ASIA VIEW: Worse for Myanmar

The rapidity of foreign direct investment in Myanmar in these first years post-military control has been impressive. In the fiscal year 2012 to 2013, the Myanmar Investment Commission, the state investment appraisal department, approved $1.4 billion of FDI. In the year fiscal year 2013 to 2014, that approval figure rose to $4.1 billion. In the most recent fiscal year, $6.6 billion was approved.

It is of little wonder that a venerable queue of the who’s who in global business has formed to get itself invested. This year alone, its inward investment department, the Directorate of Investment and Company Administration, has hosted multinational companies including Japanese car manufacturer Toyota, Chinese telecoms company ZTE Corp, Anglo-Dutch oil company Shell, Thai bank Siam Commercial Bank and Dutch brewer Heineken with a view to seeing these brands take residence in the country.

Clearly a country with ambitions of shaking its long-held pariah reputation must start with its infrastructure, physical and social. The mobility boost provided by foreign investment in transportation and telecommunications is therefore hugely important. It must be handled efficiently and in accordance with the Foreign Corrupt Practices Act and other anti-corruption requirements held by prospective foreign investors.

When it comes to FDI in Myanmar’s real estate, given the aforementioned lack of infrastructure making commercial property investment a tough proposition right now, the country’s tourism boom was always going to herald the country’s first bricks and mortar dealings. And so it is a pity that SC Capital’s innovative plan to buy, refurbish and moor an old cruise liner for use as a luxury hotel in Rangoon has failed to materialize.
Beyond offering tourists a rare experience, the investment by the Singapore-based private equity real estate firm of entrepreneur Suchad Chiaranussati, would have represented a meaningful outlay by international, institutional investors. According to PERE Research & Analytics, among those backing the fund through which the firm made its investment are US pensions New Jersey Division of Investment, Fort Worth Employees’ Retirement Fund and City of Phoenix Employees’ Retirement System.

Being a fiduciary for such US institutional capital, with the stringent compliance and regulatory requirements it entails, is no easy task. SC Capital did well to harness investors’ confidence before committing to the $35 million project in the first place. Trailblazing – and make no mistake, deploying international, institutional capital in Myanmar today should be considered trailblazing – is a nervy affair at the best of times.

But when costs associated with dredging around the pier where the liner was to be moored exceeded the firm’s original underwriting, that prompted it to poll its investors to see whether they wished to continue with the deal on an adjusted (read worse) basis. The upshot: both sides agreed to halt the deal and today SC Capital is working out alternative solutions for the boat including mooring it as a luxury hotel in another jurisdiction or selling it on.

On learning about the current status of this transaction, I cannot help thinking that the Myanmese authorities should be paving the way for investments like these and not allowing factors as seemingly menial as sediment excavation to impinge them. Will this experience have spooked the investment committees of New Jersey, Fort Worth or Phoenix? Will it be recalled when SC Capital, or any other institutionally capitalized real estate platform tables another property investment in Myanmar?

It is a good thing that Chiaranussati’s fund also has two other hotel investments in the country, having first invested in 2013 through a $25 million development, also in Rangoon. Tangible success with these outlays will do much to convince international investors that, on dry land at least, there is clear merit to taking first-mover positions in the country. Let us hope those do not get mired in a planning saga or some other overly-bureaucratic affair. The country’s government should ensure safe passage.
For its part, stellar performances from its investments elsewhere in Asia have afforded SC Capital the right to try deploying capital into markets many of its peer group fear to tread. Further, it will have done itself no harm in its decision to converse with its investors when the basis for its boat-to-hotel investment changed: it has totally discretionary capital and did not have to do that.

Both the firm and its investors will likely be fine. The biggest loser in this tale, as things stand, unfortunately is Myanmar. It is the country, not the firm that is waving goodbye to the kind of money it so clearly requires to push on with its development.