myanmar outlook 2013 updated

10 September 2013

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MYANMARLast Fron er in Asia

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CONTENTS

Summary ................................................................................................................................. 3

Recent Key Developments At a Glance ..................................................................................... 4

Economy .................................................................................................................................. 7

GDP Performance ............................................................................................................... ........................ 7

Exports: Gas Driven Expansion in Short Term ............................................................................................ 8

Foreign Investments: Tapping “Asia’s Last Frontier” .................................................................................. 9

Economic Outlook .............................................................................................................. ...................... 10

Inflation: Remains Moderate .................................................................................................................... 12

Kyat: Volatile in Short-Term ..................................................................................................................... 13

Government Budget: Expanding Spending with Rising Revenue ............................................................. 14

Key Macroeconomic Indicators .............................................................................................. 16

Politics ................................................................................................................................... 17

Legal Reform .......................................................................................................................... 21

Tax System............................................................................................................................. 25

Key Industry Focus ................................................................................................................. 28

Oil & Gas ..................................................................................................................... .............................. 28

Agriculture ................................................................................................................... ............................. 37

Financial Services ............................................................................................................ .......................... 41

Construction .................................................................................................................. ........................... 45

Telecom, Media & IT ................................................................................................................................. 46

Opportunities Across Asset Classes ........................................................................................ 51

Public Equities ............................................................................................................... ............................ 51

Fixed Income .................................................................................................................. ........................... 52

Private Equity ................................................................................................................ ............................ 53

Real Estate ................................................................................................................... ............................. 54

ANNEX I. RECENT FOREIGN INVESTMENTS .............................................................................. 57

ANNEX II. M&A AND JOINT VENTURE DEALS ........................................................................... 58

ANNEX III: MYANMAR-FOCUSED LISTED COMPANIES ............................................................. 59

Contacts ................................................................................................................................ 60

61

70

59

a

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SUMMARY

Myanmar has continued impressing the foreign investment community with its bold political and economic reforms over the past year. By speeding up the transformation process towards democracy and market economy, Myanmar has attracted growing interest of global firms across industries such as oil and gas, telecom, infrastructure, manufacturing.

The launch of one of the largest oil and gas offerings by the country has brought global energy majors to participate in the bidding for energy resources believed to be massive. Opening the tenders for two mobile network licenses where twelve global and regional players battled have proved the intention of the government to integrate into the international investment community and boosted foreign investor confidence in the country and its prospects. In many other industries the government and prominent local business groups have partnered and reached several investment agreements with the governments of foreign countries and international business players. As the international sanctions have been removed, more western companies have established operations and/or expressed intentions to so in the new market with strong potential.

We reiterate our previous view that with rich natural and human resources and its strategic location in the region coupled with ongoing transformational reforms, Myanmar has the potential to become one of the world’s fastest growing economies over the next decade. Therefore, we believe the untapped and diverse Myanmar market is offering high risk-return opportunities to early investors across various asset classes and industries.

The economy of Myanmar has outperformed our previous projection of real GDP growth rate by expanding 6.5% in the financial year of 2012/13 (vs. 6% our estimate: see Myanmar Outlook 2012 report). We project Myanmar will experience up to 7% GDP growth in FY2013/14 thanks to faster-than-expected economic activities and reforms. Substantial increase in exports, primarily in gas sales thanks to ramp up of output and sales at the Shwe and launch of the Zawtika gas fields next year is likely to transform the economic growth performance. Investments, in particular foreign direct in major projects, primarily energy and infrastructure as well as telecom, and government spending are also likely to remain the key drivers of the growth.

We remain bullish on Myanmar-related equities that provide investors with easy-to-access exposure. As the local stock exchange is expected to become fully operational only after 2015, we are likely to continue seeing a number of IPOs and RTOs on international bourses in the coming years. We recommend our clients to invest in the Myanmar-focused international equities as the most effective way to gain exposure to the Myanmar growth story.

Our key investment themes in the short term are opportunities across asset classes - international equities, private equity and fixed income across diverse industries such as oil & gas, power, infrastructure, telecom (including IT), financial services, travel & hospitality, media, health care and education.


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RECENT KEY DEVELOPMENTS AT A GLANCE

Political major shift: “the reform process in Myanmar is irreversible” Year 2012 must be considered truly historic year in Myanmar politics. In a remarkable year of changes, the country initiated wide-ranging reforms in economy, politics and public administration. The scale and pace of reforms has taken the world by surprise. Considered by the most of the world as a pariah state merely one and half years ago, Myanmar is universally admired and lauded for bold political, administrative and economic reforms. In 2012 Myanmar re-joined international community after half a century of isolation. The country appears to be on a fast track from military rule to democracy and market-based economy. President U Thein Sein told the UN General Assembly in September 2012 that the reform process in Myanmar was irreversible.

The US and Myanmar: Strategic Reset President of the US Barack Obama made a short visit to Myanmar in November 2012. Historic visit underscored the US recognition of significant progress made with unprecedented political reforms, initiated by President U Thein Sein and his government. The first ever visit to the country by the sitting US President was a culmination of the Obama administration’s major foreign policy decision to pursue a strategic reset with Myanmar. Ahead of the President Obama visit, the US lifted restrictions on imports with the exception of jadeites from Myanmar. In December 2012, the European Union reinstated trade preferences to Myanmar under the Generalised System of Preferences. The country was granted “Everything But Arms” preferential trade regime which provides for complete duty-free and quota-free access to the European market for all products except for arms and ammunitions. High level visits from and to Western democratic countries are set to demonstrate full diplomatic support for reform process in Myanmar. President U Thein Sein visited the US at the invitation of President Obama in May, 2013. He has become the first Myanmar leader to visit the White House since 1966. During the meeting between two leaders, President Obama praised reform process in Myanmar.

Improving Foreign Relations An unprecedented number of bilateral visits from high level officials within the period of the new government in Myanmar indicate that both Myanmar and various foreign countries understand the mutual importance of the friendly relationship between the countries. Japan’s new government reaffirmed its support for Myanmar by providing financing backing. Premier Shinzo Abe visited Myanmar on May 24-26, 2013, marking the first such visit since 1977, and delivered a further write-off of debt approx. US$1.74bn and the ODA loan of approx. US$503mn. The recent visit by Finance Minister Taro Aso to Myanmar in January this year which delivered US$942mn in promised bridge loans is further evidence of Japan’s long-term interest in and commitment to Myanmar. Relations with South Korea have been friendly and the scope of partnership is expanding. A joint committee meeting on economic cooperation between Myanmar and S.Korea co-chaired by visiting Korean Vice Prime Minister announced in June that S.Korea agreed to provide US$500mn in loans to Myanmar from 2013 to 2017.

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Myanmar Hosted World Economic Forum For the first time Myanmar hosted World Economic Forum on June 5-7, 2013 in its capital city Nay Pyi Taw that brought together over 900 delegates including 500 business leaders from 55 countries. The 22nd World Economic Forum on East Asia “Courageous Transformation for Inclusion and Integration” was formally opened with inaugural speeches delivered by Myanmar President U Thein Sein and Vietnamese and Lao Prime Ministers. Several global and international firms have announced their plans on investing in Myanmar during the event.

Continuing Strong Economic Growth We expect economic growth in Myanmar to have accelerated in the financial year of 2012/2013 to estimated 6.5% y-o-y in terms of real GDP from estimated 5.5% a year earlier. The growth, in our view, was fuelled by faster-than-expected speed of pro-market and pro-business government reforms that resulted in increase in the economic activities. Benefitting from improved investment and business sentiment on the back of loosening international economic sanctions, exports of commodities, private consumption and accelerated pace of fixed capital expenditures both by the public and private sectors have contributed to buoyant growth last year, in our view.

Inviting Global Oil and Gas Majors In April this year, the government commenced an auction for 30 blocks of offshore gas and oil. Exxon Mobil Corp., France’s Total, Italy’s Eni, Australia’s Woodside Petroleum Ltd. and Oil India Ltd. are among nearly 60 global energy majors who have expressed interest in obtaining a share of Myanmar’s massive underexplored oil and gas resources. Estimates suggest the monetary value of the oil and gas resources of the country may reach up to US$75bn. Foreign energy firms with operations and expressing interest to establish such in Myanmar include those from Australia, Britain, Canada, China, France, Indonesia, India, South Korea, Malaysia, Russia, Singapore, Thailand and Vietnam.

First Gas Delivery Through CNPC Pipeline Myanmar started delivering first gas to China through the CNPC-majority owned and operated gas pipeline on July 28. The pipeline is to channel 12 billion cubic meters of gas a year (423.8 billion cubic feet) including 9.6 billion of that to China and 2.4 billion for domestic use. At its full capacity, the gas pipeline will account for about 6% of China’s annual gas consumption. Project partners include ONGC, Gail India, Korea Gas, Posco, Daewoo and Southeast Asia Gas Pipeline. CNPC started trial operation on the Myanmar section of the gas pipeline on July 15 and construction of the pipeline was completed on May 28. The US$2.5bn and 793km-long pipeline, which took more than three years to build, connects the Myanmar port of Kyaukpyu with the Chinese city of Kunming.

Announcing Two Mobile License Winners On 27 June 2013 the Myanmar government announced two international winners of a mobile communications license tender - Telenor and Qatar Telecom, which has recently rebranded to Ooredoo. France Telecom-Orange’s consortium was named as an alternate should one of two winners fail to fulfil its commitments. In the coming months the Government should finalize the license process. Out of 22 pre-qualified applicants, the Committee shortlisted 12 applicants that


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were announced in mid-April (a Vodafone and China Mobile consortium withdrew its joint bid in May as they believed the returns did not justify the investments).

S.Korean IAC Won Tender for Building New International Airport Myanmar is set to build a new Hanthawaddy International Airport, which is nine times larger than the existing Yangon International Airport and located 80km north to Yangon. South Korean Incheon Airport Consortium (IAC) won the tender for building the US$1.5bn Hanthawaddy International Airport with 12 million passengers a year handling capacity on August 10 after having battled with other seven prequalified foreign bidders from Singapore, Japan, France and South Korea. The IAC expects to sign a contract on this project in October this year and targets to complete the construction by the end of 2017 and start operating by the beginning of 2018.

Re-Engagement with International Donors and Debt Relief The international financial community has restructured a large part of Myanmar’s external debt. Restructuring of Myanmar debt and arrears to the World Bank, the Asian Development Bank and Paris Club creditors estimated to have effectively written off over 50% of the country’s external debt. Earlier, Japan, the largest Paris Club creditor to Myanmar announced its intention to unilaterally write off 60% (over JPY300bn) of Myanmar debt and committed to assist Myanmar to settle its debt arrears to international financial institutions.

Much-anticipated Foreign Investment Law Enacted The Myanmar authorities have passed the much-anticipated new Foreign Investment Law in November 2012 followed by the release of its rules and regulations. Under the newly adopted Law, foreign investments can take a form of either a 100% fully foreign proprietorship, a joint venture partnership with a citizen, government or organizational body, or a branch or representative office.

Myanmar-focused International Equities As the local equity market is almost non-existent, institutional investors may have exposure to Myanmar focused equities through investing in internationally listed companies with major business or assets in the country. These equities that collectively form the Silk Road Myanmar Index were up over 61% in 2012, the best equity market in Asia last year. The benchmark has posted a correction in the first eight month of 2013 declining 8.9% year-to-date as of August 31, 2013. Apart from these stocks, we believe in the coming years, before the local bourse becomes truly investable by institutional investors, a number of private conglomerates will likely seek international listing to raise capital to finance their fast growing businesses.

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ECONOMY

GDP Performance

We expect economic growth in Myanmar to have accelerated in the financial year of 2012/2013 to estimated 6.5% y-o-y in terms of real GDP from estimated 5.5% a year earlier. Our growth target is generally in line with the estimates of Myanmar authorities and the IMF that reported 6.7% and 6.4%, respectively. The growth, in our view, was fuelled by faster-than-expected speed of pro-market and pro-business government reforms that resulted in increase in the economic activities. Benefitting from improved investment and business sentiment on the back of loosening international economic sanctions, exports of commodities, primarily natural gas, substantial increase in inflows of foreign direct investments, private consumption and accelerated pace of fixed capital expenditures both by the public and private sectors have contributed to the buoyant growth last year, in our view.

In our estimate, GDP will have reached over US$54 billion by the end of FY2012/13 in nominal terms (compared to US$55.3billion by IMF) and GDP per capita exceeded US$900 (US$868 by IMF) (official data suggests that the number of population rose to 59.78 million as of October 2011).

Despite the prior year’s unfavourable weather conditions, low productivity and volatile commodity prices, the agriculture sector is estimated to have reached 4.2% y-o-y growth in real terms in FY2012/13.

Industry and services & trade have risen substantially thanks to accelerated public and private spending and overall consumption at 7.2% and 8.5% y-o-y, respectively.

We believe that the significant government spending on infrastructure and private sector investments in construction of residential and commercial properties have boosted the economy last year.

Real GDP Growth

Source: IMF, Mandalay Capital estimates (years are financial)

Real Growth by Sectors, %, y-o-y

Source: IMF, Mandalay Capital estimates (years are financial) a) including livestock, fishery, forestry; b) including manufacturing, power, energy, construction, mining.

0%

3%

6%

9%

12%

15%

0

20

40

60

80

2008 2009 2010 2011 2012e 2013f

GDP, US$bn, LHS GDP Growth, % y-o-y, RHS

0

2

4

6

8

10

2008 2009 2010 2011 2012e 2013f

Agriculture a) Industry b)

Services and trade Real GDP growth


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Exports: Gas Driven Expansion in Short Term

Energy and agriculture are the largest contributors to the Myanmar economy and the main sources of export revenues. In FY2012/13, Myanmar exports are estimated to have risen to US$10.3bn, according to the latest report by the IMF while the Central Statistical Organisation of Myanmar (CSO) data shows that total exports reached US$8.4bn.

The official numbers show the share of exports by State Economic Enterprises (SEEs) and private companies are 53% and 47% respectively, as of end-2012. Exports of natural gas, which are done by the SEEs only jointly with foreign energy firms, reached US$3.6bn accounting for almost 35% of total exports (2012). Natural gas is currently exported to Thailand and China. Agriculture, forestry and fishery exports are estimated to contribute over 25% of exports. The major trading partners were Thailand, Singapore, China, India, Malaysia, Japan and South Korea.

Exports are estimated to rise nearly 15% in 2013/14 financial year, including primarily thanks to a 20% increase in natural gas sales to be supplied through additional expansion of output at the Shwe and launch of Zawtika gas fields. These two gas fields alone may contribute +3% and +35% surge to total gas output in 2013 and 2014 financial years, respectively.

Myanmar started delivering first gas to China through the CNPC-majority owned and operated China-Myanmar Gas Pipeline on July 28. The pipeline is designed to channel 12 billion cubic meters of gas a year including 9.6 billion for export to China, which accounts for about 6% of annual gas consumption of the energy-hungry and neighbouring powerhouse.

Exports and Imports (US$mn)

Source: IMF, the authorities, Mandalay Capital estimates. Years are financial

Exports and International Reserves (US$bn)

Source: IMF, the authorities, Mandalay Capital estimates. Years are financial

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2009 2010 2011 2012e 2013f

Exports incl. exports of gas Imports

0

5

10

15

20

25

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f 2018f

Exports Gross official reserves

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Foreign Investments: Tapping “Asia’s Last Frontier”

Thanks to serious and positive political and economic transformations over the past year Myanmar has emerged in the radar of foreign strategic and financial investors. Myanmar has made major headlines by turning to democracy and market based economy away from military rule and centralized economic administration. Inviting to the country’s one of the largest oil and gas offerings brought global energy firms to participate in the bidding for energy resources believed to be huge. Opening the tenders for two mobile network licenses where twelve global and regional players battled have proved the intention of the government to integrate into the international investment community and boosted foreign investor confidence in the country and its prospects.

Myanmar attracted estimated US$2.9bn net foreign direct investments (FDI) in the financial year of 2012/13, up +38% y-o-y. We believe most of the FDI were made across different industries including oil and gas.

Now Myanmar is attracting the attention of global players across different businesses, including from the western countries that had been recently applying economic and investment sanctions on Myanmar. Below are some of such companies that have already invested or are planning to do so in Myanmar:

Coca-Cola Co., the world’s largest soda maker returned to Myanmar after 60 years by opening a bottling plant and pledging US$200mn in investment in the next five years. “It’s a great moment in history, just like it used to be when we opened up our business in east and central Europe in the former Soviet Union right after the fall of the Berlin wall,” CEO Muhtar Kent said according to Bloomberg.

Ford Motor Co. began operating in Myanmar on April 30 this year by opening its first dealership in Yangon, according to Bloomberg.

MasterCards and Visa have already partnered with major Myanmar local banks to issue their credit and debit cards accepted in the local market.

Unilever, the world’s second biggest consumer goods company, has also announced its plan to manufacture food seasoning in Myanmar and intends to invest US$656mn in the country over the next decade.

Please see the full list of the major deals and announcements made by the key foreign investors in the Annex.

FDI (net, US$bn)

Source: IMF, Mandalay Capital estimates. Years are financial

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f 2018f


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Economic Outlook

We are optimistic that demand for natural and human capital resources that Myanmar is rich with, foreign investments across various industries and active government monetary and fiscal policies will be the key driving forces of the domestic economy.

Endowed with massive and largely undeveloped natural resources, primarily oil and gas, Myanmar is attracting substantial foreign investments that should generate strong export revenues once the key projects come online in the near future. Existing projects are increasing capital expenditures in FY2013/14 that will add to the economic growth. The export industry benefits from the country’s proximity to China, India, Thailand and other fast growing ASEAN economies. Currently, natural gas remains the largest single export item. It is primarily exported to Thailand and increasingly to China. The launch of the CNPC-led China-Myanmar Gas Pipeline will allow increase in gas sales and will boost the economic activities. Ramp up of production at the Shwe and launch of Zawtika gas fields (output +50% y-o-y in physical term) are likely to transform the economic landscape substantially next year as the gas output is expected to increase substantially.

Foreign direct investments that have been and will still be focusing primarily on oil and gas are expected to penetrate to other key industries that the Myanmar government is opening to foreign players. Financial services, including banking, telecom and other sectors are set to benefit from such liberalisation in the coming years. The recent debt restructuring with the World Bank, Asian Development Bank and the Paris Club shows that the international donor community is committed to supporting the reform process in Myanmar. This, in our view, has already given a positive signal to the international investor community that Myanmar has emerged as an attractive investment destination.

The Myanmar government is considering a substantial capital expenditure on the economy, including infrastructure. According to conservative estimates, the government’s capital expenditure is expected to almost double over the next five years, including from the current US$3.9bn (FY2012/13) to US$4.6bn in FY2013/14. Apart from the public sector, we believe that the private sector is expected to expand spending on the ongoing and future projects in the coming year.

