Corporate M&A 2023

Last Updated April 20, 2023

Myanmar

Law and Practice

Authors



Myanmar Legal MHM Limited is the Yangon office of Mori Hamada & Matsumoto and provides an international standard of service in Myanmar. The firm practises Myanmar, Japanese and English law, with a focus on investments, M&A and financing. Recent major transactions include advising Myanmar Agro Exchange Public Ltd on its proposed listing on the Yangon Stock Exchange, the Kirin Group on the divestment of its Myanmar business, AEON Mall on its joint venture with Shwe Taung Real Estate to develop and operate shopping malls in Myanmar, and four international insurers on their joint ventures with Myanmar insurers following the recent opening of the insurance sector to foreign investment. Since 2012, the firm has actively contributed to the updating of laws and regulations in Myanmar, as well as helping to establish new bodies in the country and developing the Thilawa Special Economic Zone. As a result, the firm has developed a comprehensive understanding of how to efficiently and effectively navigate the political and economic landscape in Myanmar.

Businesses in Myanmar have faced a number of significant legal, political and economic challenges since 2020, owing to (among other things) the COVID-19 pandemic. The state of emergency declared on 1 February 2021 under Order No 1/2021 of the Office of the President of Myanmar (Pro Tem) (State of Emergency Order) – according to which, the legislative, executive and judicial powers of the government were transferred to the Commander-in-Chief of the Defence Services (CIC).

The State of Emergency Order was expected to expire on 31 January 2023 and elections were expected to be held by August 2023. However, on 1 February 2023, the National Defence and Security Council of Myanmar (NDSC) issued Notification 1/2023 extending the State of Emergency Order by six months. This extension is expressed to be granted under Section 425 of Myanmar’s Constitution, which provides that the NDSC may – upon the approval of the CIC ‒ extend the period of a state of emergency for six months (with up to two extensions in “normal circumstances”).

Pursuant to the notification, the NDSC considered that the current circumstances of Myanmar were not “normal” such that it notified an extension beyond the two extensions referred to in the Myanmar Constitution. This has the effect that legislative, executive and judicial power in Myanmar remains vested in the CIC. Given the extension of the State of Emergency Order, there remains significant uncertainty regarding the timing of the expiry of the State of Emergency Order and subsequent holding of elections.

The regulatory environment more broadly has also remained challenging for investors to navigate. A particularly significant legal development for businesses in Myanmar involves foreign exchange measures implemented by the Central Bank of Myanmar (CBM). In particular, the CBM issued Notification No 12/2022 and Directive No 4/2022 (each dated 3 April 2022) and Directive No 5/2022 and Directive No 6/2022 (each dated 5 April 2022), requiring that:

  • Myanmar residents (other than Myanmar government entities and those provided an express exemption by the CBM) deposit earnings, capital income and borrowings and unilateral transfers denominated in a foreign currency in an account at an authorised dealer bank and convert those amounts to kyat at the CBM reference rate within one business day (with the reference rate being MMK2,100 per USD since 5 August 2022);
  • foreign currency amounts already held by such Myanmar residents be converted to kyat at the CBM above-mentioned reference rate; and
  • all foreign currency remittances from Myanmar (including payments for goods and services, dividend distributions and loan repayments) obtain the prior approval of the Foreign Exchange Supervisory Committee (FESC), which was formed under Order No 28/2022 of the State Administration Council of Myanmar on 4 April 2022.

The CBM has continued to amend these requirements since April 2022. Most recently, on 30 December 2022, the CBM notified authorised dealer banks in Myanmar that the FESC had determined that ‒ for companies with a foreign ownership greater than 35% (“foreign companies”) – it would not be necessary for banks to compulsorily convert foreign currency-denominated amounts held by them to Myanmar kyat. Instead, such currency may be used for their own use or converted to kyat at banks (although offshore remittance remains subject to FESC approval). Businesses operating in Myanmar must remain alert to such regulatory changes and the implications for their business.

The security situation has also been increasingly challenging since the State of Emergency Order (in particular, outside of Yangon). The British Embassy warned in its travel advisory that the security situation in Myanmar remains unpredictable, with a risk of political violence.

