Myanmar: Mergers & Acquisitions

The main laws governing business combinations are the 2017 Myanmar Companies Law (MCL), the 2016 Myanmar Investment Law (MIL) and the 2015 Competition Law.

Companies’ law

The MCL was passed on 6 December 2017 and entered into force on 1 August 2018, replacing the 1914 Myanmar Companies Act (MCA). It modernised the MCA (for example, improving companies’ ability to manage their capital structure) and removes some barriers to foreign investment.

Importantly, companies incorporated under the MCL (as under the MCA) are classified as either a “foreign company” or a “Myanmar company”. This distinction is important as there were historically a number of legal and practical restrictions to foreign companies doing business in Myanmar, and under the MCA, a Myanmar company was defined as a company with no foreign shareholding.

For example, in the past, in practice, it was not possible for foreign citizens or companies with any foreign shareholding to acquire interests in property under the 1987 Transfer of Immoveable Property Restriction Law (TIPRL). While the TIPRL prohibits the transfer of immoveable property to, or its acquisition or lease for more than one year by, foreign citizens or “foreign-owned companies”, defined as companies that are not 50 per cent or more owned or controlled by Myanmar citizens, the Myanmar government’s practice was to interpret this definition more narrowly with reference to the MCA definition of a “foreign company” as a company with any foreign shareholding.

Under the MCL, however, up to 35 per cent foreign shareholding is permitted in “Myanmar companies”, making this practice no longer possible. There is still ambiguity over whether the definition of “foreign company” under the MCL is relevant to the interpretation of the definition of “foreign-owned companies” under the TIPRL. That is, it is possible that either a company with up to 35 per cent foreign ownership or a company which meets the TIPRL’s definition of “foreign-owned companies” (that is, a company with up to 50 per cent foreign ownership) can now acquire interests in property.

The MCL also abolishes the requirement for foreign companies to obtain a “Form of Permit”, also called permit to trade, which was required under section 27A(3) of the MCA for a foreign company to carry on business in Myanmar, and which in practice, was only very rarely given for foreign companies intending to engage in trading activities.

Foreign investment regulations

The MIL, which was passed on 18 October 2016, also simplified and deregulated the investment regime in Myanmar. It combined the previous local and foreign investment laws into one law and provided for a streamlined investment approval process. Generally, a permit will be required under the MIL from the Myanmar Investment Commission (MIC), which administers the MIL, for large-scale projects, including investments that are strategically important, capital intensive, have a large potential impact on the environment or local community, use state-owned land and other designated investments. MIC approval will also be required for the direct (and technically, indirect) acquisition of a majority of shares or controlling interest in a company with an MIC permit or endorsement (described in question 22 below). The MIC has advised recently that indirect transfers of shares in companies with MIC permits or endorsements do not need to be notified to it; however, a prudent approach would be to seek a view from the MIC on a matter-by-matter basis.

In terms of the restrictions under the TIPRL noted above, the MIL permits foreign investors with an approval under the MIL to lease land for an initial term of up to 50 years (with two extensions of 10 years each). Such approval under the MIL may be in the form of an MIC permit or endorsement, together with a land rights authorisation. MIC endorsements were introduced in the MIL as a streamlined approval where an MIC permit was not required. However, while they are easier to obtain than an MIC permit, they have not proved as streamlined an approval in practice as originally envisaged, and the MIC generally requests detailed documentation as part of endorsement applications, based on the application process for MIC permits.

MIC issued the 2017 Myanmar Investment Rules (MIR) on 30 March 2017 setting out the process of obtaining approval under the MIL, and Notification No 15/2017 titled List of Restricted Investment Activities in relation to section 42 of the MIL (Negative List) on 10 April 2017, setting out the types of investments that are restricted to foreign investment, require approval of a Myanmar government ministry or may only be made through a joint venture with a Myanmar company. The Negative List was intended to be a comprehensive list of all such restrictions. However, while the MIC has updated the Negative List from time to time (for example, on 9 April 2018, it updated the criteria for approvals from the Ministry of Electricity and Energy (MOEE) for energy sector projects), as Myanmar’s laws evolve, the Negative List will become dated, and legal advice should be obtained on the specific restrictions applicable to particular mergers and acquisitions at the time of their investment.