We also believe that with growing purchasing power of the Myanmar population measured by rising income (salaries, pensions and other revenues) thanks to the budget allocations and new investments private consumption is expected to be robust in the coming year and beyond that should support the economic growth. Thanks to the multiplier effect of the increasing government spending and foreign investments as well as injections by the multilateral financial donors, not only resource-related but also other various industries are set to experience expansion.

Having said that, we project Myanmar will experience up to 7% GDP growth this year, continuing its strong performance in the coming several years. Substantial increase in exports (in particular, natural gas, power and agriculture), investments in major projects, government spending and private consumption is likely to be the key drivers of the growth.

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Removal of sanctions will spur economic growth, expand foreign trade, attract FDI and develop the country’s highly prospective resource sector. The new foreign investment law is expected to improve investor environment and sentiment. Special economic and industrial zones will be aiming to attract FDI. With coming into operation of the Shwe and Zawtika gas fields and new pipelines to China and Thailand, natural gas production and exports are set to increase in the coming years. Much-anticipated issue of the two mobile telecom licenses is likely to fuel economic activities in the coming years.

We reiterate our previous view that given the country’s rich mineral resources and expected massive foreign investments in coming years, Myanmar has the potential to become among the world’s top five fastest growing economies over the next decade. As a result, we believe that Myanmar has potential to offer substantial returns for early investors across different industries and asset classes, albeit not without downside risks.


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Inflation: Remains Moderate

We expect the inflation for end-2013 (FY2013/2014) to hold a moderate level of 6.3% y-o-y. We view the prices may increase due to somewhat pick up in food prices compared to the level a year earlier as wage and asset valuation increases primarily driven by inflows of foreign investments are putting pressure on price level. CPI inflation is estimated to have risen to 4.7% y-o-y in FY2012/13 (March 2013) from 6% y-o-y in December 2012, mainly due to correction of the prices from the previous year and rising international prices including fuel and foods as the latter makes more than three fourth of the consumption basket. In this regard we share with the IMF view that international commodity prices are expected not to rise in the short term therefore this external factor should not build pressure on domestic prices.

In our view, the inflation may remain single digit in the short term, although higher than a year earlier, despite the plans of the government and commercial banks to increase their loans to the economy by almost one third including almost +38% y-o-y rise in loans to private sector. The risk associated with higher than expected inflation level is the lack of appropriate capacity of the newly established central bank, which is not fully independent from the government yet.

We hold to our view that as the Myanmar government is seeking to mandate the CBM full operational autonomy to pursue domestic price stability and transfer all central banking functions to it, there should be more transparency and predictability with the price movement in the medium and long terms.

Inflation (y-o-y, %)

Source: IMF

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Kyat: Volatile in Short-Term

In our view, the Kyat may undergo short-term volatility as, on the one hand, increase in exports, foreign aid and foreign direct investments may lead to strengthening of the currency, and on the other hand, substantial expansion in imports, in particular for major projects and consumer goods, may offset the upward pressure. Over the past year the currency has appreciated despite the wide current account deficit which was covered by foreign capital inflow.

The Kyat has depreciated over 13% year-to-date (calendar, since December 31, 2012), 9.8% year-to-date (financial, since March 31, 2013) and 11.1% year-over-year through August 30 2013, primarily due to widening current account deficit caused by increasing imports. In our view, the deficit may expand with faster growing imports compared to the pace of rise in exports in the short term. Exports are likely to catch up the speed at later years and imports may surge during a relatively shorter period of time which is expected to be fuelled by the removal of trade sanctions and growing business activities and immediate consumption.

In our view, the central bank will apply necessary monetary policy instruments not to allow sharp depreciation of the currency to maintain the parameters of the overall inflation level. As trade sanctions have been removed (except few items), we share the view that there is pent up demand for various import goods, both for intermediate use and final consumption, therefore the banking sector may experience strong pressure from supply side of the Kyat to exchange to foreign currencies used for import contracts.

Kyat/US$ Rate Performance

Source: Bloomberg, Mandalay Capital

800

820

840

860

880

900

920

940

960

980

1000

Apr

-12

May

-12

Jun-

12

Jul-1

2

Aug

-12

Sep-

12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Feb-

13

Mar

-13

Apr

-13

May

-13

Jun-

13

Jul-1

3

Aug

-13


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Government Budget: Expanding Spending with Rising Revenue

In our view, the government budget has experienced a stellar performance last year – both revenues from the taxpayers flowing in substantially, possibly the fastest pace in the recent years (if not decades) and spending going to social and hard infrastructure. The budget deficit is estimated to have narrowed to 3.6% of GDP in FY2012/13 as the government revenues more than doubled y-o-y and spending expanded over 75% y-o-y. The government targets the deficit to remain around 5% of GDP in FY2013/14, due to, on one hand, higher revenues from state economic enterprises (SEEs) and focus on non-resource income, and expected continuation in expanding spending on health, education and infrastructure, on the other.

We should note that the government has an objective to keep the budget deficit at around 5% of GDP over the short and medium terms. At the same time, the Myanmar government is committed to further increasing allocations for investment and recurrent spending in the health and education sectors, as well as infrastructure development, primarily thanks to expected rising revenues from gas projects coming on stream. The next financial year budget is planning to increase spending on education and health by 30% and 78% y-o-y, respectively.

Strong revenues last year were mainly contributed by the SEEs whose income jumped almost 2.8 times y-o-y, primarily due to shift to the market-based exchange rate in their operations. The government intends to increase financial autonomy to SEEs and therefore, starting 2013/14 financial year profitable SEEs will be self-financing their working capital. The government will be financing 20% of working capital of loss making SEEs.

We are bullish that the government revenue should increase in the coming years from the accelerated economic activities – both by the SEEs and private sector, as well as foreign grants from partner countries and multilateral development agencies. Official estimates suggest that the consolidated budget revenue and expenditures may expand approximately 15% and 20% y-o-y in FY2013/14 which we view as a conservative scenario.

The CBM is the key financier of the government deficit through the debt monetization. However, bond financing has progressed recently that contributed almost half of the deficit last year supported by the recent adjustment in interest rates. The medium and long term objective is to gradually reduce the role of this instrument as a finance source of the budget.

Among several positive initiatives we would highlight the government’s objectives aimed at increasing transparency and accountability in the budget process, allocating more spending to

Budget Performance (% of GDP)

Source: IMF

10 September 2013

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reach the country’s development goals in the near term, and laying the basis for higher revenue collections in the medium term. As a concrete step, the FY2012/13 budget was, for the first time, debated in and approved by the Parliament. It was designed to increase spending for health and education almost fivefold and twofold respectively, compared to a year earlier, as well as civil servant pensions were raised.

We reiterate our view that in short term we do not expect revenue stream from other types of taxes since tax policies and tax administration are yet to be improved. However, the Myanmar government is seeking to implement tax policy and administration reforms gradually and in a coordinated manner. It is planning to develop a strategy in this regard to further simplify rates while broadening the tax base, move toward greater reliance on indirect taxes and self-assessment in direct taxation, and improve the capacity of the tax administration.


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KEY MACROECONOMIC INDICATORS

Indicator FY2008 FY2009 FY2010 FY2011 FY2012/13e FY2013/14f

Population and income

Population, mn 58.80 59.98 61.19 62.41 63.67 63.67

GDP per capita, US$ 533 587 742 900 868 915

National accounts

Nominal GDP, kyats, bn 28.778 34,960 39,850 43,400 47,430 53,5

Nominal GDP, US$bn 31.4 38.1 49.6 56.2 55.3 59.4

Real GDP growth, y-o-y, % 3.6 5.1 5.3 5.5 6.5 7.0

Monetary indicators and inflation

Broad money, y-o-y, % 23.4 34.8 36.3 33.3 28.6 23.5

CPI eop, y-o-y, % 9.2 7.1 8.9 5.0 4.7 6.5

Exchange rate, eop, kyat/US$ 992 1,004 861 810 860 970

Gross international reserves, US$mn 2,012 2,699 3,126 3,662 4,915 5,541

Government finance

Revenue, % of GDP 13.1 12.1 11.9 12.0 23.0 23.4

Expenditure, % of GDP 15.5 16.9 17.9 16.6 26.6 28.4

Budget balance, % of GDP -2.4 -4.8 -6.0 -5.5 -3.6 -5.0

Balance of payments

Exports, US$mn 7,241 7,139 8,980 10,065 10,288 11,800

of which: Gas 2,849 2,480 2,657 3,282 3,563 4,311

Imports, US$mn 6,938 7,067 8,181 10,437 12,428 13,563

Exports, y-o-y, % 12.3 -1.4 25.8 10.1 2.2 14.7

Imports, y-o-y, % 25.6 1.8 15.8 23.8 19.1 9.1

Trade balance, US$mn 302 72 799 -372 -2,140 -1,763

FDI, net, US$mn 976 963 2,200 2,100 2,900 3,100

Source: IMF, the Myanmar authorities, Mandalay Capital estimates e = estimate; f = forecast

10 September 2013

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POLITICS

The Government of Myanmar initiated wide-ranging reforms in economy, politics and public administration. The scale and pace of reforms have put Myanmar firmly on the path to national reconciliation and democratization. The country is on a fast track from military rule to democracy and market-based economy. Myanmar, isolated from the world for half a century, has finally re-joined international community. Historic significance of reform process in Myanmar has been compared to the fall of the Berlin Wall and reforms in Eastern Europe. Democratization of Myanmar has geopolitical significance in one the world’s most dynamically growing regions. It provides impetus for democratization process in the region. It improves regional stability, security, cooperation and integration. Reforms in Myanmar open a new market, improve regional trade and provide a news source of resources to the global economy.

The path of reforms is not without obstacles. Sectarian clashes and communal violence threaten unravel reform process. However, with every passing day the confidence grows that reforms in Myanmar will succeed. President U Thein Sein assured the UN General Assembly in September 2012 that the reform process in Myanmar was irreversible. Re-iterating the government’s will to continue comprehensive political and economic reforms, President U Thein Sein said in May this year that the growth of democracy in Myanmar must go hand in hand with economic development and that improved relations on a global scale will provide the country with advanced technology and create jobs.

After U Thein Sein, the leader of the ruling Union Solidarity and Development Party (USDP), was elected as President in February 2011, Myanmar has made tangible moves towards democratization and reforms. The government released the leader of opposition Daw Aung San Suu Kyi and hundreds of other political prisoners. The government pledged to release any remaining political prisoners by the end of the current year. Reforms also included lifting of media censorship, new labour, foreign investment and other laws improving transparency, rule of law, accountability and business environment. The government ended violent conflicts with armed ethnic groups.

Dialogue with the opposition led to the participation of the opposition in free parliamentary by-elections in April 2012. The opposition National League for Democracy (NLD) led by Daw Aung San Suu Kyi won 43 seats of 46 contested and its leader took a seat in the parliament.

In a sign of growing democracy, Daw Aung San Suu Kyi stated her intent to run at presidential elections in 2015. However, the current constitution does not allow her to run. There are vocal calls to amend the constitution. Daw Aung San Suu Kyi admits that it would be difficult to implement constitutional changes, which would allow her to run. Reformist Speaker of Lower House of Parliament and the Chairman of the ruling Union Solidarity and Development Party (USDP) Thura U Shwe Mann has also announced its intention to run for the presidential post.

Free parliamentary by-elections, release of political prisoners and many other tangible steps towards democracy, persuaded Western democracies to fully remove most sanctions imposed on the country. Demonstrating support for reform process in Myanmar, President of the US


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Barack Obama made a strategically important visit to the country following his re-election for the second term. It was the first visit to Myanmar by a sitting US President. In return, President U Thein Sein made an official visit to the US in May 2013. Improving relations between the countries may help integration process and stability in the region.

The US and Myanmar: Strategic Reset The President of the US Barack Obama made a historic visit to Myanmar in November 2012 which underscored the US recognition of significant progress in reform process in the country. The visit was a culmination of the Obama administration’s major foreign policy decision to pursue a strategic reset with Myanmar. The US government initiated such bold strategy of engagement following the launch of comprehensive reforms by the Myanmar government. In his public address at Yangon University, President Obama said that he came to extend the hand of friendship. He noted that Myanmar could serve as an engine of growth for the world.

High level visits from and to Western democratic countries are set to demonstrate full diplomatic support for reform process in Myanmar. President U Thein Sein visited the US at the invitation of President Obama in May, 2013. He has become the first Myanmar leader to visit the White House since 1966. During the meeting between the two leaders, President Obama praised reform process in Myanmar.

President Barack Obama and President U Thein Sein Meeting

President U Thein Sein said: “For democracy to flourish, we will have to undertake more economic and political reforms in the years ahead and will need the assistance and understanding of the international community, including the US.” In an interview to CNN prior to the meeting, President U Thein Sein said: “It is the duty of the government to fulfil the will and the desire of people. The reforms that we are instituting are the will of the majority of the people.”

The US has provided support and encouragement for the ongoing reforms in Myanmar. The countries re-established full diplomatic relations in 2012. The Obama administration gradually

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eased and lifted long standing sanctions on Myanmar, paving the way for multinational companies and multilateral organisations to enter the country.

Geographic location of Myanmar at the heart of Asia-Pacific, between China and India has profound strategic importance, and the success of reforms in Myanmar is vital to the US. Asia Pacific is central to the US strategic interests. President Barack Obama made his first foreign trip to the Asia-Pacific region following his re-election in November, 2012. The US administration views Asia-Pacific as vital to America’s future economic prosperity. Noting the critical role of Asia to America’s future, the Obama administration announced strategic shift to the Asia Pacific region through the “Asia Pivot Strategy”. The US administration is paying close attention to developments in Myanmar. Myanmar’s joining a community of democratic states provides impetus for democratization process in the region and creates a natural ally for the US and other democracies.

Re-Engagement with International Donors and Debt Relief The international community has restructured a large part of Myanmar’s external debt. Restructuring of Myanmar debt and arrears to the World Bank, the Asian Development Bank and Paris Club creditors estimated to have effectively written off over 50% of the country’s external debt. Earlier, Japan, the largest Paris Club creditor to Myanmar, announced its intention to unilaterally write off 60% (over JPY300bn) of Myanmar debt and committed to assist the country to settle its debt arrears to IFIs.

Myanmar owed about US$1,650mn to the World Bank and the Asian Development Bank, including over US$900mn in back interest payments. The development institutions ceased lending to Myanmar after the country suspended debt repayments in the later 1980s. The parties needed to settle arrears in order for IFIs to resume lending to the country. Japan assisted Myanmar to meet its long standing obligations with Japan Bank for International Cooperation (JBIC) extending short term bridge loan to clear the arrears of past loans from IFIs. In January 2013, JBIC provided Myanmar US$512mn to clear arrears from the ADB loans and US$430mn from the WB loans. With arrears cleared, the World Bank and ADB approved new loan programmes for Myanmar. The WB extended a US$440mn Reengagement and Reform Support Credit to Myanmar and the ADB approved a US$575.5mn loan under Support for Myanmar’s Reforms and Inclusive Growth project. The new concessional loans were primarily used to repay JBIC bridge lending.

Following long normalization of relations with development banks, Myanmar agreed restructuring of its debt to the Paris Club creditors. The country stopped repayments to creditors in 1988. Demonstrating striking support for and faith in reform process in Myanmar, the Paris Club agreed to write off 50% of arrears due and to reschedule the remaining amount over 15 years, including a 7-year grace period. Japan earlier wrote off US$3.4bn of Myanmar debt. Norway cancelled all Myanmar debt, approx. US$530mn, owed to it. The combined effort of the Paris Club creditors estimated to have reduced net present value of Myanmar debt to the Club more than 60%. Prior to the debt relief total external debt of Myanmar stood at US$15.3bn, including US$10.33bn to the Paris Club creditors.


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Improving Foreign Relations An unprecedented number of bilateral visits from high level officials within the period of the new government in Myanmar indicate that both Myanmar and various foreign countries understand the mutual importance of the friendly relationship between the countries. Japan’s new government reaffirmed its support for Myanmar by providing financing backing. Premier Shinzo Abe visited Myanmar on May 24-26, 2013, marking the first such visit since 1977, and delivered a further write-off of debt approx. US$1.74bn and the ODA loan of approx. US$503mn. The recent visit by Finance Minister Taro Aso to Myanmar in January this year which delivered US$942mn in promised bridge loans is further evidence of Japan’s long-term interest in and commitment to Myanmar. Relations with South Korea have been friendly and the scope of partnership is expanding. A joint committee meeting on economic cooperation between Myanmar and S.Korea co-chaired by visiting Korean Vice Prime Minister announced in June that S.Korea agreed to provide US$500mn in loans to Myanmar from 2013 to 2017.

Myanmar Hosted World Economic Forum For the first time Myanmar hosted World Economic Forum on June 5-7, 2013 in its capital city Nay Pyi Taw that brought together over 900 delegates including 500 business leaders from 55 countries. The 22nd World Economic Forum on East Asia “Courageous Transformation for Inclusion and Integration” was formally opened with inaugural speeches delivered by Myanmar President U Thein Sein and Vietnamese and Lao Prime Ministers. Several global and international firms have announced their plans on investing in Myanmar during the event. For example, Coca Cola Co CEO Muhtar A. Kent who attended the Forum compared the opening of the company’s first Myanmar bottling facility to the fall of the Berlin wall. “The conditions at the moment are right and we’re certainly enthusiastic about the opportunities in Myanmar, no two ways about it” said Asia-Pacific President and Managing Director Simon Cooper to Bloomberg during the event.

World Economic Forum Opening in Myanmar

Source: World Economic Forum

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LEGAL REFORM

Remarkable changes in the legislation environment have continued year to date in 2013 transpiring new major laws such as the Central Bank Law, the Securities Exchange Law, the Anti-Corruption Law, and the Myanmar Citizens Investment Law. The Telecommunications Bill is in the final stage of the enactment to be signed by the President. With the demand for investment growing after the several lift of sanctions, trade reengagement, and the beginning of an internal democratization process, Myanmar is becoming increasingly tuned to the global economic society: firstly with structural change driven by regulatory bodies and secondly with gradual replacements of outdated laws that had overregulated various economic activities.

Significant legal restructuring in 2012 started with the release of the new Foreign Investment Law in November followed by the release of its rules and regulations, as well as redrafting and making of several laws. Laws currently being drafted also include the Mines Law, the Condominium Law, the Broadcasting Law, the Power Law, the Intellectual Property Rights Law, the Meida Law and the Special Economic Zone Law.

