Lawyer in Myanmar Oliver Massmann Supporting the OECD Building a

sound Capital Market

Interview Questions from the Organization for Economic Cooperation and Development (the

“OECD”)

Oliver Massmann

General Director – Duane Morris Vietnam LLC

Member to the Supervisory Board of Petro Vietnam Insurance Holdings Joint Stock Company

Chairman of Legal Sector Committee of the European Chamber of Commerce in Vietnam

1. Background Information

Paper Title: Building a sound capital market in Myanmar– regional lessons for strengthening corporate

governance frameworks and practices.

Research Question: What are the critical factors and corporate governance policies for making capital

market development in Myanmar a success? What lessons can be learnt from a regional comparison of

past experiences in CLMV?

Purpose of research: Using the G20/OECD Principles of Corporate Governance as the benchmark, the

paper aims to identify the critical success factors that need to be implemented in order to achieve a

successful development of the capital market in Myanmar. It is of high importance that corporations meet

investors’ expectations with respect to corporate governance practices in order to obtain access to public

equity markets. Myanmar has more than 200 public companies which are established under the Myanmar

Companies Act. However, at present only one company is listed and five others are being examined

whether they meet the listing criteria. With the aim of developing the capital market, the Myanmar

authorities need to develop and implement clearly structured corporate governance regulatory

frameworks.

The paper conducts a regional comparative analysis across CLMV in order to learn from past experiences,

and focuses on the role of corporate governance policies in achieving broader economic objectives with

respect to investor confidence, capital formation and allocation. Where relevant, experiences from more

developed economies in Southeast Asia will also be taken into account.

Core corporate governance principles we look at:

I) The rights and equitable treatment of shareholders and key ownership functions

II) Disclosure and transparency

III) The role of stakeholders

IV) The responsibilities of the board

2. Interview Questions

What lessons can be learnt from a regional comparison of past experiences in CLMV?

Vietnam

- What lessons can we learn from the capital market development in Vietnam?

Vietnam’s capital market has been developing at very fast pace but in an unsustainable manner and has

not met the growth demand of the economy. Moreover, 90% of the investors in the capital market in

Vietnam are small investors, which explains for stronger level of fluctuation of the market when being hit

by the financial crisis in 2007-2008 compared with Thailand and Myanmar. The Government has also not

examined the structure of the financial market carefully enough, leading to inconsistent development

between the capital market and the financial market.

- What regulations were crucial to develop the capital market in Vietnam?

Regulations on investment and enterprises, bank restructuring, transparency in bank operations, lifting

foreign ownership limits in public listed companies, listing or registering transactions on UpCom by

privatized companies and regulations on derivative securities and derivative securities market are

considered as crucial in the development of the capital market in Vietnam in the past year.

- How did companies adjust to the change in regulations? What intensives were given?

New regulations create a new wave of investment in Vietnam and pave the way for accelerating the

development of the market. It must be admitted that the restructuring of certain enterprises was very slow

and only to temporarily deal with State targets. In nature, these enterprises were still effectively controlled

by the State due to limited participation of private investors. However, recognizing the importance of re-

structuring, the Government has applied significant pressure on leaders of enterprises whose privatization

process is delayed without due reasons. Among these pressures are non-appointment to higher position or

not being re-elected.

- How was the public educated about the framework/capital market analysis?

Via investment promotion seminars, investment forum abroad or in Vietnam, cooperation with mass

media corporations such as Bloomberg or Reuters to exchange information and advertise for Vietnam’s

capital market.

- Which regulations and enforcement mechanisms are crucial to make it a slow and sustainable

development of the capital market?

Regulations on derivative securities market, conditions on doing securities business, guiding foreign

investment in securities market in Vietnam, establishment of Vietnam Stock Exchange, attracting foreign

capital, etc. have crucial roles. The Government should also enforce stricter administrative and criminal

sanctions for violations in the area.

Lao & Cambodia

- What went wrong in Lao and Cambodia?

o With better regulations – could they have developed in a better way? What could have been done

differently?

It is difficult to predict if better regulations could have changed the outcome of the Lao Securities

Exchange (“LSE”) and Cambodian Stock Exchange (“CSE”). The CSE, only has two listed companies,

and the LSE, only has four listed companies. Both stock exchanges remain largely off the radar for

investors due to the small number of listed companies and a lack of liquidity. This not necessary related to

regulations.

Myanmar

What are the critical factors and corporate governance policies for making capital market development in

Myanmar a success?

The YSX urgently requires implementing regulations and formal YSX rules governing continuous

disclosure requirements. There are also several other barriers that may prevent capital market

development in Myanmar being a success. Importantly, foreign investors should be aware that the YSX is

still in infancy and several hurdles must still be overcome, see below.

- Where do regulations still lack in Myanmar for a smooth capital market development?

The YSX is currently on the US Sanctions List; foreigners are prohibited under Myanmar law from

owning and trading shares in Myanmar companies; and the YSX still does not have any implementing

regulations. Presently there are no formal YSX rules governing continuous disclosure.

It is evident that further clarity on the listing process is required, including greater transparency and more

stringent corporate governance requirements for Myanmar companies. Myanmar’s due diligence

inadequacies may likely slow the entrance of institutional and corporate investors.