Competition regulations

Myanmar’s Competition Law entered into force on 24 February 2017. This law prohibits collaborations that ‘intend to raise extremely the dominance over the market’, or lessen competition in a limited market; or would result in a market share above the prescribed amount.

Business combinations prohibited under the Competition Law may be exempt in certain circumstances, including if the acquired business is at risk of insolvency or if it will promote exports, technology transfer or productivity. However, it is not yet clear how its requirements will be applied in practice.

The Ministry of Commerce (MOC) issued the Competition Rules, set out in Notification No 50/2017, on 9 October 2017 providing primarily for the establishment of the Myanmar Competition Commission (Commission), which was then established on 31 October 2018 under Notification No 106/2018 of the Myanmar Government. In December 2018, the MOC published Form 1, which provides for the submission of complaints under the Competition Law to the Commission. However, the Commission has only recently been formed and has yet to systematically enforce compliance.

Securities regulations

Myanmar passed the Securities and Exchange Law in 2013 (SEL) and established the Yangon Stock Exchange (YSX) pursuant to that law in 2015. However, the YSX is still developing as a stock exchange, and there are currently only five listed companies.

On 12 July 2019, the Securities and Exchange Commission of Myanmar (SECM) issued Notification No. 1/2019 permitting foreigners to trade on the YSX to bolster the liquidity of the YSX. A ‘foreigner’ was defined in this Notification as any person who was not a citizen, associate citizen or naturalised citizen of Myanmar, or a company incorporated overseas or in Myanmar as a foreign company. Trading by foreigners was intended to commence once the YSX issued regulations implementing the SECM’s Notification No. 1/2019. The YSX issued the Framework for Trading by Foreign Investors on 6 September 2019. Under this Framework, foreign share trading on the YSX will commence once the system for foreign share trading is established and tested by securities companies. It is not yet clear when this will be finalised.

Regulatory authorities

The key regulatory authorities applicable to mergers and acquisitions are the Directorate of Investment and Company Administration (Dica), which administers the MCL, MIC, YSX, SECM and Commission.

The Myanmar Government implemented a number of important reforms in 2019, which has given fresh impetus to the local market, in particular the liberalisation of the banking and insurance sectors.

The Ministry of Planning and Finance (MOPF) announced in Notification No 1/2019, dated 2 January 2019, the liberalisation of the insurance sector. Prior to this, no foreign insurer had been awarded a licence under the Insurance Business Law of 1996 to undertake an insurance business in Myanmar (they could only conduct such a business in partnership with Myanma Insurance, the state-owned insurer, or in special economic zones under Notification 2/2017 of the Insurance Business Regulatory Board of Myanmar). The liberalisation of the sector was completed on 28 November 2019 when licences were issued to five foreign life insurers and three life and three non-life foreign-local joint ventures to conduct insurance businesses in Myanmar.

Similarly, the Central Bank of Myanmar (CBM) has been steadily deregulating the banking sector during 2019. On 24 January 2019, the CBM issued the Subordinated Debt Directive (Directive No 3/2019), permitting banks to include subordinated debt in their supplementary or Tier 2 capital, up to a maximum of 50 per cent of their Tier 1 capital, with the CBM’s prior approval. While the primary purpose of this directive is to support local banks to improve their balance sheets, it provides foreign banks an important avenue to scrutinise, and form relationships with, potential target Myanmar banks for foreign investment.

In terms of foreign ownership of banks, under the 2016 Financial Institutions Law (FIL), a foreign bank may only sell its business or acquire a local bank’s business (or a substantial part of either) with the approval of CBM. In addition, prior CBM approval is required for the (direct or indirect) acquisition of a ‘substantial interest’ in a bank (defined as 10 per cent or more of the shares in, or the capacity to control the management of, a bank). While no approval has been provided to date for such acquisitions, on 29 January 2019, the CBM issued Letter No. ma ba ba/baan si sit/1/(1/2019), permitting up to 35 per cent foreign investment in local banks with its approval.