Following the inception of these rules the government has instituted a number of new arrangements with varying degrees of success. Although there has been an amount of ambiguity in some of the drafts of the laws, we believe that it is likely to be changed and improved with the help of businesses and foreign development institutions in the process of enacting these laws.

Central Bank of Myanmar Law Under the new Central Bank Law enacted on July 11 2013, the Central Bank becomes independent from the Ministry of Finance. The liberalization of the Bank is expected to speed up modernization of the sector and in due course will allow for joint ventures and branch operations of foreign banks and insurers. With this significant reform, critical financial legislations regarding financial institutions and the establishment of a stock exchange will undergo further legal amendments and monetary reformation. The rules and regulations related to the Central Bank Law are expected to come out in October this year.

The authorized capital for the Bank is set at MMK300bn (approx. US$300mn) with MMK100bn (approx. US$100mn) to be minimally contributed by the State. The Bank is to retain 40% of annual net profit to its general reserve until it matches the paid up capital.

Securities Exchange Law As part of the ongoing financial reforms, the Securities Exchange Law was also enacted on July 31, 2013. The regulatory body Securities and Exchange Supervisory Commission is to be set up and will oversee the establishment of a stock exchange, the securities market and licensing securities businesses. The stock exchange is expected to come online sooner than previously estimated 2015. The bylaws are also expected for release in end-October.


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Anti-Corruption Law The law on anti-corruption was passed in the Parliament on August 8th, replacing the previous Anti-Corruption Law of 1948. The new Law signifies a crucial dynamic requiring accountability from governmental representatives. In accordance with the Law, a 15 member Corruption Prohibition Committee will be formed and will have the authority to demand declaration of personal and family assets of any governmental officials including cash and property located both in Myanmar and overseas. The executive senior officials are mandated to declare assets and their acquisitions to the Committee. The Law will also obligate tax payment records for the transfer and sales of assets. Departmental corruption complaints can be directly sent to the Commission simplifying the previously complicated system and opening door for transparent assessment.

Myanmar Citizens Investment Law The 1994 Myanmar Citizens Investment Law was replaced by a new Law issued on July 29, 2013. Investments made by Myanmar nationals will be screened by the Myanmar Investment Commission, which also monitors foreign investment. The biggest amendment of the old Law is the lift of restriction on all economic activities. Prohibited businesses are now to be stated explicitly by relevant laws and are otherwise primarily concerned with environment degrading activities. Citizen investments are allowed to operate under the Foreign Investment Law when foreign investors acquires stake through prior approval from the MIC. Citizen investments are also now authorized for build-operate-transfer and build-transfer-operate projects. Benefits and tax exemptions are very similar to the FIL – including a 5 year tax holiday, 50% exemption of profit tax for exported manufactured goods, and custom duty relaxation on imported raw materials and machinery for construction and infrastructure projects.

Foreign Investment Law Under the newly adopted Foreign Investment Law, foreign investments can take a form of either a 100% fully foreign proprietorship, a joint venture partnership with a citizen, government or organizational body, or a branch or representative office. The Procedures relating to the Foreign Investment Law impose rules and regulations on business activities in restricted sectors with limits upon the ceiling and floor of equity distribution and capital investment. Key prohibited sectors for foreign investments include small and medium sized mining, jade and gem production and feasibility studies, electricity trading and management, operation of combined print and media broadcasting and publication of any periodicals in Myanmar and ethnic languages. Some restricted activities must be formed only as joint ventures with local partners (primarily applied for the consumer goods and manufacturing industries), or with the state (for heavy resources exploration, extraction or/and production). Other restricted activities are to be allowed with approval from the Myanmar Investment Commission or the union cabinet or both. Foreign companies are also allowed to trade their shares to international or local individuals or companies with an approval from the MIC.

Currently there are no legal frameworks for investment made in a purely local company or through a nominee, for instance in the real estate development sector where foreign ownership is outlawed. Foreign companies should therefore invest for a stake ownership through a locally incorporated company registered with the Directorate of Investment and Company

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Administration under the Myanmar Companies Act. Use of a local nominee is strictly prohibited and in such cases, the regulatory body advocates operating under the Foreign Investment law as an alternative.

The critical benefits of operating under the new FIL law include a tax holiday of 5 consecutive years for the manufacturing and service sectors; tax exemptions on profit retained for reinvestment in the subsequent year; and a 50% tax exemption on profit gained from manufactured, exported goods. There is also accelerated depreciation tax related to machinery, equipment, building and capital assets used in the business operations.

Special Economic Zone Law Under the existing Special Economic Zone Law the following privileges are granted: tax holidays for 5 years, a 50% tax exemption for five years on products sold overseas, a 50% income tax relief for five years on the export profits retained as a reinvestment reserve, and a 50% to 100% exemption on customs duty for five years on imported raw goods such as machineries and vehicles.

In the new SEZ law currently being drafted, investment businesses in free trade zones within the special economic zones would be entitled to income tax exemptions for the first seven years, and similarly for the first five years for businesses operating in other areas of the SEZ zones. An additional 50% income tax exemption could be observed for the second subsequent five years after; and another additional 50% income tax exemption could be granted for profits retained each year reserved for immediate reinvestment during the third subsequent five year period.

Construction and infrastructure development would be enabled as either a 100% foreign owned, 100% locally owned, or joint venture between foreign and domestic entities. Benefits would include income tax exemptions for the first eight years, 50% income tax exemptions for the subsequent five years, 50% tax exemptions for profits retained each year reserved for immediate reinvestment during the third subsequent five years, and the alleviation of customs duty for both imported and exported goods either as raw materials for investment projects or in the trade promotion zones.

Draft Condominium Law At present, foreign ownership of land and property is not permitted in Myanmar. Under the new Foreign Investment Law, the period for land leases is increased to 50 years with two 10 year extensions. The restriction is likely to be relaxed, in our view, in the new Condominium law, possibly with certain restrictions added as reflective of the market condition including steeply escalating rental and purchase prices of lands and commercial spaces in Yangon, supply of land and property, and availability of capital injection.

For property development projects, foreign investors can acquire land use rights with the land leased from the government or private sector with the approval of the government under the FIL Law. Development can then be structured as a “build, operate and transfer” model.


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Bilateral Investment Treaty Myanmar has bilateral treaties on investment with China, India, Thailand, Vietnam, the Philippines and Laos in order to facilitate and promote investment. Myanmar and Japan are currently in negotiations over a bilateral investment treaty.

Arbitration Myanmar is a signatory to the agreement of the Arbitration Clauses of the Geneva Protocol and the Geneva Convention on the Execution of Foreign Arbitral Awards while it was a British Colony. However, the terms of the agreement include arbitration awards only in a “reciprocating territory” and the participatory size only extends to 37 countries, among which only 15 countries are recognized by Myanmar. There is the Myanmar Arbitration Act of 1944, which requires written agreement on arbitration and promotes the general delegation of arbitrator power to the state as contracting disputes are settled largely by the Union of Myanmar Federation of Chamber and Commerce Industry. There are also few participating commercial arbitrations, and foreign arbitration provisions are not allowed by the MIC. Myanmar is also part of the ASEAN Investment Protection agreement of 1987.

On July 15 2013, Myanmar joined the New York Convention three months after the Parliament agreed to the legal reformation. The depository notification is still to be signed officially. Initiative talks took place in the House over a year ago about incorporating the local arbitration law to the UNCITRAL (United Nations Commission on International Trade Law) Arbitration Rules. According to the rules, the participatory size applies to formerly 148 member countries of the United Nations. This effectively encourages the international business community to push forward with its investment interests into the country. The ratification of the Convention will allow all disputes to be considered for arbitral awards. However, a caution can still be recommended. First, the local statutes need to be amended accordingly to the Convention and second, the limitation on reciprocity selection must be ensured. Regardless, the decision indicates a breakthrough in the underlying confidence of Myanmar-focused international companies.

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TAX SYSTEM

Overview At present, 15 applicable taxes and duties are regulated by the Ministry of Finance. In general, commercial taxes on commodities and services, state lottery and stamp duties are considered to be production and expenditure tax, which is one of the two key elements of the state’s tax revenues. The second component is from income and ownership tax.

The taxable year is the same as the financial year - from 1st April to 31st March. Tax payments can be stipulated in advance to occur either monthly or quarterly. If payment exceeds liability, a tax return is generally carried over to next payment period with withheld tax on the basis that the business continues. Income taxes must be filed within 3 months after the end of the financial year. Capital gain taxes from the sale or transfer of assets must be filed within a month.

Income Tax Under the Income Tax law, taxable income is categorized by employment, profession, business, property, capital gain, undisclosed income, and income from other sources. The computation of tax (including both income and expenditure) in the case of foreign currency contribution to revenue must be carried out in the local currency, the Kyat (exchange rate is taken from the average over the days during which revenue was generated). Taxes must be paid in Kyats and foreign currency in proportion to their distribution ratio in revenue; and tax returns will be given in the same respective currency. In the case of fixed tax rate, tax payment will be the rate applied and not proportional to revenue generated in the foreign currency.

The law applies to both local and foreign individuals and entities, and differentiates them by their residence status. Foreign individuals who have resided in Myanmar for more than 183 days, companies formed under the Myanmar Companies Act and the Foreign Investment Law and any associate of a person other than a company who exercises control or management wholly in Myanmar are considered resident under the law. Resident companies formed under the FIL law are not taxed on their overseas income.

Personal income tax rate prior to exemptions on professions, businesses, cooperatives, and income from other sources are 2% for up to MMK500,000 income, 20% for MMK20mn income and 30% for over MMK30mn income. For non-resident citizens, it is 10% and for foreigners working on a government project, tariff becomes 20% of total taxable income. The tax levied on companies is 25% for those registered under both the Myanmar Companies Act and the FIL. For non-resident foreign individuals or entities, a 35% rate is imposed.

There is a 10% tax collected on capital gains before exemptions of private, cooperative and state enterprises with the exception being oil and gas companies. If the capital gain is acquired by non-resident foreign individuals or entities, 40% is observed. For oil and gas companies, the tax requirement is 40% for under US$100mn capital gains, 45% for US$100mn to US$150mn, and 50% for over US$150mn. Capital losses are not allowed to be carried over for deduction from future capital gains. Losses however are entitled for a maximum of 3 years.


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Tax Revenue, MMKbn

FY Tax on Production and Expenditure Tax on Income and Profit Total

Commercial Tax Lottery Tax Stamp Duty Income Tax Profit Tax

2008 414.8 17.3 15.1 405.1 103.1 955.3

2009 466.1 20.1 20.8 415.6 114.1 1036.8

2010 601.8 20.3 29.5 435.9 135.4 1222.9

2011 768.7 21.6 37.4 711.2 - 1538.8

2012p (Dec) 733.3 37.4 44.1 940.6 - 1755.4

Source: Central Statistical Organization, p=provisional

Income Tax Exemptions For personal income tax, there is a MMK1,440,000 annual exemption on total taxable income. MMK300,000 can be deducted for one spouse allowance and an additional MMK200,000 each for children under 18. Companies registered under the FIL are qualified for a 3 year tax exemption. Tax holidays and exemptions in some cases are not automatic. For this, we advise all interested foreign and local companies to consult with the tax administration before implementing businesses operations.

Commercial Tax Commercial tax includes goods and services taxes. Services are generally applied 5% commercial tax. Goods taxes classifies commodities locally produced (0%) or imported (5%); locally manufactured (5%) and imported (5%); manufactured and imported products from industrial zones (3%); and special commodities either locally manufactured or imported from cigarettes (100%), jade and precious stones (30%) to natural gas (8%). Same tax rate is kept for exportation of 5 products under special commodities including petroleum crude (5%), natural gas (8%), teak log and conversion (50%), hard wood log and conversion (50%), and jade and precious stones (30%).

Currently, duties on exportation and importation of goods are overseen by the Customs Department under the Tariff law and the Sea and Land Customs Act. Exemptions particularly on imports of machinery and spare parts used in development projects as well as the goods and services sold, imported or exported are granted on a case by case basis.

Customs Duties, MMKbn FY Normal Trade Border Trade Total

Export Import Export Import

2008 - 36.8 - 48.4 85.2

2009 - 33.9 - 11.6 45.5

2010 - 42.5 - 11.7 54.2

2011 - 116.1 - 14.1 130.2

2012p (Dec) - 236.6 - 37.8 274.4

Source: Central Statistical Organization, p=provisional

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Stamp Duty At present, stamp duties are applicable to the sale, transfer or rental of immovable property and shares. Rental contract between one to three years are taxed at 1.5%, and 5% of the total transaction value for contracts of more than 5 years. There is also a property tax on the rental or transfer of ownership on immovable property; however foreign ownership of land and property is presently restricted.

Double Taxation Agreements Myanmar has signed treaties to avoid double taxation with Singapore, Thailand, Malaysia, Vietnam, Indonesia, Laos, India, Bangladesh, South Korea and the United Kingdom. However the gazetted announcement of treaties is required by the Income Tax law to be in effect. Currently, only the treaty with the UK was announced to the public, and the treaties with Singapore, Thailand, Malaysia, Korea, India and the UK are reported on the government website. As such, we recommend investors to receive consultation first on the established treaties regarding double taxation avoidance.


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KEY INDUSTRY FOCUS

Oil & Gas

Myanmar has become a growing investment destination for global oil and gas majors seeking early opportunities in this largely untapped frontier market with estimated world class energy resources. Its gas reserves represent 1.9% of known deposits in the Asia-Pacific region, according to the Energy Information Administration. As the country’s both onshore and offshore areas have been underexplored due to lack of investments on the back of almost five decade military rule, Myanmar, especially its vast offshore is believed to contain world class natural gas resources. With three main large offshore oil and gas fields and 19 onshore ones, Myanmar has proven recoverable reserve of 18 trillion cubic feet (TCF) out of 89.7 TCF's estimated reserve of offshore and onshore gas. Official data show that the country is also believed to hold 3.2 billion barrels of recoverable crude oil reserve. Peter Coleman, CEO of Australia’s Woodside that reached two exploration deals last year in Myanmar and has bid on offshore blocks said Myanmar’s reserves are quite modest. “This is all about potential. We are talking about potential in deep waters offshore of Myanmar. It’s a story about the future of Myanmar.” he said.

There are currently mainly three offshore natural gas projects in Myanmar -- Yadana, Yetagun and Shwe, of which Yadana is the largest producing 834 million cubic feet (23.6 million cubic meters) per day.

Foreign energy firms with operations and expressing interest to establish such in Myanmar include those from Australia, Britain, Canada, China, France, Indonesia, India, South Korea, Malaysia, Russia, Singapore, Thailand and Vietnam. There are now 16 energy multinationals working on 17 onshore exploration blocks and 15 exploring or producing in 20 offshore blocks in Myanmar.

In April this year, the government commenced an auction for 30 blocks of offshore gas and oil (see the full list of the blocks below). Exxon Mobil Corp., France’s Total, Italy’s Eni, Australia’s Woodside Petroleum Ltd. and Oil India Ltd. are among nearly 60 global energy majors who have expressed interest in obtaining a share of Myanmar’s massive energy resources potential, the country’s energy ministry said. Estimates suggest the monetary value of the oil and gas resources of the country may reach up to US$75bn. As of end-February 2013, foreign investment in Myanmar’s oil and gas sector reached US$14.4 billion in 115 projects, representing more than one third of the country’s total foreign investment.

Myanmar will need US$320bn through 2030 to develop energy and other industries to achieve 8% per annum economic growth as being located between energy-hungry China and India, a McKinsey Global Institute report projected. The report also indicated that the contribution of energy and mining to GDP is estimated to rise to US$21.7 billion by 2030, from US$8 billion in 2010. State-owned Myanmar Oil and Gas Enterprise (MOGE) reported that about 300 new test wells have been set for drilling in the next five years for oil and gas exploration.

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Oil India, the nation’s second-biggest state explorer, also reported that it planned to bid for onshore fields in Myanmar. PTT Pcl, the parent company of PTTEP and one of the largest investors in Myanmar, said it is “planning a lot more” in the country, CEO Pailin Chuchottaworn was quoted as saying according to Bloomberg Television. “There’s a lot of energy demand in this country given the energy shortage problem here,” he said.

Yadana and Yetagun, with estimated combined gas reserves of 12 trln cubic feet, are currently two offshore operations by TOTAL and Petronas Carigali, both exporting gas to PTT PLC in Thailand. Given that Myanmar’s vast land is still yet to be explored, the reserve numbers are likely to increase many folds. PTTEP stated on July 7 this year that it discovered gas in three gas fields in Mottama offshore block during February and May and they are now yielding a total of 2,050 barrels of condensate.

Crude Oil and Natural Gas Reserve

Source: MOGE March 2012

Location Crude Oil (MMBL) Natural Gas (TnCF)

Onshore 459 (104 proved + 355 probable) 0.94 (0.41 proved + 0.53 probable)

Offshore 80 (35 proved + 45 probable) 71 (11 proved + 60 probable)


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Natural Gas Supply

Source: MOGE, March 2013

Myanmar started delivering first gas to China through the CNPC-majority owned and operated China-Myanar Gas Pipeline on July 28. The pipeline is to provide 400 million cubic feet per day (mmcfd) of gas to China and 100mmcfd for domestic use. At its full capacity of 12 billion cubic metres per year, the gas pipeline will account for about 6% of China’s annual gas consumption. Project partners include ONGC, Gail India, Korea Gas, Posco, Daewoo and Southeast Asia Gas Pipeline. CNPC started trial operation on the Myanmar section of the gas pipeline on July 15 and construction of the pipeline was completed on May 28. The 793km-long pipeline, which took more than three years to build, connects the Shwe gas field, Myanmar port of Kyaukpyu with the Chinese city of Kunming.

Myanmar is also expected to launch the first oil delivery through CNPC-run China-Myanmar Oil Pipeline which is projected to be completed by June next year. CNPC said that about 98% work is done and the pipeline will span 7,676 km, with Myanmar segment running 1,504 km and China 6,172 km. The oil pipeline whose construction started March 15 last year is designed to deliver 22 million tons to the Chinese market a year.

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CNPC –Myanmar Oil & Gas Pipelines

Source: Reuters

Myanmar is set to emerge as one of the key suppliers of energy in the region. Natural gas accounts for 90% of hydrocarbon production, over 80% of which is exported to Thailand. Natural gas imported from Myanmar, approximately 1,000 mmcfd, accounts for about one-fourth of Thailand’s consumption. This figure is set to double by 2016, following the ramp up in production from the Shwe and Zawtika projects. These two gas fields will likely increase the gas output by +50% next year. China is the key player in the industry. The Myanmar government awarded purchasing rights for gas from the Shwe fields to China in June 2008 in an agreement to export 6.5tcf of natural gas over 30 years through the CNPC’s gas pipeline. CNPC also wants to import crude oil from Myanmar through its 51%- owned crude oil pipeline that will run parallel to the natural gas pipeline. We believe strategic location next to major BRICS powerhouses – China and India – and rapidly growing ASEAN markets, oil and gas industry of Myanmar will remain an attractive investment destination for global oil and gas majors both from the region and the Western developed countries.


