Thu 23 Aug 2012
Filed under: Business / Trade,International,News
YANGON, Myanmar—Myanmar construction and mining magnate Zaw Zaw for several years has been squeezed by international sanctions, which have targeted him and other Myanmar tycoons for punishment because of alleged ties to the country’s former military regime.
But now Mr. Zaw Zaw is engineering a plan to bypass those sanctions and tap international markets in an effort to expand his stake in Myanmar’s fast-opening economy—and clear his name.
Mr. Zaw Zaw’s plans involve a process known as a reverse takeover or reverse merger, in which a private company merges with a publicly traded shell to gain access to capital markets. Analysts say reverse mergers can serve as a quicker, less expensive way for companies to go public than an initial public offering but that the process also lets companies avoid some of the scrutiny that comes with a typical IPO.
In Mr. Zaw Zaw’s case, the shell company would be Aussino Group Ltd., A15.SG +0.75% a Singaporean home and bedding retailer that has notched pretax losses for its past three fiscal years and faces a potential delisting if it doesn’t return to profitability. Under a deal announced last month, Aussino would buy Mr. Zaw Zaw’s Max Strategic Investments Pte. Ltd.—a holding company set up to run his conglomerate’s gas-station operations—by issuing 70 million Singapore dollars, or roughly $55 million, in new shares to Max Myanmar Group of Cos., which is controlled by Mr. Zaw Zaw.
If Singapore regulators approve the deal, Max Myanmar would gain majority control of Aussino—and access to Singapore’s deep capital markets. The Singapore company would sell its bed-linen business to a third party, and Mr. Zaw Zaw said he would float more shares to raise money to expand his gas-station network across Myanmar.
“This is for my business, to grow my business here and create jobs,” the 45-year-old businessman said in an interview here in Myanmar’s main commercial city.
Mr. Zaw Zaw’s bid for a Singapore listing comes as Myanmar businessmen are rushing to find ways to shore up their companies ahead of a flood of foreign investment that is expected after the Myanmar government began economic and political liberalization a year ago.
Many companies here faced limited competition in the several decades that a military junta ruled Myanmar before relinquishing power last year. Some companies now are lobbying the government to limit foreign investment so they can have more time to adjust to the country’s relative commercial freedom. If Mr. Zaw Zaw’s gambit succeeds, it could provide a blueprint for other Myanmar businesses that want to raise more cash to fend off cash-rich foreign companies like PepsiCo Inc. PEP -0.32% that have expressed interest in expanding here. Myanmar is considering creating a stock market that could help companies raise capital but that likely won’t happen until at least 2015, officials said.
If Max Myanmar has to wait for a public listing at home, “it will take too long,” Mr. Zaw Zaw said.
His Max Myanmar business empire is one of the country’s biggest, with interests in resources, construction, hotels and banking and around $500 million in annual revenue. Like other Myanmar companies, though, it has limited access to capital under Myanmar’s antiquated financial system, which also has no corporate-bond market and no major stock exchange.
Mr. Zaw Zaw also remains subject to U.S. sanctions, which means his path toward a Singapore listing likely would be complicated. U.S. diplomatic cables released on the WikiLeaks website revealed that U.S. authorities believed that Mr. Zaw Zaw sought contracts and permits from the former military government—which had been linked to human-rights violations—by volunteering to work on the regime’s marquee projects. His companies helped build the extravagant new capital city of Naypyitaw, which has eight-lane highways that often are largely empty except for bicycles, motorbikes and the occasional car.
Mr. Zaw Zaw denied being a crony of the old military regime.
The U.S. has eased some sanctions in recent months to permit American investment in Myanmar after it released political prisoners, loosened constraints on the media and took other steps. But Washington has kept in place restrictions that freeze U.S. assets of businessmen linked to the former junta and prohibit financial transactions between them and U.S. citizens.
Limits on the ability to conduct business with the U.S. could constrain Mr. Zaw Zaw’s aspirations for growth. And while Singapore and other countries aren’t compelled to adopt the U.S. rules, they could choose to follow them to curry favor with Western governments. Further, the Singapore Exchange considers the character and integrity of directors, management and controlling shareholders in determining whether to support a listing.
“It is clear that this would be a potential issue” for the Max-Aussino plan, said Andrew Lai, an attorney at Kelvin Chia Partnership, a Singapore law firm that is active in Myanmar issues. At minimum, “we think it is likely that Zaw Zaw will not be permitted to be a director or part of management,” he said.
A spokeswoman for the Monetary Authority of Singapore, which regulates the Singapore Exchange, said the proposed reverse takeover “would need to comply with requirements under the [Singapore Exchange] Listing Rules.”
Aussino’s financial advisers said that despite Mr. Zaw Zaw’s involvement, they believe the deal can completed in six to eight months.
Mr. Zaw Zaw said he looks forward to more scrutiny, hoping it could help establish his business’s legitimacy to the international community. “I’m not doing anything that’s a crime.”U.S. officials said they are re-examining their list of targeted individuals and could drop some names if convinced that they are working for the good of the country.
His empire recently hosted between 40 and 50 Singaporean regulators who flew in to pore through his books, he said. “I’ll do whatever I have to do and meet whatever criteria,” he said. “I want to show the world that we are so transparent, you can look into it all.”
Mr. Zaw Zaw said he wasn’t sure how much money he would try to raise through the Aussino deal, which would include only energy assets. The Max Energy business unit operates 21 gas stations across Myanmar and employs more than 500 people. Mr. Zaw Zaw said he wants to upgrade the stations and add shopping.
Derek Mitchell, the U.S. ambassador to Myanmar, said he hadn’t met Mr. Zaw Zaw and couldn’t comment on his situation.
Sanctioned tycoons have a “particular responsibility” to show that they are committed to helping the country after making money during the military regime, he said. If their plans simply involve ways to add to gains made under a military regime, “that’s not appealing to us,” Mr. Mitchell said.