On 17 June 2019, First Myanmar Investment Public Company Limited disclosed that the International Finance Corporation had converted the outstanding balance of a loan to Yoma Bank Limited into a five per cent equity stake, the first foreign equity investment in a Myanmar bank. There have been further reports of further investments in Myanmar banks by foreign banks, including reports of further foreign investments in Yoma Bank Limited.

Subsequently, the CBM announced on 7 November 2019 that it would it may permit more than 35 per cent foreign investment in local banks on a case-by-case basis. In the same announcement, the CBM explained that it would hold a new round of foreign bank licensing. Two types of licences would be available for foreign banks: a branch licence and a subsidiary licence. Under the subsidiary licence, foreign banks would be entitled to carry out the activities currently permitted for branch licence holders (that is, providing wholesale banking services to foreign-owned companies and Myanmar banks), and they would also be permitted to engage in onshore retail banking from 1 January 2021. Existing branch offices would be permitted to convert to a subsidiary office from June 2020 provided they have operated in Myanmar for at least 3 years.

Finally, there continues to be interest in operating a trading business in Myanmar given the size of the market and lack of sophisticated trading companies. The MOC had issued Notification No 25/2018 setting out the criteria for foreign and local companies and foreign-local joint ventures to engage in retail or wholesale distribution in Myanmar on 9 May 2018. The MOC issued News Bulletins No. 2/2018 and No. 3/2018 on 26 July 2018 clarifying its standard operating procedures and administrative requirements for applications to engage in retail or wholesale distribution in Myanmar, and the list of priority goods which would be permitted for trading by foreign companies and foreign-local joint ventures. It has continued to refine its approach to licensing in this sector. Notably, it issued Notification No 23/2019 on 21 May 2019 requiring companies which were previously permitted exceptionally to import and sell certain types of products (such as fertilisers, seeds, pesticides, and hospital, construction and agricultural equipment) to apply for approval under, and conform to the requirements of, Notification No 25/2018.

Dica statistics show that as of 31 December 2019, foreign investment has been particularly strong recently in transport and communications and manufacturing, and that historically it has also been strong in oil and gas.

A further round of tenders are expected to be called this year for explorations of oil and gas, and other short-term power generation projects are expected to meet the shortfall in Myanmar’s energy demands. As a precursor to incentivise such projects, on 25 June 2019, the MOEE raised electricity tariffs for the first time in five years, improving the viability of power supply in Myanmar.

As we noted in question 2 above, there has also been considerable interest in investing in the insurance and banking sectors recently. The government is also in the process of upgrading its aged infrastructure, including road, rail and port infrastructure, and this is likely to drive further investment.

A key factor likely to influence mergers and acquisitions activity is the extent and manner of implementation of the reforms Myanmar has been undertaking since opening to foreign investment, and the extent to which Myanmar adapts and modernises its local practices and regulatory culture in implementing such reforms.

A second challenge is whether Myanmar can improve its infrastructure to support foreign investment. Around two thirds of Myanmar’s population does not have access to the national electricity grid, and reliable access to power and transport continues to impact the conduct of business in Myanmar.

A final factor likely to affect foreign participation in mergers and acquisitions is Myanmar’s reputation as a place to invest. In particular, there are currently a number of proceedings against Myanmar, including a case in the International Court of Justice, arising from the actions of the Myanmar armed forces in ongoing internal armed conflicts. While there is no suggestion of broad-based sanctions being applied as a result at this stage, such developments can increase risks (including reputational risks) for investors.

As noted in question 1 above, the YSX is still in the process of establishing the system for foreign share trading. In terms of share acquisitions more broadly, under Notification No 1/2016 of SECM, an extraordinary report would be required in connection with share acquisitions that result in a change in the parent company or major shareholder (defined as a shareholder with greater than 20 per cent shareholding), or a transfer of the company’s material undertaking.

Unsolicited, hostile transactions are in practice not possible in Myanmar. In relation to listed companies, there are currently no takeover regulations in Myanmar and there is no history of unsolicited transactions involving YSX-listed companies.

In addition to share acquisitions, as with all companies, it is possible to acquire the business or assets of a publicly listed company.