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Gas Supply Outlook

Source: MOGE, March 2013

Existing Oil and Gas Operations

Offshore

Yadana, Yetagun and Shwe are the three offshore operations by TOTAL, Petronas Carigali and Daewoo International are exporting gas to PTT PLC in Thailand and CNPC of China, respectively. Myanmar currently takes 67% income from the exports.

Yadana is a 30- year project led by TOTAL within Moattama offshore in M-5 and M-6 blocks; starting gas exporting in 1998 at a Daily Contract Quantity of 525 and 565 mmcfd respectively. Combined gas reserve capacity is estimated to be 7.91 trln cubic feet. Within the blocks, there is Sein Field development for domestic gas supply producing at the capacity of 40 mmcfd since 2006. TOTAL is also involved in a couple of other projects, recently bought M11 with a 40% stake with PTTEP and Nippon in M-11 block while the PTTEP will remain as the operator.

Yetagun is also a 30 year project led by Petronas Carigali within Tanintharyi offshore in the blocks M-12, M-13 and M-14. It started production in 2000 at a capacity of 200, 260 and 400 mmcfd respectively. M-14 block also produces some amount of condensate at 50 barrels BL per 1 mmcfd. Combined gas reserve is estimated at 4.16 trln cubic feet.

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Source: MOGE

The Shwe field is in the Rakhine offshore area A-1 and A-3 blocks, which include the Shwe, Shwe Phyu and Mya discoveries at commercial capacity, and the Shwe Nilar, and Ngwe North prospects. It is estimated for the 3 discovery sites to hold combined gas reserve of 4.79 to 8.63 trln cubic feet. Run by Daewoo International, the field started delivering the first gas to CNPC-gas pipeline in July this year. Phase one of the Shwe project aims to produce 500 million cubic feet per day of gas, 80% of which will be sold to China.

PTTEP’s Zawtika field is still under development, and is targeted to start the export production in 2015. Gas from Zawtika is to be exported to to Ban I Tong, Thailand by PTT .

The Zawtika project includes three field developments – Zawtika, Kakohnna and Gawthaka in Moattama offshore area in blocks M-9 and M-11.

The Zawtika field in M-9 block is estimated to hold a reserve of 1.44 trln cubic feet, and the initial DCQ is at 300 mmcfd with 20% reserved for domestic supply and the rest for export. Shwe Pyi Htay discovery within M-9 block produced at a rate of 25 mmcfd at the test production and estimated for the reserve of 250 bn cubic feet. Shwe Pyi Htay discovery is also believed to be connected to M-7 site 2 also contracted by PTT that produced at 18.45 mmcfd at the test production. Share structure is divided into 80% by PTTEP and 20% by MOGE. PTTEP also has EP in M-3 and M-11, and recently accepted a deal under which a 60% production stake is awarded to Australia’s biggest oil operator Woodside Petroleum. In combination the three fields are estimated to contain a reserve of 2 trln cubic feet.

New field development projects Galon, Nagar, Chinthe, Hintha in blocks M-15, M-16, M-17, M-18 respectively are estimated by Petronas to hold a reserve of 25 trln cubic feet.

Source: MOGE

DI50%

KOGAS8%

ONGC16%

GAIL9%

MOGE17%

Shwe Shareholder Structure

Petronas41%

Nippon19%

PTTEP19%

MOGE21%

Yetagun Shareholder Structure

TOTAL31%

UNOCAL28%

PTTEP26%

MOGE15%

Yadana Shareholder Structure


34

Onshore Projects

Onshore oil and gas activities started in the middle of Myanmar in 1887 in Yenangyaung which is still in production capacity. Major production sites are run by MPRL E&P and Goldpetrol each at the rate of 2036 and 1810 barrels per day. Myanmar onshore activities are mostly dominated by companies from neighbouring China, India and Singapore.

Crude oil production

Source: MOGE March, 2013

The oil and gas sector of Myanmar is also expected to get boost by the development of the Dawei Special Economic Zone (SEZ) which considers establishing an oil refinery in the second phase of the project construction. Experts estimate that the value of the whole infrastructure building for the SEZ would require US$300-400 billion, including US$1.4bn in the first five years of the project. Myanmar and Thailand, the initial project developers, have invited Japan to join in the development of the SEZ. It was reported on July 28 this year that Myanmar has worked out a 75-year plan to develop the SEZ seeking strategic partnership with Japan and inviting international tenders and developers for the implementation of the SEZ project.

10 September 2013

35

List of 30 Offshore Blocks for Bidding

Offshore Blocks Location Type of Contract Depth (ft) Shallow Water Blocks A-4 Rakhine Offshore Area PSC A-5 Rakhine Offshore Area PSC A-7 Rakhine Offshore Area PSC M-4 Moattama Offshore Area PSC M-7 Moattama Offshore Area PSC M-8 Moattama Offshore Area PSC M-15 Tanintharyi Offshore Area PSC M-16 Tanintharyi Offshore Area PSC M-17 Tanintharyi Offshore Area PSC M-18 Tanintharyi Offshore Area PSC YEB Tanintharyi Offshore Area PSC Deep Water Blocks AD-2 Rakhine Offshore Area PSC > 6,000 AD-3 Rakhine Offshore Area PSC > 6,000 AD-4 Rakhine Offshore Area PSC > 6,000 AD-5 Rakhine Offshore Area PSC > 6,000 AD-9 Rakhine Offshore Area PSC 3,280 – 6,560 AD-10 Rakhine Offshore Area PSC > 6,560 AD-11 Rakhine Offshore Area PSC AD-12 Rakhine Offshore Area PSC AD-13 Rakhine Offshore Area PSC AD-14 Rakhine Offshore Area PSC AD-15 Rakhine Offshore Area PSC AD-16 Rakhine Offshore Area PSC MD-1 Moattama Offshore Area PSC > 6,000 MD-2 Moattama Offshore Area PSC 1,500 – 6,000 MD-3 Moattama Offshore Area PSC 600 – 6,000 MD-4 Tanintharyi Offshore Area PSC 3,000 – 8,000 MD-5 Tanintharyi Offshore Area PSC 6,000 – 9,000 MD-6 Tanintharyi Offshore Area PSC 6,000 – 10,000 YWB Tanintharyi Offshore Area PSC Source: Ministry of Energy, as of April 11, 2013

Companies Working Offshore

Year Contracted/ Production

Operator: Partners Daily Contract Quantity (Well Head production, Export, Domestic Supply, Condensate Production)

Country Blocks Projects

Jul 1992, 1998

Total E&P Myanmar: Unocal, PTTEP, MOGE

WH: 690 mncfE: 565 mncf (to PTT) DS: 125 mncf

French M-5, M-6 Yadana

May 1990/ 2000

Petronas Carigali Myanmar: Nippon Oil, PTTEP, MOGE

WH: 400 mncfE: 400 mncf (to PTT) CP: 12000 BL

Malaysian M-12, M-13, M-14 Yetagun

Aug 2000, Feb 2004, Feb 2007

Daewoo: KOGAS, OVL, GAIL, MOGE Daewoo: Woodside

(A1/A3 in construction Period)WH: 500 mncf E: 400 mncf (to CNPC) DS: 100 mncf

South Korea A-1, A-3, AD-7

Shwe

Aug 2004, Nov 2003, Nov 2003, 2005

PTTEP: MOGE (M9 in construction period)WH: 300 mncf E: 240 mncf DS: 60 mncf (M3 in appraisal period) WH: 100 mncf DS: 100 mncf

Thailand M-3, M-9, M-11

Zawtika

Dec 2004 CNOOC: MOGE China A-4, M-10


36

May 2005 ESSAR: MOGE India A-2 Jan 2007 MPRL E&P: MOGE Singapore-registered

Myanmar Company) A-6

Mar 2007 Rimbunan & UNOG: MOGE Malaysia M-1 Jan 2007 CNPC: MOGE China AD-1, AD-6, AD-8Oct 2008 PetroVietnam & UNOG: MOGE M-2

Source: MOGE

Map of Offshore Blocks

Source: Ministry of Energy

10 September 2013

37

Agriculture

Agriculture continues to be the key industry in Myanmar, employing over 60% of the total workforce and distributing the single largest output to the country’s GDP among all sectors. The industry is mainly composed of crop production (mainly paddy, sesamum and pulses) and a small food processing sub-sector. While the former is expanding its market globally, the latter is so far largely limited to the local market.

According to the Central Statistical Organization’s monthly indicator dated April 2013, principal agricultural exports reached US$2bn for the FY2012, sharing 22% of the total commodity export market. Although the total export income decreased 2% y-o-y in FY2012, the figure for agriculture has surged significantly– taking off in rice exports with a 98% y-o-y rise in volume and an over 100% in trading value. Compositionally, rice exports stood at US$544.1mn, beans and pulses at US$961.7mn and sesamum seeds at US$278.3mn as of April 2013. The Commerce ministerial data indicates an agricultural representation of 26% in aggregated export revenue in FY2011, up 28.1% y-o-y. A similar 26.8% mark continued by end-9M of FY2012. Given that the commodities met target exportations for 2012, we expect greater agricultural contribution to the GDP for the full year of 2012.

Agricultural Export, from 2006-2011, US$mn

Export FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 (9M)

Agricultural Export 931.13 1221.22 1403.17 1678.36 1800.39 2372.96 1548.61

Total Export 5232.68 6401.71 6778.85 7586.94 8861.01 9135.6 5778.71

% of Total Export 17.8% 19.1% 20.7% 22.1% 20.3% 26.0% 26.8%

Source: Ministry of Commerce

Recent Developments The agricultural sector is a hot trend driving competition and preserving optimism throughout the current fiscal year. On the regulatory front, talks have been taking place about establishing Forward Sales Contract and Contract Farming schemes as well as commodity exchange and wholesale centers. An initiative in February 2013 by the Ministry of Commerce has relaxed license requirements for the importation and exportation of certain goods together with the export of 66 agricultural products including beans and pulses. This is a significant border trade liberalization step, which should benefit small and medium provincial traders.

Agricultural Net Output to GDP, 2010

Source: Central Statistical Organization

Services 16.9%

Other trade 19.9%

Agricultural Trade4.1%Other Goods

35.3%

Agricultural Goods27.8%


38

The manufacturing sub-sector of private agriculture presents opportunities favourable to international investors. In April 2013, Myanmar Agribusiness Public Corporation announced the potential of the Integrated Rice Complex Project in cooperation with its Japanese counterpart Mitsui in establishing a network of rice milling and processing plants for low quality (25% broken) rice at a capacity of 0.4 Mt per year. At the beginning of FY2013, Myanmar’s rice export stood at a mere 12% of its annual rice production. If the project was materialized, the capacity of the processing plants would boost FY2012’s annual rice export by almost 29%. With the necessary development in the value-added processing sector, we look forward to higher export growth.

Rice Industry Various development schemes concerning the rice industry have been attracting interest in the private sector, especially in processing and logistics. A shape-up in these sectors would produce higher quality rice and contribute to expanding the market beyond country borders. Given that Europe and the US have reinstated duty and quota free access to their markets, Myanmar’s agriculture industry faces more opportunities for its deliveries.

Rice Industry Outlook

FY Production, Mt Consumption, Mt Export, Mt

2011 11.5 10.8 0.7

2012 12.2 10.8 1.4

2013e 13.5 10.8 2.7

2019e 14.4 10.5 3.9

Source: Myanmar Rice Industry Association, e=estimate

The initial target of 1Mt rice exports at the beginning of 2012 was well surpassed by the closing volume of 1.4 Mt, achieving a solid two fold y-o-y growth. However the growth figure included domestic as well as border trade, which was likely unconsidered in previous governmental estimates.

The regional demand and supply balance for rice has changed in 2012 due to the 33% y-o-y export growth from India which sold 6Mt of rice overseas in the same year. Both Thailand and Vietnam’s exports have dropped to 6.5Mt each, from 7Mt and 6.7Mt respectively. Despite this, Myanmar’s rice export market has met demands through its border trade with agricultural houses China and Thailand.

For 2013, the Myanmar Rice Industry Association estimates a 1.3Mt surge in rice production and an export amount of 2Mt up to 2.7Mt. In the optimistic scenario, the agriculture to total export ratio could rise to 20% by end-2013 from 12% in FY2012. At present, production stands at about 12.2Mt with 10.8Mt allocated for steady domestic consumption.

10 September 2013

39

According to the official government data, 29Mt of paddy was harvested in 2010. The US’s Food and Agriculture Organization estimates a 31.5Mt paddy production in 2012, up approximately 9% y-o-y. For 2013, an increase of 1Mt is projected.

Land Utilization and Paddy Production, 1990-2013

1990 1995 2000 2004 2005 2006 2007 2008 2009 2010 2011e 2012e 2013p

Harvested, mn Acre 11.8 14.9 15.6 16.8 18.2 19.9 19.8 19.9 19.9 19.8 19.8 19.8 19.8

Production, Mt 12.5 16.1 18.9 22.1 24.8 27.6 28.0 29.1 29.2 29.1 29.0 31.5 32.5

Source: Central Statistical Organization, as of April 2013; FAO, as of July 2013; e=estimate; p=projected

Foreign Investment As of April 2013, cumulative foreign direct investment in agriculture occupies only 0.44% of total FDI inflow. The growth of foreign investment in the agricultural sector has been minimal and contributed to stagnation in the sector. With credit neither affordable (because of high interest rates) nor sufficient (because of high input costs), the rural population is migrating away from farming. This process is channelling agricultural labour towards large cities and is increasing urbanization, which poses difficulty as the necessary physical and economic infrastructure to absorb this flow are not available. On the other hand, there is a small ripple of remittance coming into the sector from migrant workers both domestic and international.

Foreign Investment in Agriculture

Investment Before 2000 2000 2010 2012 Cumulative Total

US$mn 14.35 20 138.75 9.65 182.75

MMKmn 86.12 120 832.5 - 1038.61 (2011)

Enterprises 3 1 3 2 9

Source: Central Statistical Organization, as of April 2013

Credits in the Sector Currently, agricultural lending consists of seasonal loans and term loans with 8.5% annual interest rate set by the government. The state lender Myanma Agricultural Development Bank, which is also the primary lender to the sector, reported that a total of MMK352.7bn seasonal loans were provided in 2011. These seasonal loans represented 11.1% of the total MMK3,172.2bn credit of the banking sector for the same period according to the Central Bank of Myanmar. In 2010, the entire agricultural loan provision consisted of MMK190.68bn, 9.9% of overall lending. In the same year, short term and long term loans for farmers reached MMK8.9bn with a 135.4% y-o-y growth. The leading usage of term loans were related to mechanizing agents, especially power tillers and farm vehicles.


40

The majority of the spending portfolio of agricultural workers is radically split between repayments for previous arrears and consumption, with small investment in crop production. Increasing costs of farming inputs (including fertilizers, quality seeds, yield-enhancing and irrigation tools) as well as continuous appreciation of Kyat have had a serious impact on the farmers – at times depressing prices albeit rising production of paddy and pulses and industry demand. On a positive note, Kyat has been depreciating in the last quarter of 2012. However, the lending size needs to reflect the volatility of the exchange rate, to ease the burden of arrears and high interest rates in local banks and non-banking sector.

Seasonal Loans

Season Year Duration of Loans MMKbn

Monsoon 2011 Apr-Aug 312.11

Winter 2011 Sept-Dec 39.49

Pre-Monsoon 2012 Jan-Feb 1.11

Monsoon 2012 Apr-Aug 426.45

Winter 2012 Sept-Dec 127.14

Pre-Monsoon 2013 Jan-Feb 1.68

Source: Myanma Agricultural Development Bank

From 2012, the lending size for paddy production has been increased to MMK50,000 (~US$51.5) per acre for monsoon with a maximum of 10 acres and MMK80,000 (US$82.5) per acre for summer. Allowance for other types of crops is significantly lower at MMK10,000 (US$10.3) per acre. The government has announced that pre-monsoon loans per acre for paddy production will be raised from MMK80,000 to MMK100,000 (US$103.1) in order to sustain flood-affected paddy fields.

The agricultural sector in Myanmar is expected to stay on track to meet its 2013 target of 2.7Mt rice exports, with the production remaining roughly unchanged from the previous year. On the other hand, exports of beans and pulses face a serious competition from India which aims to increase its domestic production by 15%. India is currently the largest importer of Myanmar beans and pulses, occupying 70% to 80% of Myanmar’s market.

The government’s aim of doubling exports will require significant investments into technology and improving production practices including distribution of quality seeds, fertilizers and mechanization. Full implementation of these measures is expected to take some time. We believe that provision of adequate financing in the sector will enable small and medium sized farms to promptly increase both production and profitability. Long term plans, however, depend on incentivizing the sector as a whole and the availability of credits and the workforce. Critical mid-term measures for the development of the sector going forward include: strengthening of land ownership rights, debt alleviation, greater and broader lending support, stabilization of inflation-adjusted exchange rate, and increased foreign investment.

10 September 2013

41

Financial Services

Banking, the key pillar of financial system in Myanmar, is one of the industries that have potential

for significant growth as a large part of the population remains out of the financial services

coverage. During the past five years, the banking sector has been expanding significantly whereby

total industry assets reached US$10.9bn in 2011, up 37.4% y-o-y. Loans and advances outstanding

were up 64.71% y-o-y, reaching US$4.1bn in 2011 from US$2.4bn a year earlier. 2010 was the best

performing year with 58% increase in total assets and 70% surge in loans and advances.

Bank Assets, US$bn Assets-to-GDP Ratio ,%

Source: Central Bank of Myanmar Source : Central Bank of Myanmar

Despite the impressive growth in recent years albeit from low base, the Myanmar banking sector

is largely undercapitalized and has experienced low penetration to the customers and broader

economy, therefore the true potential is yet to be explored. As of 2011, total banking assets to

GDP represented 21% and loans to GDP ratio was only 8%, according to the official data.

According to the IMF, the loan-to-GDP ratio has increased approximately to 20% in 2012, still the

lowest in ASEAN. The transactions are largely conducted by cash.

At present, there are four laws that regulate and govern the banking sector: the Central Bank Law

of Myanmar (CBLM), the Foreign Exchange Management Law, the Securities Exchange Law and

the Financial Institutions of Myanmar Law. The Central Bank of Myanmar sets interest rates and

some restrictions on the amount deposits, reserve requirements, liquidity ratio and capital

adequacy ratio.