Foreign investors will not be allowed to trade on the YSX until after the new Myanmar Companies Act,

Foreign Investment Law and Myanmar Citizen’s Investment Law have been promulgated. This means

only Myanmar citizens will be able to trade on the YSX initially. All transactions on the YSX must be

conducted using Myanmar Kyat (MMK).

- Do you see problems in implementing the regulations into real action?

Yes, while we are optimistic, we do anticipate problems in implementing the regulations into real action.

There is no set deadline on when the implementing regulations or formal YSX rules governing continuous

disclosure will be promulgated. With the transition into a civilian led government it is very unpredictable

when this will occur (thus leaving foreign investors in the lurch, so to speak).

- Are Myanmar’s companies and investors ready for the YSX?

At this stage it is clear that only larger Myanmar companies are ready for the YSX. Law firm Duane

Morris & Selvam advised FMI on in its historic listing on the YSX. It is expected that Myanmar Thilawa

SEZ Holdings will be the second company to list on the YSX, followed by: Myanmar Citizens Bank;

First Private Bank; Great Hor Kham Public; and Myanmar Agribusiness Public Corporation.

o How do you know whether a market is ready for it / what are the key evaluation criteria?

It is unclear to determine exactly when the market is ready for it. Although the YSX’s listing

requirements are less onerous compared to stock exchanges in more developed jurisdictions, such as the

Singapore Stock Exchange, some commentators have expressed concerns the YSX may struggle to attract

additional companies to list their shares. Accordingly, concerns have been raised that the YSX could

suffer a similar fate to that of the Cambodian Stock Exchange, which only has two listed companies, and

the Laos Securities Exchange, with only has four listed companies. Both stock exchanges remain largely

off the radar for investors due to the small number of listed companies and a lack of liquidity. However,

Myanmar officials remain optimistic that the YSX will become more like Vietnam's Ho Chi Minh’s Stock

Exchange (“HSX”) within three years. The HSX, which was launched in 2000, is currently the region’s

most robust frontier stock exchange with over 300 listed companies with a combined market

capitalization of US$19.2 billion.

All transactions on the YSX must be conducted using MMK. Again, despite trading in shares already, the

YSX still does not have any implementing regulations and there are no formal YSX rules governing

continuous disclosure requirements.

- What role do you think international investors could play in Myanmar’s capital market

development?

Foreign investors will not be allowed to trade on the YSX until after the new Myanmar Companies Act,

Foreign Investment Law and Myanmar Citizen’s Investment Law have been promulgated. This means

only Myanmar citizens and Myanmar companies will be able to trade shares on the YSX initially.

- When does it make sense to open up to international investors?

Even when foreign investors are allowed to trade shares on the YSX, U.S. persons should be aware that

the YSX is currently on the U.S. Sanctions List and until such time as it is removed from that list, U.S.

persons should not trade shares on the YSX.

- What are in your opinion the key best practices that Myanmar should follow in its capital market

development?

Myanmar should look to follow the HSX. However, given the different domestic investor culture and

political climate this may not be easy.

- Listing criteria – better too strict than too loose?

- Commenting on the following specifically:

- 2 years of profit

- Paid-up capital of kyat 500 Mio

- Number of shareholders

- Fulfillment of tax duties

From a compliance perspective and to avoid issues with poor corporate governance it is better to adopt a

stricter listing criteria. It is evident that further clarity on the listing process is required, including greater

transparency and more stringent corporate governance requirements for Myanmar companies. Myanmar’s

due diligence inadequacies may likely slow the entrance of institutional and corporate investors.

However, we remain optimistic.

- Information disclosure

- Are financial and non-financial disclosure conducted both in English and Burmese? Yes.

- Is IFRS used? Not sure.

a. Shareholders - Can shareholders vote by proxy? Is there e-voting? There is no e-voting permitted.

Shareholders can vote by proxy.

- What opportunities and risks does the capital market development bring to the country?

Please see above re: “Where do regulations still lack in Myanmar for a smooth capital market

development.”

- Do companies receive sufficient support from regulatory authorities?

The YSX is still in infancy and regulatory authorities while under resourced are trying their best in the

circumstances.

- How do you make sure that companies do not “only produce papers” of corporate governance

initiatives, but are actually doing business in compliance with them? How do you control that?

Better enforcement on statutory compliance.

- External auditing standards

o Is external control key? If this was the case, it would need to be completely independent.

o Who are reliable and certified external auditors in CLMV?

Any member of the big four accounting firms which are licensed to conduct certified external auditing

services in Myanmar.

- Which other Asian countries can be presented as a positive example for a good regulatory framework as

a basis for capital market development?

Vietnam and its HSX.

- To what extent is the development of the capital market controllable with regulating frameworks and

sound institutional frameworks?

Good regulation and statutory requirements of continuous disclosure provides a sound basis for the

market in which to operate.

Please do not hesitate to contact the author Oliver Massmann under omassmann@duanemorris.com if you

have questions on the above. Oliver Massmann is Partner of Duane Morris Selvam Yangon / Myanmar.

THANK YOU