Schemes of arrangement are also possible under the MCL and permit the acquisition of a company subject to court supervision where 75 per cent of the shareholders’ vote has been obtained, however these have not historically been used in Myanmar.

Technically under the MCL, companies registered in Myanmar are required to maintain registers, among others, of shareholders at their registered office or principal place of business and make them available to shareholders, and in the case of public companies (defined as companies with more than 50 non-employee shareholders or which issue invitations to the public to subscribe for its shares), also to the public at a reasonable price. However, few companies currently comply with this requirement and in general limited information is publicly available about the shareholders of unlisted companies registered in Myanmar.

Under the MCL, any person may obtain an extract of the corporate information of a registered company from Dica’s electronic register, called MyCo, on payment of the prescribed fee. Dica published Notification No 57/2018 on 9 July 2018 setting out its filing fees, including the fees to request an extract of the corporate information of a company.

In addition, on 27 December 2019, Dica published information regarding the beneficial ownership of companies involved in the resources sector in Myanmar. This information had been required to be disclosed pursuant to Notification No. 104/2019 issued on 2 October 2019 by the Office of the President. While this is a first important step to improve transparency around ownership of companies in Myanmar, the information disclosed by companies in this process was incomplete.

Dica followed up Notification No. 104/2019 by issuing Directive No. 17/2019 on 15 November 2019 requiring all entities in Myanmar to keep up-to-date information on their beneficial ownership and provide timely submissions to Dica and the Internal Revenue Department of Myanmar. Under this Directive, basic information about the ultimate beneficial owner of a company in Myanmar will be publicly available, although individuals may apply to Dica to have their information protected on the grounds they would be at risk of violence or intimidation.

In addition to the companies themselves, professional advisers such as accountants and legal service providers are also required to assist regulators to identify the beneficial ownership of companies registered in Myanmar. However, while this Directive took effect on 1 January 2020, Dica has not yet published the online form through which companies will be required to report their beneficial ownership.

YSX-listed companies are required under the Securities Listing Business Regulations of YSX to disclose earnings information and corporate decisions on important matters (or any other important fact) regarding the operation, business, assets or stock of the company which will have a considerable impact on investment decisions.

Potential acquirers will need to negotiate due diligence disclosure with target companies.

Due diligence continues to be a challenge in Myanmar, reflecting the poor record keeping and compliance of Myanmar companies, lack of familiarity with due diligence and sensitivity to disclosing company information. Prospective acquirers are advised to engage early with potential target companies to explain the purpose and nature of due diligence procedures and build the relationships required to ensure an appropriate quality of disclosure.

The key decision-making organs are the general meeting and board of directors.

In terms of approval rights, as noted in question 5, 75 per cent of shareholders must approve a scheme of arrangement. In addition, under the MCL, the directors of a public company, a subsidiary of a public company or (if its constitution provides) a private company, cannot sell or dispose of such company’s main undertaking without the consent of the company in a general meeting.

Directors owe statutory directors’ duties under the MCL, such as to act with due care and diligence and in good faith in the company’s best interests. These duties would apply to a directors’ conduct in the context of overseeing business combinations, although this is not expressly stated in the MCL.

Minority shareholders also have rights under the MCL in respect of controlling shareholders to take action against conduct that is oppressive.

No.

Myanmar does not have any takeover regulations and there are no laws dealing with tender offers on the YSX. Conditions are not prohibited with respect to business transfers, such as for satisfactory due diligence, and schemes of arrangement could in principle be conditional subject to the court’s supervision.

Exclusivity arrangements are negotiated contractually in Myanmar.

Deal protection and cost coverage mechanisms typical to mergers and acquisitions (such as confidentiality or non-disclosure agreements, non-solicitation agreements and break-up fees or reverse break-up fees) are not prohibited in Myanmar and may be used to protect deals from third party bidders as in other jurisdictions.

Consideration is most commonly in the form of cash. Such consideration can be financed through retained earnings or loans, but in the case of loan financing, in general the practice in Myanmar is not to deal with financing in the transaction documents because Myanmar’s banking sector is still developing. Such finance is generally obtained offshore.