The Central Bank of Myanmar has redrafted those laws and has submitted for approval in the

Parliament. The new Central Bank Law is likely to be enacted by April 2013 and the CBM is set to

gain independence and full authority to govern and regulate the financial sector and institutions

in Myanmar.

The new CBM Law has set development phases for liberalization of the banking sector.

Phase(1): to permit domestic private banks to run joint venture with foreign banks,

Phase(2): to permit foreign banks to establish locally incorporated 100% owned subsidiary, and

1.7bn

10.9bn

0

2,000

4,000

6,000

8,000

10,000

12,000

2007 2008 2009 2010 2011

8% 9%12%

17%

21%

0%

5%

10%

15%

20%

25%

2007 2008 2009 2010 2011


42

Phase (3): to allow foreign banks to open bank branches in Myanmar.

We expect the phase (1) to be launched soon after the establishment of rules and regulations by

the Central Bank. In 2015, it intends the banking sector to have branches of foreign banks.

Allowing the entry of foreign banks will bring long term benefits allowing access for Myanmar

firms to international financial markets and introducing modern technologies for revitalizing the

banking sector.

Loans (US$mn), Growth and Share in Assets Comparisons of Loans-to-GDP Ratios,% (2011)

Source: Central Bank of Myanmar Source: Central Bank of Myanmar,Bank of Indonesia,Acleda,BCel-KT,DBS

From the beginning of 2011, the CBM has undertaken several reforms aimed for the development

of the banking sector. Deposit-to-capital ratio of 10 times of paid-up capital has been increased to

25 times of capital (including paid-up capital, general reserves, general provision, provision for

bad and doubtful debt, contingencies reserves and retained profit).

The CBM has adjusted its interest rate of 12% to 10%, and the new deposit rate is floored at 8%

and the lending rate is barred at 13%. Collateral limits were now no longer confined into land and

building and expanded into gold, exportable crops, machinery, bank deposits and personal and

organizational guarantee. In October 2011, implementation of hire purchase system was

approved. For the first time, private banks are allowed to have foreign bank accounts and

transact in foreign currencies. Kanbawza Bank, Co-operative Bank, Asia Green Development Bank

and Ayeyarwaddy Bank are the first four banks that have been approved to open foreign

accounts. Interbank foreign exchange spot market was authorised and launched in the beginning

of August 2013 for banks who already have authorised dealership licenses for foreign exchange.

In terms of physical infrastructure development, the Banking Network for Electronic Fund Transfer

will soon be implemented and current manual clearing system is in the process of upgrading into

auto clearing system. The Myanmar Payment Union is formed in November 2011 and in

partnership with GRG Banking to facilitate the synchronization of ATM and POS system for the

0%

10%

20%

30%

40%

50%

0

1,000

2,000

3,000

4,000

5,000

2007 2008 2009 2010 2011

Loans Loans /Asset%

126%

72%

37%30.50% 29%

8%

Vietnam Thailand Cambodia Indonesia Laos Myanmar

10 September 2013

43

member banks. MPU is the national financial switching system that is formed by 18 member

banks (three state banks and 15 private). There are 488 POS terminals and 263 ATMs nationwide

which are saturated mostly in Yangon and a few in Mandalay. As of July 2013, there are

approximately 160,000 ATM card users and it is expected to grow along with the development of

infrastructure for payment network. Myanmar Citizen Bank, KBZ Bank, Myawaddy Bank, CB Bank,

Ayeyarwaddy Bank, Asian Green Development Bank and Myanmar Apex Bank are current ATM

service providers.

There is a presence of strong will by the Myanmar government to develop and strengthen the

banking sector by easing the restrictions and foster safety and soundness of the financial system.

It is also clear that supervisory and regulatory procedures are being improved. We believe that

transitions taking place in Myanmar will provide strong catalysts for the rapid expansion of the

banking sector.

Major Banks There are four state-owned banks: Myanma Economic Bank, Myanma Foreign Trade Bank,

Myanma Investment and Commercial Bank and Myanma Agricultural and Rural Development

Bank. In addition, Myanmar has 20 private banks and approximately 30 representative offices of

foreign banks. In early July 2013, Nay Pyi Daw Development Bank was established as a joint

venture bank with the government. The Ministry of Finance has announced that forming new

private bank will be allowed only in the form of joint venture with the government. First Private

Bank, Yoma Bank, Myanmar Citizen Bank and Myanmar Livestock and Fisheries Development

Bank are publicly listed.

Kanbawza Bank Kanbawza Bank (KBZ) had the largest market share among private banks with US$2.2bn (35%),

US$1.9bn (37%) and US$1.25bn (35.6%) respectively for total assets, deposits and loans

outstanding of the private banking industry in FY 2011. It has 118 branches throughout the

country by August 2013. Retail banking is the bank’s strong focus actively lending to small

manufacturing and trading firms. Sumitomo Mitsui Banking Corporation has been the strategic

foreign partner with KBZ for a long time and currently SMBC is providing technical assistance.

Myawaddy Bank According to the Central Bank, Myawaddy Bank was the second largest bank in 2011 with a 14.3%

market share in total assets and deposits of the industry and 16.3% in loans. The bank is an

associated bank of the Union of Myanma Economic Holdings (UMEH) Company.

Co-operative Bank Co-operative Bank has been present in the market for 20 years. It is one of the few public banks.

Its total assets were at approximately US$690mn in 2011. In terms of assets, deposits and loans

outstanding, the bank had the third largest market share of 12%. CB Bank has the largest ATM

network that provides cash withdrawal services and was also the first bank to receive a license

from Master Card. Maestro, Cirrus and Visa card holders can now also use CB Bank ATM to

withdraw Myanmar Kyats.


44

Top Performing Private Banks (2011,US$mn) Aggregated Assets in Private Banking Sector

Source: Central Bank of Myanmar , US$1= MM 818 as of 01 April 2012 Source : Central Bank of Myanmar

In February, 2013 the US Treasury Department has announced the issuing of the general license

that allows individuals, companies, and financial institutions to conduct financial transactions with

four of Myanmar’s large banks: two state-owned banks (Myanma Economic Bank and Myanma

Investment and Commercial Bank) and two private banks (Asia Green Development Bank and

Ayeyarwady Bank). Mentioned private banks have 4.5% to 4.3% market shares of total assets

respectively. Myanma Foreign Trade Bank, Myawaddy Bank and Innwa Bank still remain under

the US sanction list.

0

500

1,000

1,500

2,000

2,500

KBZ Bank Myawaddy Bank

Co-operative Bank

MLFDB MAB

Total Assets

Total Deposit

Total Loans

KBZ35%

MWD14%

CB11%

MLFDB8%

MAB5%

Others27%

10 September 2013

45

Construction

During the last few years, demand for residential, commercial space, industrial buildings and

infrastructure properties has been significantly increasing. In our view, Myanmar construction

industry will benefit significantly as it will have to facilitate those needs.

According to official data, residential property

construction has the largest market share with 51%,

infrastructure is at 27% with the second largest

market share. The growth of the construction

industry, in our view will continue strongly especially

in residential and commercial properties to facilitate

the increasing influx for the foreign investments. The

constructions required for the development of three

special economic zones, industrial zones and

infrastructure works for transportation, electricity,

oil and gas pipelines and telecommunication

presents vast opportunities for foreign investments.

The government has allocated MMK7,800bn for road and bridge projects, especially in Yangon,

Ayeyarwaddy, Magway, Chin and Mon. Planned construction will include international routes and

links for the ASEAN and Asian highways. Within the framework for the preparation of the ASEAN

Free Trade Area in 2015, the Ministry of Construction is also expediting expansion of the

interstate highways.

Foreign investors are invited by the Ministry of

Construction for the development of affordable

housing complexes: the Yadanar and Ayerwun

projects. In 2011, residential property construction

was up 11% and the market is expected to continue

growing at double-digit rates due to the rapid

urbanization of major cities such as Yangon and

Mandalay. Foreign investors are looking for

opportunities to invest into the property market to

develop hotels, shopping complexes, office

properties and serviced apartments. Strategic

investors from Asia, especially Korea, China and Thailand are showing interest for similar projects.

We believe that the construction sector will expand significantly as soon as this interest becomes

materialized. Already the country has attracted investments from regional developers, however

true growth will follow the liberalization ‘of the legislation concerning foreign property ownership.

20 Years Government Budget Allocation For Roads And Bridges Constructions ( MMKbn)

Source : Ministry of Construction

Import of Cement (US$mn)

Source: Central Statistical Organization

-200 400 600 800

1,000 1,200 1,400 1,600 1,800 2,000

2011-2016 2016-2021 2021-2026 2026-2031

Roads Bridges

26.9

150

0

50

100

150

200

2008 2009 2010 2011


46

Telecom, Media & IT

IT, telecommunications & media sectors

are still at the Greenfield stage offering

huge upside potential. We believe that

recent developments in the sector may

take Myanmar directly into the IT age and

lay a way towards sustainable

development of economy as a whole.

Telecommunications

By the end of 2013, ICT1 estimates global

mobile penetration at 96%, with 128% in

developed countries and 89% in

developing countries. Mobile penetration

in Asia Pacific region is estimated at 89%.

However Myanmar currently has mobile

penetration of less than 10% with around 5.42 million mobile users. The users are brought down

as follows: 66% GSM users; 14% WCDMA users, and 20% CDMA users. On average only 13%of

mobile users have mobile Internet. Such a small amount is mainly related to scarcity of the

network infrastructure and high tariffs.

Myanmar currently has 604.53 thousand fixed telecommunications lines, approximately 1% of

population. Fixed telecommunications is mainly present in larger cities like Yangon, Mandalay and

Nay Pyi Taw with almost no fixed line in urban areas.

According to Government officials4an existing DWDM Fibre Optic backbone network stands at

2,812 km and 242 fibre stations, whereas existing microwave infrastructure amounts to 342

microwave stations and 184 microwave routes. The link to the international telecommunication

network is provided via the SEA-ME- WE-3 submarine fibre optic cable, satellite communication

system, and cross-border fibre links with India, China and Thailand.

A number of sector liberalization initiatives were taken by the Government since last year:

1) New Law on Telecommunications

1The world in 2013. ICT Facts and Figures

2Invitation to submit an EOI, by Telecommunication Operator Tender Evaluation and Selection Committee

3Invitation to submit an EOI, by Telecommunication Operator Tender Evaluation and Selection Committee 4Invitation to submit an EOI, by Telecommunication Operator Tender Evaluation and Selection Committee

Regional mobile penetration rates 2012 Relative to GDP and population size

*Bubble represents population sizeSource: IMF, World Bank, Mandalay Capital estimates

Myanmar

Thailand

Laos

Cambodia

Vietnam

Bangladesh

Brunei

-10%

10%

30%

50%

70%

90%

110%

130%

150%

170%

190%

0 100 200 300 400 500

Mob

ile p

enet

ratio

n

GDP, US$bn

g

10 September 2013

47

New telecommunications law which is eagerly awaited by foreign and local telecom service and

equipment providers is on the way, which will replace Myanmar’s Telegraph Act of 1885 and its

Wireless Telegraphy Act of 1934.

2) Mobile communications license

Last year, the Government invited international mobile players to bid for 2 operator licenses for

an initial period of 15 years for infrastructure development, maintenance, distribution and

customer services. As of 13 February 2013, a total of 91 EOIs were received according to a

government announcement. Next the interested parties were invited to submit pre-qualification

applications demonstrating that they are qualified to deploy mobile network nationwide. Out of

22 pre-qualified applicants, the Committee shortlisted 12 applicants that were announced in mid-

April which included the companies and consortiums shown below (A Vodafone and China Mobile

consortium withdrew its joint bid in May as they believed the returns did not justify the

investments. These applicants were required to submit technical and spectrum license fee offers.

Eleven Bidders for Myanmar Mobile Licenses

No Bidders 1 SingTel Consortium (SingTel, Kanbawza Bank, MTel)2 Digicel Consortium (Digicel, Quantum Strategic Partners, YSH Finance)3 KDDI Consortium (KDDI, Sumitomo, MICTDC, A1 Construction)4 Telenor 5 France Telecom-Orange and Marubeni 6 Airtel Consortium 7 Axiata 8 MTN Consortium (MTN Dubai, M1 Limited, Amara Communications)9 Qatar Telecom (Ooredoo)

10 Millicom International Cellular S.A. 11 Viettel

Source: Company data, Mandalay Capital

On 27 June 2013 the Myanmar government announced two international winners of a mobile

communications license tender - Telenor and Qatar Telecom, which has recently rebranded to

Ooredoo. France Telecom-Orange’s consortium was named as an alternate should one of two

winners fail to fulfil its commitments. In the coming months the Government should finalize the

license process.

This is a very positive sign to international community that illustrated the new Myanmar

Government able to handle investment projects in a transparent and highly organized manner.


48

Both operators committed a wide range of value-added services and strong coverage throughout

the country within the next five years:

Telenor - voice coverage up to 83% and data coverage up to 78%

Ooredoo - voice and data coverage up to 84%

Telenor plans to charge 25 kyat ($0.03) per minute for calls, while Ooredoo plans to charge 35

kyat ($0.04) per minute for on-net calls and 45 kyat ($0.05) per minute for off-net calls.

With the expansion plans of two new mobile players, Myanmar’s economy is expected to

substantially benefit from the country’s boom in mobile communications and data thus

improving the quality and the variety of affordable to public telecommunications services

boosting mobile banking, microfinance activities, retail services

promoting education and healthcare

Among the four operators to eventually be allowed, two licenses were given to the state owed

Myanma Post and Telecommunications and the semi- governmental Yatanarpon Teleport, both of

which will be transformed into public companies or consortia.

3) Low-Priced SIM Cards Policy

The Myanmar government announced the launch of low-cost SIM cards to the public on 3 April

2013. In the announcement the SIM card price has been set at MMK1,500 (approx. US$2), with

sales scheduled to commence on 24 April 2013. The new price is cut over 99% from the last year

price which was MMK200,000 (approx. over US$227) and US$2,500 two years earlier.

Initially, SIM cards were planned to be offered for

the CDMA 800 MHz network, later to be followed

by cards based on the WCDMA 3G and GSM 2.75G

networks. In the absence of the CDMA 800 MHz

network, WCDMA 3G network based cards will be

provided. There are a few limitations imposed

including nationwide monthly sales of 350,000

lines, a monthly user spending of MK2,500 (approx.

US$3) or 50 minutes, and a requirement to use the

card within 15 days after purchase. The line will be

cancelled if these restrictions are not met, or the

card is not recharged within 15 days.

Regardless of the restrictions, the new and more

affordable price is particularly good news for the

country’s rural communities, which comprise 70%

of the total population. With a goal of meeting the purchasing power of an average citizen, the

Myanmar: Number of Subscriptions per Frequency Bands, mn

Source: MICT, as of December 2012

67%

20%13%

5.4mn

0%

20%

40%

60%

80%

100%

120%

0

1

2

3

4

5

6

GSM CDMA WCDMA Total

10 September 2013

49

affordable new SIM card pricing marks the beginning of a new age in telecom for Myanmar,

incentivizing market reforms. The economic and social benefits from widespread access to mobile

communications will be extraordinary for both domestic and international communities.

4) Infrastructure Improvement Project

On May 2013 Sumitomo Corporation and NEC Corporation, in cooperation with NTT

Communications Corporation signed a contract with the Ministry of Communications and

Information Technology to assist in implementing communications network improvement plan.

This project capitalizes on Official Development Assistance (ODA) from Japan International

Cooperation Agency (JICA), which concluded a grant agreement with Myanmar promising 1.71

billion yen in ODA.

The project aims to build an optical fiber-based telecommunications network to link the country’s

three major cities that will consist of a high-speed, high-capacity core optical transmission

network capable of transmitting 30Gbps between the cities of Yangon, Mandalay and Naypyidaw,

as well as LTE communications, fixed-line telephones and optical transmission networks capable

of 10Gbps Internet transmissions within each city. The project is planned to be completed by

November 2013, followed by technical training and operation assistance.�Both companies also

plan to promote the expansion of communications infrastructure throughout the urban and rural

regions of Myanmar.

5) Mobile majors customizing to Myanmar market

Ongoing liberalization efforts have attracted global players such as Google, Samsung and HTC into

Myanmar. HTC has launched new smart phones integrated with the Myanmar language, and will

later launch fully localized mobile phones. Samsung has also established its presence in Myanmar

along with low-cost handset manufacturers ZTE and Huawei. The Google search engine portal

localized to the Myanmar language has been launched and the Google Play store has also been

opened for Android phones users. Google is also planning to unlock its electronic payment

platform, Google Wallets, to establish a networked banking system with the Myanmar banks.

Media

Liberalization in the country is also having transformational effect in the media sector. The media

in Myanmar has been regulated and censored since 1962 which marked the beginning of the

socialist rule and the political dominance of the army. However, the country has been improving

its international rankings, as a result of recent political reforms. The state’s strict censorship of

news content has ceased from the second half of 2012 with the establishment of a press council.

After the formation of the press council, all publications are allowed to go under a check-after

publish system. Authorities are currently establishing a legal framework for the media sector,


50

gradually allowing private publishers and media companies to engage in activities which were

previously prerogative of state-owned companies.

In March 2013, 8 publishers were granted conditional licenses for daily newspapers publication. It

is expected that the liberalization of the media sector will continue with awarding TV and radio

broadcasting licenses.

Today, TV viewership is estimated at 48%5of the population and only 38%6 of households own TV-

sets.. TV broadcasting market is dominated by two state free-to-air channels with nationwide

coverage, MRTV and Myawaddy (MWD). There are also three private Pay-TVoperators servicing

approximately 600,000 households. Main challenges that are faced by TV broadcasting media are:

Low access to electricity7and constant shortcuts

Low disposable income

Low awareness of TV content and experience of TV set usage

Poor telecommunications infrastructure

However we believe TV Market is expected to take a leap in Myanmar as a result of increasingly

higher consumption power and improving infrastructure supporting widespread penetration.

IT

Development of information technologies, like many other sectors in Myanmar, has been

hampered by the isolation of the country from the global scene. However, being a rapidly

transforming and knowledge intensive sector, IT development in Myanmar is expected to catch up

fast. Mismatch between the country and its neighbours is obvious and local companies are

actively going online or integrating IT into the businesses. The government has demonstrated

awareness and willingness to develop the IT sector, launching transitional projects like e-

government.

The IT, telecommunications and media sector offers attractive investment opportunities not only

due to low penetration rates and lack of infrastructure but also due to benefit to the economic

development as a whole that will spur the business activity in the country.

5CASBAA

6CASBAA 726% of population, according to ADB

10 September 2013

51

OPPORTUNITIES ACROSS ASSET CLASSES

Public Equities

As we described in our previous Myanmar Outlook 2013 report the equity market in Myanmar is currently at the primitive stage of its development as the majority of the companies in the country had been owned and governed by the state. The stock market currently acts as an over-the-counter type of exchange with only two stocks of a forest products company and a bank. Both of the stocks are of semi-government owned companies.

