November 29, 2012
By PATRICK BARTA
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 KKR -0.50% & Co. and Blackstone Group LP, BX -1.17% 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. GE +0.41% and PepsiCo Inc. PEP +0.22% 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.
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