange market are stagnant. Even if construction firms become publicly-traded, the listing will not generate much profit to fund their property projects, said U Aung Thura, executive officer of International Stock Share Trading Agency Company.
Ultimately, does being listed help raise funds? Not in the short term, according to U Aung Thura.
“I believe the key issue for construction firms is to secure capital. When we purchase apartments in Myanmar, we use the pre-payment system.
“I don’t think many things will change even though the stock exchange has been launched in the country. The current stock exchange market is sluggish and joining it will not bring any benefits for the companies,” he said.
In the long run though, the story may be different.
Looking further ahead, when the stock market develops and marches onto a healthier path, the publicly-traded companies can enjoy the investment and capital raised by selling its shares. This will be a boon for capital-intensive real estate projects, he added.
The construction sector may need a little more patience before the industry could see a shift from headwind to tailwind.
Source: Myanmar Times