We remind that the Central Bank of Myanmar signed an MOU with the Tokyo Stock Exchange and Daiwa Securities Group to assist the country to establish a stock exchange by 2015. We remain optimistic that the Tokyo Stock Exchange, Daiwa Securities Group and the Korea Exchange, a potential new partner, will help build modern infrastructure and create a fully functional bourse. On 31 July 2013 the Myanmar Government issued The Security Exchange Law, which is the first and very important step in establishing the Myanmar stock exchange.

As the local equity market is almost non-existent, institutional investors may have exposure to Myanmar focused equities through investing in internationally listed companies with major business or assets in the country. These equities that collective form our Silk Road Myanmar Index were up over 61% in 2012, probably the best equity market in Asia. The benchmark has posted a correction in the first eight month of 2013 declining 8.9% year-to-date as of August 30, 2013. Apart from these stocks, we believe in the coming years, before the local bourse becomes truly investable by institutional investors, a number of private business groups will likely seek international listing to raise capital to finance their fast growing businesses.

Myanmar-related International Equities

NAME Ticker Exchange

Price performance,

YTD %

Market cap, US$mn

Sector

1 DAEWOO INTERNATIONAL CORP 47050: KS Korea -11.7% 3,591.8 Energy

2 RATCHABURI ELEC GEN HODG PUB RATCH:TB Bangkok -16.7% 2,244.5 Electricity

3 SUPER GROUP LTD SUPER:SP Singapore 34.0% 1,897.4 Consumer

4 ITALIAN-THAI DEVELOPMENT PCL ITD:TB Singapore 4.0% 632.1 Property

5 YOMA STRATEGIC HLDGS LTD YOMA:SP Bangkok -2.8% 626.0 Property

6 SHANGRI-LA HOTEL BANGKOK PCL SHANG:TB Bangkok 19.5% 186.1 Hotel

7 INTERRA RESOURCES LTD ITRR:SP Singapore 8.6% 153.9 Energy

8 NTEGRATOR INTERNATIONAL LTD NTEG :SP Singapore 69.8% 41.7 Telecom Source: Bloomberg, as of 30 August 2013

We reiterate our view that as the local stock exchange is expected to be a more functioning platform, we believe a number of IPOs and RTOs will take place by then in Singapore and Hong Kong as well as Australia and Canada. We recommend our clients to invest in the Myanmar-focused international equities as the most effective way to gain exposure to the Myanmar growth story.


52

Fixed Income

The development of Myanmar’s financial system will inevitably lead to introduction of money

markets which will offer Myanmar kyat-denominated government bonds, corporate bonds and

other fixed income instruments.

Currently, Myanmar Economic Bank and the Myanmar Securities Exchange Center were appointed

as underwriters of government bonds. Total sales of Government Treasury Bonds in 2011 were

approximately US$1bn, up 98% from a year earlier.

In our view, at the current pace of economic reforms in the country, it will not be long before the

Myanmar government will issue bonds on international markets. Although the fixed income

market is currently almost non-existent, the country has a good potential to attract capital

through fixed income instruments backed by its rich natural resources and economic growth

rates.

Government Treasury Bonds

Treasury Bonds Interest Rate

2-years 8.75%

3-years 9%

5-years 9.5%

Source: Central Bank of Myanmar

10 September 2013

53

Private Equity

Private equity market, especially in the non-resources industries has been out of reach for foreign investment, therefore represents attractive entry opportunity for investors albeit with risk.

We reiterate our previous view that there will be increasing number of pre-IPO deals in the coming years as the Myanmar companies are experiencing growing need for capital to finance their businesses to benefit from the current positive market sentiment and economic outlook. The government plans to further privatize state-owned enterprises and give more commercial independence to some of them should it attract interest from large private equity players including from the western countries and the ASEAN region. We expect increasing activities by foreign investors to either establish new ventures or acquire majority stake in the existing local businesses in the fast growing industries in the coming years.

We recommend to private equity players to invest in rapidly growing businesses to benefit significant returns by entering at the very early stage of their development. Among the fastest growing non-resource industries and business we would highlight telecom and IT (including internet) related, media, financial and professional services, travel and tourism, health and education.


54

Real Estate

Myanmar has a unique property market with highly attractive investment opportunities compared with far more saturated markets elsewhere in Asia. The country has a sizeable population, fertile and resource-rich land, and a strategic location in Asia, one of the world’s largest growing economic regions. It has a long coastline with good port access and shares land borders with India, China and Thailand. Myanmar has embarked on a process of major political, economic and administrative reforms. Economic reforms include unification of multiple exchange rates, elimination of export taxes, privatization of state-owned enterprises and providing onshore exploration rights to international companies. The much anticipated new foreign investment law, approved in November 2012, offers incentives for foreign investments such as five years tax holidays, land use terms, full foreign ownership structure and guarantee against nationalization. Dramatic increase in interest in the country has highlighted the need for the provision of first-class hotel rooms, offices, apartments and retail space. Several decades of underinvestment resulted in significant lack of supply across all segments. This creates unique opportunities for investors. The country is expected to attract influx of foreign investors in 2013 with new projects in residential, commercial, industrial and hospitality segments.

The residential property market is expected to continue to perform exceptionally well in coming years as the country’s historical transformation will inevitably lead to wealth creation and emergence of a strong middle class. Moreover, the country is expected to become a magnet for foreigners with Yangon’s expatriate community to expand rapidly. Inflow of foreigners is already having strong effect on the property market. Existing supply is not adequate to alleviate the increased demand, especially in premium segment, leading to steep appreciation of rental rates and values.

SilkRoad Yangon Property Index, US$/sqf 2012 Asia-Pacific Residential Market Performance

Source: Silk Road Management Source: Knight Frank, Silk Road Management estimates

SilkRoad Yangon Property Index (SYPIX), that tracks the residential property prices in Yangon, gained over 47.2% during 2012, increasing from US$61 per sqf (US$657/sqm) to US$90 per sqf

50

60

70

80

90

100

110

Jan-

12Fe

b-12

Mar

-12

Apr

-12

May

-12

Jun-

12Ju

l-12

Aug

-12

Sep-

12O

ct-1

2N

ov-1

2D

ec-1

2Ja

n-13

Feb-

13M

ar-1

3A

pr-1

3M

ay-1

3Ju

n-13

-10%

0%

10%

20%

30%

40%

50%

10 September 2013

55

(US$966/sqm) in 2012. During the first 6 months of 2013, the SYPIX gained 8.1% reaching US$97 per sqf (US$1,044/sqm). Appreciation of values is encouraging local developers to start new residential projects which offer various amenities based on the location and size of the new properties. Banking system development is still lagging behind and loans are not available or adequate enough to finance construction projects. However, developers are able to finance projects through pre-sales, as confidence levels of local population about the economic growth prospects of the country and personal wealth is improving.

Land prices in Yangon have surged in recent years as investing in land has been viewed by the local investors as a safe haven and store of value opposed to the antiquated banking system and lack of local investment alternatives. Although cost of land is a major concern for developers, Yangon soon will be comparable to developed property markets of the region. We expect that appreciating land prices will have direct influence in type of projects chosen by the developers.

With extremely limited supply and increasing rental rates, office space in Yangon will be in high demand by companies entering the country. In the current environment, office properties are the most attractive option for local developers, considering immediate and high return potential. Rental rates for premium office properties in 2012 were higher than in most cities of the region at over US$50-$70 per sqm and in some cases it reached US$100 per sqm in 2013. Although the reason of such situation is the demand and supply imbalance, situation will remain similar for few years before the property market will see significant increase in supply.

Myanmar is a country with a huge population but retail sector is still underdeveloped, compared to neighboring countries. The retail space supply in Yangon is also very low compared to its peers in Asia-Pacific. Despite having the lowest GDP per capita among ASEAN countries, country’s economic reforms to boost middle-class income and spending will have positive effect on the retail property market. Yangon already has wealthy middle class and will be the main target for global retailers. Likewise, tourism in Myanmar has tremendous growth potential and is expected to become one of the main drivers of the property market growth. International arrivals increased 30% y-o-y in 2012, exceeding 1 million tourists. Currently, the country has 36 foreign investment hotels and commercial complexes that have already been opened around the country with the total capacity of 6766 rooms. The total investment amount exceeded US$1.4bn. International hotel chains already announced plans to enter the country and the number of projects planned is increasing. We expect that the location and geographic attributes of the country will continue to attract international investors and 2013 will see significant increase in hospitality and tourism projects.

International Arrivals and Tourism Revenue

Source: Ministry of Hotels and Tourism

731 763 792 816

1059

$165$196

$254

$319

$534

$0

$100

$200

$300

$400

$500

$600

0

200

400

600

800

1000

1200

2008 2009 2010 2011 2012

Arrivals, '000 Revenue, US$mn


56

Myanmar has unique growth potential similar to the one experienced by other South East Asian countries in 1990s. We expect the property market in Yangon to expand substantially as a result of strong economic growth, emergence of mortgage market and inflows of multi-billion dollar foreign investments by Asian property developers, international hotel chains, sovereign wealth funds as well as numerous institutional and private investors. Myanmar is preparing to pass a condominium law in 2013 which among others, includes provisions on foreign ownership, occupying, handover, ownership of part of land and bank loan rules. We believe that the law will have significant impact on the landscape of the property market and will be the main catalyst for growth.

10 September 2013

57

ANNEX I. RECENT FOREIGN INVESTMENTS


58

pCom

pany

Co

untr

y Se

ctor

St

atus

D

ate

Ann

ounc

ed

Prop

osed

In

vest

men

t,

US$

mn

Type

of d

eal

Conc

essi

on

Dur

atio

n, y

r Lo

cal P

artn

er

Oor

eedo

oQ

atar

Te

leco

ms

Pend

ing

Jun-

1315

000

BOT

15 +

10

+ 10

-

Inch

eon

Int'l

Air

port

Cor

p So

uth

Kore

a In

fras

truc

ture

Pend

ing

Aug

-13

1100

BOT

50-

Uni

leve

r N

ethe

rlan

ds

Cons

umer

Goo

dsA

ppro

ved

Oct

-13

650

Equi

ty50

+ 1

0 +

10-

HA

GL

Viet

nam

Pr

oper

tyA

ppro

ved

Dec

-13

440

BOT

50 +

10

+ 10

-

Gre

en E

arth

Pow

erTh

aila

nd

Pow

erA

ppro

ved

Feb-

1427

5BO

T50

Min

istr

y of

Ele

ctri

c Po

wer

TEE

Reso

urce

PTE

Sing

apor

e M

anuf

actu

ring

Pend

ing

Apr

-14

235

Conc

essi

on-

Aye

yarw

addy

Cem

ent

Com

pany

Ltd

., Co

ca C

ola

US

Beve

rage

App

rove

dJu

n-14

200

Equi

ty50

+ 1

0 +

10M

ax

Sem

en In

done

sia

Indo

nesi

a M

anuf

actu

ring

Prop

osed

Aug

-14

200

Equi

ty-

-

Kepp

el L

and

Sing

apor

e Pr

oper

tyA

ppro

ved

Oct

-14

80BO

T50

-

Cube

Cap

ital

UK

Prop

erty

Prop

osed

Dec

-14

50-

-SP

A

Uni

vers

al R

obin

a Co

rpor

atio

n Ph

ilipp

ines

Co

nsum

er G

oods

App

rove

dFe

b-15

30-

--

Tata

Mot

ors

Indi

a M

anuf

actu

ring

App

rove

dA

pr-1

520

Equi

ty-

Min

istr

y of

Indu

stry

(2)

Cube

Cap

ital

UK

Prop

erty

App

rove

dJu

n-15

20-

-SP

A

Park

son

Reta

il A

sia

Mal

aysi

a Re

tail

App

rove

dA

ug-1

53

Conc

essi

on-

Yom

a St

rate

gic

Hol

ding

s,

FMI I

nves

tmen

t Hol

ding

s N

issa

n Ja

pan

Man

ufac

turi

ngA

ppro

ved

Oct

-15

2.5

Equi

ty-

-

TOYO

-Tha

i Pow

er C

orp

Thai

land

Po

wer

App

rove

dD

ec-1

50.

5BO

T50

+ 1

0 +

10M

inis

try

of E

lect

ric

Pow

er

No.

2 Fo

rd

US

Aut

omob

ileA

ppro

ved

Feb-

16-

Equi

tyCa

pita

l Aut

omot

ive

Hyu

ndai

So

uth

Kore

a A

utom

obile

App

rove

dA

pr-1

6-

Equi

ty-

Fort

une

Intl

Ltd

Peps

i Co.

U

S Be

vera

geA

ppro

ved

Jun-

16-

Equi

ty-

Dai

mon

d St

ar C

o., L

td

Nes

tle

Switz

erla

nd

Cons

umer

Goo

dsA

ppro

ved

Aug

-16

--

--

Gen

eral

Ele

ctri

cU

S Fi

nanc

eA

ppro

ved

Oct

-16

--

--

Gen

eral

Ele

ctri

cU

S H

ealth

Car

eA

ppro

ved

Dec

-16

--

--

Suzu

ki

Japa

n M

anuf

actu

ring

App

rove

dFe

b-17

-Eq

uity

-

Suzu

ki

Japa

n M

anuf

actu

ring

App

rove

dA

pr-1

7-

Equi

ty-

-

EPI H

oldi

ngs

Ltd

Hon

g Ko

ng

Oil

& G

asA

ppro

ved

Jun-

17-

Conc

essi

on-

Aye

Myi

nt K

hine

Co.

, Ltd

.,

Geo

Pet

rol I

ntl H

oldi

ngs

Switz

erla

nd

Oil

& G

asA

ppro

ved

Aug

-17

-Co

nces

sion

-A

1 M

inin

g Co

., Lt

d.,

Petr

onas

Car

igal

i M

alay

sia

Oil

& G

asA

ppro

ved

Oct

-17

-Co

nces

sion

- U

NO

G

Jubi

lant

Ene

rgy

Indi

a O

il &

Gas

App

rove

dD

ec-1

7-

Conc

essi

on-

Para

mi E

nerg

y

PTTE

P So

uth

Asi

aTh

aila

nd

Oil

& G

asA

ppro

ved

Feb-

18-

Conc

essi

on-

Win

Pre

ciou

s Re

sour

ces

ISTE

CH E

nerg

yIn

done

sia

Oil

& G

asA

ppro

ved

Apr

-18

-Co

nces

sion

-SM

ART

Co.

Ltd

.,

CIS

NO

BEL

Oil

Russ

ia

Oil

& G

asA

ppro

ved

Jun-

18-

Conc

essi

on-

Alis

ter

Co. L

td.,

Gen

eral

Ele

ctri

cU

S Po

wer

App

rove

dA

ug-1

8-

--

-

Shan

gri-L

aSi

ngap

ore

Prop

erty

App

rove

dO

ct-1

8-

BOT

50-

Best

Wes

tern

Hot

elU

S Pr

oper

tyA

ppro

ved

Dec

-18

-Co

nces

sion

-

Gre

en H

ill H

otel

Tele

nor

Nor

way

Te

leco

ms

Pend

ing

Feb-

19-

BOT

15 +

10

+ 10

-

Gen

eral

Ele

ctri

cU

S Tr

ansp

orta

tion

App

rove

dA

pr-1

9-

--

-

Sour

ce: C

ompa

ny D

ata,

Man

dala

y Ca

pita

l, Bl

oom

berg

as

of A

ugus

t 30,

201

3

10 September 2013

59

ANNEX II. M&A AND JOINT VENTURE DEALS


60

AN

NEX

II. M

YAN

MA

R M

&A

AN

D JV

DEA

LS

Acq

uire

r A

cqui

rer

Coun

try

Targ

et C

ompa

ny

Type

of

Cons

oli

-dat

ion

Stat

us

Nam

e of

the

JV

Dat

e A

nnou

nced

St

ake

Dea

l Si

ze,

US$

mn

Targ

et C

o.

Val

ue, U

S$

mn

Mar

tket

Ca

p, U

S$

mn

Sect

or

YOM

A H

ldgs

Sing

apor

e Th

anly

in E

stat

e D

evel

opm

ent

M&

AA

cqui

red

-1-

Jun-

1270

%71

.65

102.

3662

6.01

Infr

astr

uctu

re

Hei

neke

n N

.V.

Net

herl

ands

A

llian

ce B

rew

ery

JVCo

mpl

eted

APB

Alli

ance

Br

ewer

y

13-M

ay-1

357

%34

.260

39,5

10.7

Beve

rage

All

Nip

pon

Air

Japa

n A

sian

Win

gsM

&A

Acq

uire

d-

27-A

ug-1

349

%25

51.0

27,

161.

03Tr

avel

s an

d To

urs

YOM

A H

ldgs

Sing

apor

e FM

IJV

Com

plet

edCh

indw

in H

oldi

ngs

18-M

ar-1

370

%12

.45

17.7

962

6.01

Trav

els

and

Tour

s

Chin

dwin

Hld

gsSi

ngap

ore

Shw

e La

y Ta

Gun

Tr

avel

s an

d To

urs

M

&A

Acq

uire

d-

1-Ju

n-13

75%

10.7

14.2

7N

/ATr

avel

s an

d To

urs

UPP

Hld

gsSi

ngap

ore

Mya

n Sh

we

Pyi

JVCo

mpl

eted

UPP

Eng

inee

ring

4-Ju

l-13

75%

912

216.

48In

fras

truc

ture

WE

Hld

gsSi

ngap

ore

Dra

gon

Cem

ent

M&

APr

opos

ed-

18-M

ay-1

320

%4

2055

.89

Infr

astr

uctu

reTi

ong

Seng

Sing

apor

e Sh

we

Taun

gD

evel

opm

ent

JVCo

mpl

eted

JVCo

.12

-Jul

-13

30%

2.36

7.87

147.

15In

fras

truc

ture

Uni

-Cha

rmTh

aila

nd

Mya

nmar

Car

e Pr

oduc

ts

M&

AA

cqui

red

-22

-Mar

-13

98%

1.47

1.5

N/A

Hyg

iene

Pr

oduc

ts

ISD

N H

ldgs

Sing

apor

e Tu

n Th

win

Min

ing

JVCo

mpl

eted

Pow

er JV

30

-May

-13

85%

0.8

0.94

332.

64In

fras

truc

ture

MJL

Ba

ngla

desh

Ba

ngla

desh

A

ung

Kyun

Tha

rJV

Com

plet

edM

JL &

AKT

Pe

trol

eum

2n

d ju

ly 1

351

%0.

511

228.

