THE LAST YEAR has been a period of constant electoral change in Asia and elsewhere, with India and Indonesia voting for new leaders who are expected to bring with them radical change and the kind of economic growth that is only possible from a rethink of existing policies.
Soon, it will be the turn of Singapore, where a general election looms – as one does in the UK shortly afterwards. How much radical change these two events can be expected to yield I will not comment on here. But amidst these elections, one stands out tantalisingly: the general election scheduled to take place around October in Myanmar.
The hoped-for result among most Burmese is that opposition leader Aung San Suu Kyi will stand in contention for president. But this will require a constitutional amendment.
There is scepticism that the military junta which rules de facto in Myanmar – despite the inception of a supposedly civilian government in 2010 – will allow the law to be changed, clearing the way for her to stand. It’s not even clear yet that her National League for Democracy party will contest the election.
Aside from the implication of a Aung San Suu Kyi victory this year for Myanmar’s human rights, where there is an abysmal record, including allegations of jungle gulags, forced labour and “disappearances”, the capital markets are waiting for a cue that Myanmar is open for business.
Much needs to be done before Myanmar can become a capital markets issuer in its own right
AN ELECTION THAT results in some concession towards a more inclusive civilian rule (the constitution states that the military must be accorded 25% of the seats) might be the catalyst for the inclusion of Myanmar on the radar screens of institutional investors and bankers.
There was a clear step made in that direction late last year, when the country granted banking licenses to nine offshore lenders.
A small deal also closed last year in the project finance arena. Still, even if the right noises are made, much needs to be done before Myanmar can become a capital markets issuer in its own right.
A Singapore-based DCM head at a European bank reckons that sovereign debt emanating from Asia is a shoo-in proposition and that investors can’t get enough of it. I’m thinking aloud (fantasising perhaps) about the Republic of Myanmar bringing the ultimate frontier credit sovereign bond.
As far as the asset class is concerned, there is now certainly less Asian sovereign risk to be booked given that the Philippines has reduced its offshore funding quotas versus the gargantuan funding years of the last decade.
Indonesia remains a source of sovereign supply, but there’s not really enough from Asia’s sovereign sector to meet nascent demand.
And given that the Philippines dollar bond which opened the Asia G3 offshore primary year in January has already hit a 106 cash price I reckon my DCM mate might well have a point about sovereign paper being the clear winner of any credit beauty contest in Asia.
FOR THE FANTASY of Myanmar to become a reality, a number of events need to occur. Florian Schmidt, newly installed as head of DCM at SC Lowy in Hong Kong, says the country needs to reduce its reliance on resources and address its reputation as one of the most corrupt states in the world, as well as deal with a balance of payments deficit.
Still, it seems the ratings process is already in the works for Myanmar, an essential which must be in place before any offshore sovereign issuance can be contemplated.
Pricing the debt would be made in the context of secondary spreads on other frontier sovereigns where the core contributor to GDP is the resource sector. An obvious Asian comparable would be the Republic of Mongolia, with reference likely to be made to African sovereigns heavily dependent on oil and gas revenue for the state coffers.
As I wrote in this column last summer while in Yangon, there’s a process of reform going on in the country from which it is now anything other than prohibitively dangerous to turn back.
In all this I’m reminded of lines written by George Orwell in his novel Burmese Days, inspired by his time as a colonial policeman in Burma in the 1920s: “We walk about under a load of memories which we long to share and somehow never can.”
What is happening in Myanmar is transformational. Like other countries radically transformed by a change in leadership and the abandonment of an unworkable system, it is about sharing memories and addressing them.
South Africa had its Truth and Reconciliation commission as it addressed apartheid. Cambodia has its Khmer Rouge Tribunal. Myanmar will eventually need something similar to address the worst transgressions of 49 years of military rule.
Whatever the mechanics of pricing a debut Myanmar offshore dollar bond, the underlying reality of the country’s political and economic transformation resides in something altogether more profound. Still, I’m certain the capital markets will play an essential role in that transformation. They always do.