In terms of financing Myanmar investments, it is generally understood that in practice all transfers of funds into or from Myanmar are governed by the 2012 Foreign Exchange Management Law. Prior approval from CBM is likely to

The disclosure obligations applicable to acquisitions of shares in listed companies are set out in questions 5 and 6 above.

As noted in question 6, under Directive No. 17/2019, Dica will make available basic information about the beneficial ownership of Myanmar companies once that Directive is implemented. In addition, under the MCL, companies are required to maintain a register of shareholders and make such registers available to shareholders during business hours, and in the case of public companies, the public. While this could be a source of disclosure of acquisitions in a company, as noted in question 6, in practice few companies are in compliance with this requirement.

More broadly, companies are required to file an annual return with Dica. Under the MCL, the annual return must list, for public companies, their 50 largest shareholders, and for private companies, all shareholders. Under the FIL, banks are also required to submit an annual report to CBM of all shareholders having a substantial interest in the bank and their details.

Subject to the disclosure obligations of companies listed on the YSX, which are set out in questions 5 and 6, no specific public disclosure obligations apply to acquisitions of companies in Myanmar. If the acquiring company is a company listed overseas, public disclosure may be required under the listing rules applicable to such acquiring company.

No.

There are generally no restrictions on the price of the shares in a target company, but schemes of arrangement are subject to court supervision.

While the financial assistance provisions of the MCL are not clear, they appear to permit private companies to give financial assistance in connection with the acquisition of their shares without limitation and for public companies (whether listed or not) to provide such assistance, with the approval of the board of directors and shareholders.

Under Myanmar law, parties are free in principle to choose any foreign law as the governing law of an agreement, subject to the operation of any applicable mandatory rules. In practice, state-owned enterprises and Myanmar government agencies will rarely agree to a choice of foreign governing law, and Myanmar private parties also prefer that Myanmar law applies to the transaction agreements. For agreements that are subject to scrutiny under the MIL, the MIC will generally require a choice of Myanmar law.

There are currently no takeover regulations in Myanmar applicable to listed companies, and this is not specifically regulated.

Under section 83 of the MCL, a transfer of shares in a company is effective upon the company entering it in its register of shareholders. A company is required to enter such transfers in its register of shareholders subject to its constitution and the receipt of a duly stamped and executed instrument of transfer in the prescribed form, together with share certificates evidencing the interests proposed to be transferred and a declaration by the transferor or transferee (or both) regarding whether the proposed transfer would result in the target company changing its classification from a Myanmar company to a foreign company or vice versa.

Under the Myanmar Stamp Act 1899 stamp duty is payable on share transfers in the amount of 0.1 per cent of the value of the transfer price.

Within 21 days of a transfer of shares in a Myanmar-registered company, a notice must be filed with Dica in the prescribed form notifying it of the transfer. Other associated filings with Dica may also be required, for example, for a change in its business name, or directors.

Under the MIL a notice must be filed with MIC for any transfers of shares in, or the business of, a company with an MIC permit or endorsement. As noted in question 1, while the MIC’s practice appears to have changed recently, the prior approval of the MIC will be required for any direct (and technically, indirect) transfers of shares in a company which has an MIC permit or endorsement (or to transfer the business itself), if it will result in an entity that is not an affiliate of the transferor acquiring majority ownership or control of the shares, or more than 50 per cent of the assets, of the business.

As noted in question 5, hostile acquisitions are not possible in practice in Myanmar.

As noted in question 5, hostile acquisitions are not possible in practice in Myanmar.

No.

Minority shareholders have rights under sections 192 and 193 of the MCL against conduct that is oppressive.

Schemes approved by 75 per cent of shareholders (or creditors) are binding on all shareholders (or creditors) and either by the order sanctioning such scheme or a subsequent order, a court can make provision for the transfer of a company’s undertaking or its shares, pursuant to such scheme.

In addition, the approval of an offer to buy the shares of a public company by 75 per cent of shareholders within four months of such offer will give rise to a right on the part of the acquirer to compulsorily acquire the shares of dissenting shareholders upon notice within two months, subject to any objection proceedings.