30O

il &

Gas

Intr

aco,

Tat H

ong

Hld

gs

Sing

apor

e,

Sing

apor

e A

ung

Moe

Kya

wJV

Com

plet

edSi

ngap

ore

JVCo

.28

-Aug

-13

40%

,40

%

0.2,

0.2

0.5

36.7

7In

fras

truc

ture

Mits

ubis

hi,

JALU

X Ja

pan

SPA

JVPr

opos

edM

anda

lay

Air

port

Pr

ojec

t 12

-Aug

-13

95%

0.17

3.38

31,0

12.7

Infr

astr

uctu

re

Chin

dwin

Hld

gsSi

ngap

ore

East

ern

Safa

ris

M&

AA

cqui

red

-1-

Jun-

1375

%0.

10.

13N

/ATr

avel

s an

d To

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-13

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25,4

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201

3

10 September 2013

61

ANNEX III: MYANMAR-FOCUSED LISTED COMPANIES

Myanmar-related International Equities: Silk Road Myanmar Index Members

NAME Ticker Exchange

Price performance,

YTD %

Market cap, US$

Sector

1 DAEWOO INTERNATIONAL CORP 47050: KS Korea -11.7% 3,591.8 Energy

2 RATCHABURI ELEC GEN HODG PUB RATCH:TB Bangkok -16.7% 2,244.5 Electricity

3 SUPER GROUP LTD SUPER:SP Singapore 34.0% 1,897.4 Consumer

4 ITALIAN-THAI DEVELOPMENT PCL ITD:TB Singapore 4.0% 632.1 Property

5 YOMA STRATEGIC HLDGS LTD YOMA:SP Bangkok -2.8% 626.0 Property

6 SHANGRI-LA HOTEL BANGKOK PCL SHANG:TB Bangkok 19.5% 186.1 Hotel

7 INTERRA RESOURCES LTD ITRR:SP Singapore 8.6% 153.9 Energy

8 NTEGRATOR INTERNATIONAL LTD NTEG :SP Singapore 69.8% 41.7 Telecom Source: Bloomberg, as of 30 August 2013


62

DAEWOO INTERNATIONAL CORP Mandalay Capital’s Call UNDER REVIEW

Daewoo International (47050: KS), a Korea (KRX) listed company that focuses on international trading and investments. The company has a range of diverse businesses: international trading, manufacturing, sales and resource development. Daewoo holds three offshore oil and gas exploration blocks: A-1, A-3 and AD-7 in the Rakhine Basin of Myanmar, crude oil production in mining zone 8 of Peru, LNG Plant operation in Oman and gas production in 11-2 offshore mining zone of Vietnam. According to the assessment made by Gaffney and Cline & Associates, the US-based advisers on the petroleum sector , three gas blocks has 4.53tcf of natural gas.

In 2009, Daewoo has invested US$3.2bn for a 51% stake in a consortium called Shwe Gas Project for development of offshore gas field in Myanmar. The consortium will supply natural gas to China National Petroleum Corp (CNPC) for 30 years with 3.8 million tons annually . The supply will be produced from A-1 and A-3 offshore blocks in 2013.

Recent Developments

In October 2012, Australia’s second largest oil and gas company, Woodside Petroleum has acquired a 40% stake from Daewoo for the oil and gas exploration venture in AD-7, an offshore block in the Rakhine Basin. Daewoo will remain as the operator of that product sharing project.

Myanmar Daewoo Co., Ltd, the local unit of Daewoo International in Myanmar has announced in January 2013 that the company is in preparation to increase its investment for offshore oil and gas exploration in the Rakhine Basin. In 2013, Daewoo has plans to undertake a 3D seismic acquisition program and exploration drilling in a joint venture with Woodside after getting approval from the Myanmar government.

In June 2013, Daewoo International has successfully launched the gas production from Mya field, Shwe Gas Project and has sent out the first batch of production to Kumming, China in July 2013. The company expected that the project will yield US$268mn revenue per annum.

Growth Outlook

Daewoo’s net income for 2012 has jumped 90% y-o-y although assets declined slightly. Daewoo is expected to actively participate in developing and acquiring new projects in Australia, Southeast and Central Asia, Africa and Central America.

In Myanmar, we expect high growth in earnings due to the commencement of the Shwe Gas project, which has start supplying 500mncf of natural gas to CNPC daily from July 2013. We believe that the positive political and economical changes in the country will also have impact in Daewoo’s plan for new acquisitions of oil and gas exploration projects in the country.

Key Stock Data Ticker 047050 KS Price (KRW) 35000 52 Wk high (KRW) 44250 52 Wk low (KRW) 30650 Market cap (US$mn) 3591.83 Shares outstanding (mn) 113.87 Avg d'ly turn'r (US$mn) 5.33 Performance, y-o-y -11.73% Valuation Ratios P/E 12.4 Earnings Yield % 6.9 P/B 1.88 ROE % 16.8 ROA% 4.1 Share Price Performance, KRW

Shareholders' Structure

Ratios and Growth Rates 2010 2011 2012 Profit & Loss (KRWbn) 2010 2011 2012 Net profit margin 0.01% 0.9% 1.8% Revenue 15,664 18,758 17,011 EPS 21.8 1551.5 2687.5 Gross profit 860 916 844 Gross profit margin 5.5% 4.9% 5% Pretax profit (57) 177 471 Sales growth rate 4% 0.19% (9%) Net profit 2 160 396 Balance Sheet (KRWbn) 2010 2011 2012 Cash Flow (KRWbn) 2010 2011 2012 Current asset 3,882 4,719 3,967 Operating Cash flow (821) (948) 640 Long term asset 2,424 3,104 3,021 Investing Cash flow (378) (635) 667 Total asset 6,247 7,823 6,989 Financing Cash flow 620 1,508 (1,385) Total liabilities 4,920 6,302 4,866 Exchange gain 9 (2) 75 Shareholders' equity 1,326 1,529 2,122 Cash at the beginning 930 350 274.3 Total liabilities & equity 6,247 7,823 6,989 Cash at the end 350 274.3 196.5 Stock data as of August 30 2013; Financial Year End DecemberSource: Company data, Bloomberg, Mandalay Capital

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep-

12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

60%

9%

2%

2%1%

26%

POSCO

National Pension Ser

Vanguard Group Inc

FMR LLC

Korea Investment Tru

Others

10 September 2013

63

Ratchaburi Electricity Generating Holding PCL Mandalay Capital’s Call UNDER REVIEW

Ratchaburi PCL (RATCH) is a Thailand listed international power generating company with operations focused in the Asia-Pacific region and the biggest private power generating company in Thailand, with electricity capacity of 5300 MW. It was founded in 2000 and listed on the Thailand Stock Exchange. The company engages in electricity generating business and renewable energy business. Main operations are located in Thailand, where it produces 14.22% of total Thailand’s power generation; also company has projects in Laos and Australia. The company signed an MOU to build coal fired power plant in Myanmar.

Recent Developments

Ratchaburi signed an MOU with ITD (Italian-Thai Development Plc) for a joint investment (70% for ITD and 30% for Ratchaburi) in a power project in the Dawei Industrial Zone. Initially, it was planned to construct a 4,000-MW coal-fired power station (majority of capacity to be sold to Thailand). However, this plan was rejected by the Myanmar government due to environmental concerns and was scaled down to start initially at 400 MW. The project is awaiting approval from the Myanmar government. We believe the project is likely to continue as it is part of the essential infrastructure in the Dawei project.

Ratchaburi declared 2012 net profit at THB7.7bn, up 59% y-o-y. Contributing factors were availability payment (AP) revenue from domestic power plants, recognition of revenue from the power plant in Australia, and an increase in profits from investments.

Growth Outlook

The company intends to expand power generation capacity to 7.5GW by the end of 2018. Although the company’s Myanmar project was scaled down significantly, it is still well positioned to capture newly emerging opportunities in the power generation sector of Myanmar.

Projects under development include Hongsa lignite project (1.9MW), three SPP power plants (total 330 MW) and three dams in Laos (total 1GW). As Myanmar develops the Dawei Industrial Zone the demand for electricity will increase significantly. The Dawei project worth is estimated to be at US$11bn. Dawei is intended to be a key focus in Myanmar's economic development plans over the next ten years. The zone will have a port, a refinery, chemical plants and factories. It is meant to serve as a trade hub between India and the Southeast Asia.

Key Stock Data Ticker RATCH:TB Price (THB) 49.75 52 Wk high (THB) 64.5 52 Wk low (THB) 45.5 Market cap (US$mn) 626.01 Shares outstanding (mn) 1450 Avg d'ly turn'r (US$mn) 1.67 Performance, y-o-y -16.74% Valuation Ratios P/E 10.98 Earnings Yield % 0.09 P/B 1.31 ROE % 15.3 ROA % 8 Share Price Performance, THB


Ratios and Growth Rates 2010 2011 2012 Profit & Loss (THBmn) 2010 2011 2012 Net profit margin 12.4% 11.2% 14.0% Revenue 42,181 43,457 55,365 EPS 3.60 3.34 5.32 Gross profit 5,998 7, 536 8,095 Gross profit margin 14.2% 17.3% 14.6% Pretax profit 6,487 6,587 8,823 Sales growth rate 19% 3% 27% Net profit 5,225 4,849 7,726 Balance Sheet (THBmn) 2010 2011 2012 Cash Flow (THBmn) 2010 2011 2012 Current asset 19,273 19,131 21,034 Operating Cash flow 9,944 7,621 8,513 Long term asset 50,308 78,210 75,776 Investing Cash flow 3,616 (8,148) (4,112) Total asset 69,581 95,899 96,810 Financing Cash flow (6,080) (63,8) (6,838) Total liabilities 22,905 48,857 43,079 Exchange gain 175 18 - Shareholders' equity 46,676 48,484 53,731 Cash at the beginning 3,774 11,289 10,698 Total liabilities & equity 69,581 97,341 96,810 Cash at the end 11,289 10,698 8,260 Stock data as of August 30 2013; Financial Year ends DecemberSource: Company data, Bloomberg, Mandalay Capital

35

40

45

50

55

60

65

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep-

12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

345%

5%4%

3%2%

41%

EGAT

Social Security Office

AIA

Thai NVDR Co., Ltd

Bangkok Life Assurance

Others


64

SUPER GROUP LTD Mandalay Capital’s Call UNDER REVIEW

Super Group, a pioneer of the 3-in-1 coffee beverage in the Southeast Asia, has evolved into a leading manufacturer and seller of more than 300 F&B products across 52 countries. It also manufactures F&B ingredients like soluble coffee powder and non-dairy creamer. Super Group is focused on the two businesses: branded consumers and food ingredients. It generated total revenue of SG$519.3mn in 2012, up 18% y-o-y due to a higher penetration rate in Thailand and Indonesia. Food ingredients sales have contributed to the revenue with a 34% rise from 2011 and branded consumer sales has increased 11%. Its most popular products in the Southeast Asia markets consist of instant beverages. Super Group is one of the most recognizable household brands in Myanmar and derived 16% of its revenue from the country in 2011.

Recent Developments

Super Group has rebranded its logo in January 2013 in an effort to promote brand identity in line with its geographic outreach. The adaptation is the marketing move offering a loyalty allegiance with various consumer groups responsive to the increasing regional market excitation. The newly branded products will be promoted in Singapore, Malaysia and China. The instant coffee mix line “Super Coffee” will broaden into Regular-Reduced Sugar, Brown Sugar, Regular, Rich and Kopi-O goods. Another line of “Super Charcoal Roasted White Coffee” will include Classic 40g, Roasted Hazelnut, Brown Sugar and Coffee and Creamer. The group has announced addition of more products into the lines in 2013.

Super Group is continuing its expansion target in the East Asia particularly China that presents a vast market opportunity with growing coffee consumption with underbalanced supply. A JV was formed with Petra Foods in Indonesia which has closed the market at the end of this financial year with an impressive sales growth. A new freeze-dry coffee facility was freshly established in Malaysia and a botanical herbal extract production facility is expected for completion by the end of 2013. The latest investments will diversify production additional to existing spray-dry coffee, non-dairy creamer and soluble coffee powder and complimentary to the product line expansions. The group has already taken steps to tap into markets in Mongolia and Russia in late 2011.

Growth Outlook

A wide distribution network and brand loyalty gained by the company over the past decade should help the company to grow its foothold in Myanmar. Going forward, we believe that share of revenue generated from Myanmar is going to increase significantly as economic development will result in creation of wealth for local population.

Key Stock Data Ticker SUPER:SP Price (SG$) 4.34 52 Wk high (SG$) 5.05 52 Wk low (SG$) 1.99 Market cap (US$mn) 1.897.39 Shares outstanding (mn) 557.6 Avg d'ly turn'r (US$mn) 0.968 Performance, y-o-y +33.95% Valuation Ratios P/E 23.61 Earnings Yield % 4.23 P/B 5.51 ROE % 20.6 ROA % 15.1 Share Price Performance, SG$


Ratios and Growth Rates 2010 2011 2012 Profit & Loss (SG$mn) 2010 2011 2012 Net profit margin % 16.6% 14.0% 15.2% Revenue 351.8 440.9 519.3 EPS 0.08 0.09 0.15 Gross profit 131.4 142.1 181.4 Gross profit margin % 37.4% 32.2% 34.9% Pretax profit 69.1 70.2 91.3 Sales growth rate % 18.8% 25.3% 17.8% Net profit 58.4 61.9 79.0 Balance Sheet (SG$mn) 2010 2011 2012 Cash Flow (SG$mn) 2010 2011 2012 Current asset 296.4 306.5 302.3 Operating Cash flow 56.4 57.8 85.7 Long-term asset 150.7 195.9 240.5 Investing Cash flow (16.9) (46.6) (58.1) Total asset 447.1 502.5 542.9 Financing Cash flow (2.5) (30.0) (37.9) Total liabilities 105.5 120.3 126.2 Exchange gain - - - Shareholders' equity 341.6 382.2 416.7 Cash at the beginning 70.5 141.8 122.7 Total liabilities & equity 447.1 502.5 542.9 Cash at the end 141.8 122.7 112.2 Stock data as of August 30, 2013; Financial Year ends DecemberSource: Company data, Bloomberg, Mandalay Capital

1

2

3

4

5

6

12%

12%

12%

11%9%

9%

35%

LAY HOON TE

KEE BOCK TEO

YHS INVESTMENT PTE

SENG HUI GOI

KOK CHIEW TE

CAPITAL GROUP COMPANYOthers

10 September 2013

65

ITALIAN – THAI DEVELOPMENT PCL Mandalay Capital’s Call UNDER REVIEW

Italian-Thai Development PCL (ITD) is involved in construction, project management, and engineering and design of large-scale civil works and infrastructure projects in Thailand and the Southeast Asia. The Company's projects include industrial plants, building, pipelines, transportation, airport work, dams, tunnels, steel structures and telecommunications.

As of March 18, 2013, the company closed at THB9.8, almost at its highest recorded, due to the expected growth of earnings from its hottest US$8.6bn investment in the Dawei Special Economic Zone in Myanmar. The surge in stock price was fostered by Japan’s financing offers for the project although it was restructured (after the early financial deficits) into eight constituent projects and ITD is said to hold at least a 25% stake with each of the eight participating Special Purpose Companies.

Recent Developments

Facing a tough year in 2012 due to insufficient funding, ITD has approached the governments of Myanmar and Thailand for assistance. Both sides have shown a good support, which positively creates a spill over effect due to the government backed infrastructure spending. This, along with the support from Japan, is reflective in the company’s soaring price in the recent months. So far, ITD has invested US$200mn into the project and is still seeking more funding partners and options.

Another promising progress has been recently made with an MOU signed with Ratchaburi Plc to form a 70:30 JV for a 400MW power plant, scaled 10 times down from the initial size by the Myanmar government due to environmental impact concerns. An 80% of financing up to US$2.5bn for the road link and port is also offered by the Japanese International Cooperation Agency. The JICA will also support US$10bn worth of coal-fired generators.

The remaining projects include more power plants using natural gas to achieve a total combined capacity of 7,200MW, water facilities, industrial estates, a telecommunications network and a township development. These schemes will potentially pick investors from countries including China and South Korea in addition to both governments of Thailand and Myanmar.

Growth Outlook

With the gas block M9 (currently developed by PTTEP:TB) coming online in 2013, power projects will have easier access to natural gas as alternative fuel. Certain projects will be completed in 2015, although a few delaying factors including project structuring remain for the Dawei Project. Despite the concerns, it is noteworthy that both governments and ITD are determined to proceed forward with the ambitious development project, especially since Thailand faces demands to increase its infrastructure spending.

Key Stock Data Ticker ITD:TB Price (THB) 4.18 52 Wk high (THB) 9.48 52 Wk low (THB) 3.19 Market cap (US$mn) 632.13 Shares outstanding (mn) 4860.47 Avg d'ly turn'r (US$mn) 6.31 Performance, y-o-y +3.93% Valuation Ratios P/E 22.48 Earnings Yield % 4.45 P/B 1.98 ROE % 1.5 ROA % 0.2 Share Price Performance, THB


Ratios and Growth Rates 2010 2011 2012 Profit & Loss (THBmn)

2010 2011 2012

Net profit margin % 0.8% (3.8%) 0.3% Revenue 36076.3 44247.3 46290.9 EPS 0.00 (0.01) 0.03 Gross profit 2398.4 3157.8 5126.1 Gross profit margin % 6.7% 7.1% 11.1% Pretax profit 535.8 (1421.1) 320.2 Sales growth rate % (10.5%) 22.7% 4.6% Net profit 297.9 (1698.5) 126.2 Balance Sheet (THBmn) 2010 2011 2012 Cash Flow (THBmn) 2010 2011 2012 Current asset 29843.7 31224.8 33603.7 Operating Cash flow (1201.5) 1730.8 (158.4) Long-term asset 20982.2 21179.3 24909.6 Investing Cash flow 3453.6 (1711.4) (4194.1) Total asset 50825.9 52404.1 58513.3 Financing Cash flow (2552.1) 2.56 4489.1 Total liabilities 39174.4 43521.7 48997.8 Exchange gain - - - Shareholders' equity 11651.4 8882.4 9515.5 Cash at the beginning 2,345.5 2,045.5 2,067.4 Total liabilities & equity 50825.9 52404.1 58513.3 Cash at the end 2,045.5 2,067.4 2,203.9 Stock data as of August 30, 2013; Financial Year ends DecemberSource: Company data, Bloomberg, Mandalay Capital

2 3 4 5 6 7 8 9

10 11

20%

13%

3%64%

KARNASUTA FAMILY

CHARANACHITTA FAMILY

THAI NVDR CO LTD

Others


66

YOMA STRATEGIC HOLDINGS LTD Mandalay Capital’s Call UNDER REVIEW

Yoma Strategic Holdings (Yoma: SP) is an investment holding company, whose principal activities include land development, agriculture, sale of private residential property, automobile dealership. The group also deals with design and project management for real estate development projects in Myanmar and China.

Yoma’s major real estate projects in Myanmar are FMI City (land development rights and house sales), Pun Hlaing Golf Estate (land development rights, Ivory Court Residences, and Lakeview Apartments). Yoma is affiliated to SPA Group Myanmar via common major shareholder, Serge Pun.

Recent Developments

In 2012, Yoma acquired for SG$91mn (US$71mn) 70% economic interests in the Star City Project, located 6 miles southeast of downtown Yangon Thanlyin Township. The acquisition refers to 135 acres of development area, comprising 9,000 units of apartments and houses, shopping and commercial areas.

Yoma signed a joint venture agreement in Nov 2012 with Parkson Myanmar & FMI to establish JV to operate department stores in Myanmar.

In November 2012, Yoma acquired 80% of the Meeyahta International Hotel Limited from the SPA Group to participate in the development of 10 acres of land in downtown Yangon. The Company has agreed to purchase an 80% interest for a consideration of US$81.3mn in the 10 acre site aimed to develop mixed-use residential, retail, hospitality and commercial property.

In February Yoma, Mitsubishi Motors Corp, Mitsubishi Corp, and FMI Co. Ltd. have signed an MOU concerning the after-sales service business for Mitsubishi Motors in Myanmar. Parties are planning to establish an official service centre firstly in Yangon, followed by Mandalay and Nay Pyi Taw.

In June 2013, Yoma completed acquisition of Shwe Lay Ta Gun Travels and tours Company limited forUS$10.7mn and 75% of Eastern Safaris Pte for US$100 ths.

Yoma was successfully selected as a tenderer to upgrade and operate the Mandalay International Airport in Consortium with Mitsubishi Corporation.

Growth Outlook

Yoma has been able to capitalize on positive developments taking place in Myanmar. Its position as a direct proxy to investing in Myanmar, close affiliation with SPA Group and local presence has significantly benefited the company in terms of market value and business expansion. We expect that the company will continue to attract significant investor interest, at least in the short-term, which should lead to new partnerships and joint ventures. We also believe that the company will continue to profit from the booming property market, which constitutes the largest component of its operations.

Key Stock Data Ticker YOMA:SP Price (SG$) 0.69 52 Wk high (SG$) 1.045 52 Wk low (SG$) 0.375 Market cap (US$mn) 626.01 Shares outstanding (mn) 1,157.12 Avg d'ly turn'r (US$mn) 11.9 Performance, y-o-y -2.82% Valuation Ratios P/E 73 Earnings Yield 0.7% P/B 2.22 ROE 4.0% ROA 3.1% Share Price Performance, SG$


Ratios and Growth Rates 2011 2012 2013 Profit & Loss (SG$mn) 2011 2012 2013 Net profit margin 24.9% 15.4% 23.9% Revenue 11.22 39.21 60.5 EPS (SG$) 0.004 1.1 1.2 Gross profit 2.61 11.69 26.2 Gross profit margin 23.3% 29.8% 43.3% Pretax profit 2.16 6.23 16.0 Sales growth rate 141.5% 249% 249% Net profit 2.79 6.04 14.3 Balance Sheet (SG$mn) 2011 2012 2012 Cash Flow (SG$mn) 2011 2012 2013 Current asset 11.02 44.32 178.91 Operating Cash flow 1.03 19.16 (0.9) Long term asset 127.81 103.89 283.65 Investing Cash flow 0.87 (0.45) (112.6) Total asset 138.82 148.21 462.56 Financing Cash flow (2.19) (1.14) 201.0 Total liabilities 8.74 12.63 66.44 Exchange gain - - - Shareholders' equity 130.08 135.58 327.20 Cash at the beginning 2.80 2.51 20.1 Total liabilities & equity 138.82 148.21 462.56 Cash at the end 2.51 20.1 106.2 Stock data as of August 30 2013; Financial Year ends MarchSource: Company data, Bloomberg, Mandalay Capital

-

0.20

0.40

0.60

0.80

1.00

1.20

42%

7%3%2%

1%1%

1%

43%

Pun Serge

Capital Group

Driehaus Capita

Noble Grand Inv

Aberdeen

Rickards Andrew

Vanguard Group

Others

10 September 2013

67

SHANGRI-LA HOTEL PCL Mandalay Capital’s Call UNDER REVIEW

Shangri-La Hotel PCL is incorporated in Thailand and is listed on the stock exchange of Thailand. The principal activities of the company include investment holding and the operation of hotels, resorts and investment properties. It is a subsidiary of Shangri-La Asia Limited (listed in Hong Kong and Singapore) which owns and operates hotels and resorts across Asia Pacific, Europe, North America and the Middle East, with new developments underway in West Africa.

Bangkok listed Shangri-La Hotel PCL, owns 23.5% of Traders hotel in Yangon, Myanmar. With over 300 guestrooms, Traders Hotel is a landmark property in Yangon; its 21 floors place it amongst the highest buildings in the city. In addition, the company has ownership in 2 developments in Yangon which are not yet operational: 22.2% in Shangri-La Yangon Co. Ltd. and 23.6% in Traders Square Co. Ltd.

Recent Developments

Shangri-La opened Traders hotel in 1996, the first investment of the group in Myanmar. Shortly after, the group began the construction of two residential towers on the Shangri-La site opposite Kandawgyi Lake. This development has been restarted recently and Shangri-La expects that the residential apartments will be completed by the end of 2013.

In November 2012, Shangri-La announced the launch of multi-storey commercial tower project in Yangon. The US$100mn Traders Square commercial complex will offer a mix of office, retail and large number of parking space in its downtown location alongside Traders Hotel. The construction of the complex is expected to be completed by mid-2015.

Growth Outlook

Shangri-La Hotel PCL is expected to strongly benefit from the positive transformation taking place in Myanmar. All 3 investments of the company in Yangon through Traders Hotel, Shangri-La Residential towers and Traders Square commercial complex will capture the significant demand for such properties in Yangon.

Tourism in Myanmar has tremendous potential and is expected to experience significant growth. International arrivals increased 30% y-o-y in 2012, exceeding 1 million tourists.

The residential property market is expected to perform exceptionally well in coming years as the country is tipped to become a magnet for foreigners. Existing supply is not adequate to alleviate the increased demand, especially in premium segment, leading to steep appreciation of rental rates and values.

With extremely limited supply and increasing rental rates, office space in Yangon will be in high demand by companies entering the country. Rental rates for premium office properties are at over US$50-70 per sqm, which is higher than in most cities of the region.

Key Stock Data Ticker SHANG:TB Price (THB) 45.25 52 Wk high (THB) 65.8 52 Wk low (THB) 31.1 Market cap (US$mn) 186.1 Shares outstanding (mn) 130.0 Avg d'ly turn'r (US$’000) 15.7 Performance, y-o-y +23.0% Valuation Ratios P/E 3.63 Earnings Yield 1.7% P/B 0.95 ROE 2.1% ROA 1.7% Share Price Performance, THB


Ratios and Growth Rates 2010 2011 2012 Profit & Loss (THBmn) 2010 2011 2012 Net profit margin -11.7% -14.2% 4.8% Revenue 1,263.4 1,587.4 2,065.4 EPS (THB) -1.14 -1.74 0.77 Gross profit 785.6 981.0 1336.9 Gross profit margin 62.2% 61.8% 64.7% Pretax profit (221.3) (209.5) 121.2 Sales growth rate 14.4% 25.6% 30.1% Net profit (147.8) (225.9) 99.9 Balance Sheet (THBmn) 2010 2011 2012 Cash Flow (THBmn) 2010 2011 2012 Current asset 473.8 594.3 1067.6 Operating Cash flow 333.5 492.3 739.2 Long term asset 6,120.7 5,358.9 4,943.3 Investing Cash flow (590.7) (271.5) (424.0) Total asset 6,594.5 5,953.1 6,010.9 Financing Cash flow (97.5) (97.5) (97.5) Total liabilities 1,249.2 1,224.8 1,181.9 Exchange gain - - - Shareholders' equity 5,345.3 4,728.3 4,829.0 Cash at the beginning 663.9 309.1 432.4 Total liabilities & equity 6,594.5 5,953.1 6,010.9 Cash at the end 309.1 432.4 650.1 Stock data as of August 30 2013; Financial Year ends DecemberSource: Company data, Bloomberg, Mandalay Capital

20 25 30 35 40 45 50 55 60 65 70

48%

25%

3%3%

2%1%

1%

17%

Successful Dragon

Siam Suite Hold

Asdathorn Surin

Asdathorn Chana

Bangkok Bank

Sinthavanarong SrisuSinthavanarong BoonOthers


68

INTERRA RESOURCES LTD Mandalay Capital’s Call UNDER REVIEW

Interra Resources (ITRR: SP), a Singapore (SGX Catalyst) listed company, is engaged in oil & gas exploration and production (E&P) in Southeast Asia. The E&P activities include oil production, field development and exploration through strategic partnerships and alliances. Interra holds two major assets in Myanmar (Chauk and Yenangyaung) and three in Indonesia (Tanjung Miring Timur, Kuala Pambuang, Linda Sele).

Interra holds 60% interest in Chauk and Yenangyaung under Improved Petroleum Recovery Contracts (IPRCs) with Myanmar Oil and Gas Enterprise (MOGE). The two concession areas cover about 1,800 sq km. The company has a 100% participating interests in both Tanjung Miring Timur (TMT) and Linda Sele (LS) in Indonesia through Technical Assistance Contract (TAC), and a 49% interest in Kuala Pambuang (KP) through production sharing contract.

Recent Developments

In August 2013, Interra has announced that it has successfully completed drilling 9 infill development wells in the Chauk oil field as an oil producer. The last well in Chauk oil field, CHK-1171 is the fourteenth well in 2013 to be completed as an oil producer in Myanmar producing 125 barrels a day.

In the Yenangyaung oil field, 11 infill development wells have been successfully completed as an oil producer which has production capacity of 191 barrels per day in total. The YNG 3256, YNG 3257 and YNG 3259 are under the process of drilling process.

Although production at the TMT field declined in 2011, Interra acquired the remaining 30% interest and received full operatorship. The Company is aggressively expanding its drilling programme at TMT so as to maximise production and work on two other new wells that are on-going.

Growth Outlook Interra has improved its financial position with total assets growing 35% and with current assets accounting for 37% of total assets. Majority of the capital expenditures went to geological and geophysical studies. We believe that the company will continue its search for assets in Myanmar and Indonesia for further acquisitions.

As the major projects of the company are located in Myanmar, the positive changes in the country will have effect on the operations. We view that the political and economic reforms in Myanmar will continue to have positive impact on share price performance.

Key Stock Data Ticker ITRR:SP Price (SG$) 0.44 52 Wk high (SG$) 0.59 52 Wk low (SG$) 0.33 Market cap (US$mn) 153.92 Shares outstanding (mn) 446 Avg d'ly turn'r (US$mn) 3.05 Performance, y-o-y 8.64% Valuation Ratios P/E 20.72 Earnings Yield % 0.01 P/B 2.13 ROE % 5.1 ROA % 3.9 Share Price Performance, SG$


Ratios and Growth Rates 2010 2011 2012 Profit & Loss (SG$mn) 2010 2011 2012 Net profit margin 11.5% 35.8% 10% Revenue 14.85 24.82 30.4 EPS 0.666 3.113 0.008 Gross profit 4.71 10.35 10.47 Gross profit margin 31.7% 41.7% 34.4% Pretax profit 2.91 10.88 5.33 Sales growth rate 17.8% 67% 22.5% Net profit 1.71 8.89 3.04 Balance Sheet (SG$mn) 2010 2011 2012 Cash Flow (SG$mn) 2010 2011 2012 Current asset 26.73 24.34 32.16 Operating Cash flow 4.16 8.45 7.07 Long term asset 19.79 41.41 56.12 Investing Cash flow (2.15) (17.27) (18.57) Total asset 46.53 65.75 88.73 Financing Cash flow 0.05 3.75 16.69 Total liabilities 9.89 16.47 18.26 Exchange gain 0.05 0.08 - Shareholders' equity 36.64 49.28 70.47 Cash at the beginning 14.53 18.07 11.53 Total liabilities & equity 46.53 65.75 88.73 Cash at the end 18.07 11.53 18.98 Stock data as of August 30 2013; Financial Year Ends DecemberSource: Company data, Bloomberg, Mandalay Capital

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0.60

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12

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12

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-13

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18%

12% 1%0.01%

0.01%

69%

Saratoga Equity Part

Sumodikoro SubiantoBuckler Allan Charle

Siew Sie Low

Dimensional Fund AdvOther Shareholders

10 September 2013

69

NTEGRATOR INTERNATIONAL LTD Mandalay Capital’s Call UNDER REVIEW

Ntegrator International Ltd. (NTEG:SP) is a Singapore listed company, focused on providing telecommunications network infrastructure, voice communication system and management and maintenance services. The company has a 60% stake subsidiary in Thailand, a branch in Vietnam and a representative office in Myanmar. The Thai operation contributed 14% of the total revenue in 2011. Ntegrator has worked with Veittel, the largest telecoms company in Vietnam, Singtel and M1 as well as Huawei International. Through contracting with Veittel, the group had launched its maiden equipment supply project in Mozambique.

Recent Developments

Although the revenue generated in 2012 is 11% lower from 2011, Ntegrator has recovered from a SG$7mn loss in 2010 to a profit of SG$0.22mn in 2011 and in 2012, SG$0.45mn, up 1.4%. The increase in profit is attributed by the company to the expansion of management and maintenance services operation, which has taken an 11% growth. Project sales in the same period faced a 19% decrease however, accounting to the fall in revenue.

Contract volume has been generally rising, however gains a momentum in the Q1 of 2013. In 2011, Ntegrator’s combined contracts were worth of US$1.7mn acquired from Singtel and M1. It obtained a SG$26.8mn order book in 2011 and SG$72.2mn in 2012. In 2013 Q1, the company has announced two 2-year operation and maintenance service contracts of SGS49.68mn with the Next Gen National Broadband Network in Singapore.

In Myanmar, Ntegrator has recently secured a contract for the supply of communications equipment including a three camera Digital News Gathering Satellite van, 2 sets of 1.2m antenna broadcast microwave link system, a 100kw medium wave radio transmitter, and fiber headend equipment to be used in Yangon, Mandalay and Naypyitaw. It has also contracted with Viettel of Vietnam for supplying equipment for Viettel’s optical and broadband networks in Vietnam and in Peru. Combined worth of these two contracts is accounted for SG$11.7mn, adding up to a total of SG$61.38mn for 2013 y-t-d.

Growth Outlook

Despite relatively slow progress in Myanmar, Ntegrator is expected to strengthen its presence through focusing on management and maintenance services operations. The potential growth of the Myanmar’s telecoms sector will benefit Ntegrator’s strategic policy of tapping into professional service industry of emerging frontier markets while at the same time establishing a wide base in the Southeast Asia.

Key Stock Data Ticker NTEG:SP Price (SG$) 0.073 52 Wk high (SG$) 0.151 52 Wk low (SG$) 0.031 Market cap (US$mn) 41.74 Shares outstanding (mn) 729.17 Avg d'ly turn'r (US$mn) 1.899 Performance, y-o-y +69.77% Valuation Ratios P/E 59.16 Earnings Yield % 1.69 P/B 2.17 ROE 3.3 ROA 1.1 Share Price Performance, SG$


Ratios and Growth Rates 2010 2011 2012 Profit & Loss (SG$mn) 2010 2011 2012 Net profit margin (18.5%) 0.6% 1.4% Revenue 37.63 36.94 32.79 EPS -0.02 0.001 0.001 Gross profit - - - Gross profit margin - - - Pretax profit (6.86) 0.36 0.27 Sales growth rate 37.6% 36.9% 32.8% Net profit (6.96) 0.22 0.45 Balance Sheet (SG$mn) 2010 2011 2012 Cash Flow (SG$mn) 2010 2011 2012 Current asset 46.14 41.26 38.79 Operating Cash flow 2.40 (1.48) 5.19 Long-term asset 6.96 2.02 0.18 Investing Cash flow (0.25) (0.05) (0.09) Total asset 53.10 43.27 38.97 Financing Cash flow 2.92 0.34 (1.59) Total liabilities 37.44 27.92 21.33 Exchange gain 0.41 0.26 - Shareholders' equity 15.66 15.36 17.64 Cash at the beginning 2.78 7.28 6.08 Total liabilities & equity 53.10 43.28 38.97 Cash at the end 7.28 6.08 9.49 Stock data as of August 30, 2013; Financial Year ends DecemberSource: Company data, Bloomberg, Mandalay Capital

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MENG SIEW HAN

JOO WHUT CHANG

FORTUNE TECH FUND ICHAN KIT SW

Others


70

CONTACTS

Ingyin Hla Myint Research Analyst [email protected] Zyn Tha Analyst [email protected] Keekeebhai Analyst [email protected]

[email protected]

[email protected]

[email protected]

Silk Road Capital, the leading investment banking advisory firm focused on frontier markets, operating inMongolia, Myanmar, Mozambique as well as the Caspian and Caribbean regions through Eurasia Capital(www.eurasiac.com), Mandalay Capital (www.mandalayc.com), Africa Asia Capital (www.africaasiacap.com),Caspian Capital (www.caspiancap.com) and Caribbean Capital respectively.

www.silkroadc.com

Mandalay Capital is a corporate finance advisory firm focused on Myanmar. The Firm advises global andAsian strategic and financial investors on their investments in Myanmar. Mandalay Capital is assistingMyanmar companies in finding joint venture partners globally as well as accessing Asian and internationaldebt and equity capital markets to fund their ambitious growth in the last major frontier in Asia.

www.mandalayc.com

DISCLAIMERThis report is made for information purposes only, and does not constitute an offer, solicitation of an offer to purchase, hold, sell, invest ormake any other financial decision. In making decisions, investors may rely on their own examinations of the parties and risks involved.Information contained in this report is obtained from the sources believed to be accurate and reliable. Because of the possibility of humanor mechanical error as well as other factors such information provided 'as is" without warranty of any kind and Mandalay Capital, inparticular, make no representation or warranty, express or implied, as to accuracy, timeliness, completeness, merchantability or fitness forany particular purpose of any such information. Under no circumstances, Mandalay Capital have any liability to any person or entity ( ies)for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligible or otherwise) or othercircumstances or contingency within or outside the control of any of their directors, managements, officers, employees, or agents inconnection with compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct,indirect, special, consequential, compensatory or incidental damageswhatsoever (including without limitation, loss profits) even if MandalayCapital is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information.

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