The State of Emergency Order has been met with targeted sanctions by major Western jurisdictions (such as the USA, EU, United Kingdom, Canada and − most recently − Australia). Specifically, US President Biden issued a new Executive Order 14014 titled “Blocking Property With Respect to the Situation in Burma” on 11 February 2021. As of 14 March 2023, more than 100 individuals, government entities and businesses have been sanctioned by the USA. Among them are current and former military leaders and senior government officials (including the CIC, who was already a sanctioned individual), and their family members, as well as:

  • the State Administration Council (SAC) and the Union Election Commission;
  • government enterprises (eg, the Myanma Gems Enterprise, Myanma Timber Enterprise, Myanmar Pearl Enterprise, Mining Enterprise No 1 and Mining Enterprise No 2);
  • companies affiliated with the Myanmar armed forces (including the major military-affiliated conglomerates Myanma Economic Holdings Public Company Limited (MEHPCL);
  • the Myanmar Economic Corporation (MEC)); and
  • Myanmar businessmen such as Tay Za and Jonathan Myo Kyaw Thaung.

The USA has implemented a freeze of USD1 billion in Myanmar government assets held in the USA, along with a ban on the export of sensitive defence equipment to Myanmar’s armed forces and businesses with alleged links to Myanmar’s armed forces (eg, King Royal Technologies Co, Ltd and Wanbao Mining and its Myanmar subsidiaries).

As a result of those developments, Myanmar’s M&A market has remained slow throughout the past 12 months, and is expected to remain so in the near future − although Myanmar remains a market with long-term potential for investors. Some high-profile foreign investors have also chosen to exit their investments in Myanmar as a result (see 1.2 Key Trends).

It has become increasingly important for all investors − whether remaining in Myanmar, seeking to exit Myanmar or considering new investments − to undertake a due diligence review of their operations to ensure they are conducting their operations in Myanmar in an ethical and appropriate manner that is in accordance with applicable sanctions.

Corporate activity in the past 12 months has continued to include exits from Myanmar by existing investors, such as:

  • Chevron, which announced in February 2023 that it would sell its 41.1% stake in the Yadana gas field project to Canada’s MTI Energy; and
  • Kirin Holdings Company, which exited its joint venture with MEHPCL on 23 January 2023 through a buy-back of its shares by applicable former joint venture companies, Myanmar Brewery Limited and Mandalay Brewery Limited.

As mentioned in 1.1 M&A Market, it has become increasingly necessary for all investors to undertake enhanced due diligence in Myanmar. A number of multilateral organisations, such as the OECD and the United Nations Development Programme (UNDP), have recently facilitated webinars to enable businesses to share international best practice and their experiences undertaking enhanced due diligence in Myanmar since 1 February 2021. In addition, multilateral organisations have issued new guides in relation to such enhanced due diligence − for example, the UNDP and the United Nations Working Group on Business and Human Rights have jointly developed the Guide to Heightened Human Rights Due Diligence for Business in Conflict-Affected Contexts (published in June 2022).

Statistics from Myanmar’s companies registrar, the Directorate of Investment and Company Administration (DICA), show that ‒ as of 31 January 2023 – foreign investment has been weak in the current fiscal year (ending 31 March 2023). Historically, however, it has been strong in oil and gas, manufacturing, real estate, services and transport and communications.

Acquisitions in Myanmar may be undertaken by way of the acquisition of shares in − or a transfer of the business or assets of − the target. In terms of share acquisitions in listed companies, foreign share trading is now possible for companies listed on the Yangon Stock Exchange (YSX) and also those that register on the Pre-Listing Board (PLB) established by the Securities and Exchange Commission of Myanmar (SECM) under Notification No 1/2022 dated 1 February 2022 as a precursor to a listing on the YSX (see 2.3 Restrictions on Foreign Investments for more information).

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

The Myanmar Companies Law (Law No 29/2017) (MCL) also provides for schemes of arrangement. Schemes approved by 75% of shareholders (or creditors) are binding on all shareholders (or creditors) and the MCL provides for a court − either by the order sanctioning such scheme or a subsequent order − to make provisions for the transfer of a company’s undertaking or its shares, pursuant to such scheme. However, there is no precedent in Myanmar for schemes of arrangement, so the courts have not yet developed their practice regarding such schemes.

The primary regulators for M&A activity in Myanmar are:

  • the DICA, which administers the MCL;
  • the Myanmar Investment Commission (MIC), established under the Myanmar Investment Law (Law No 40/2016) (MIL);
  • the CBM, which was established under the Central Bank of Myanmar Law (Law No 16/2013) and administers foreign exchange regulations in Myanmar;
  • the SECM, which administers the Securities and Exchange Law (Law No 20/2013) (SEL) and the YSX (established pursuant to the SEL in 2015); and
  • the Competition Commission, established on 31 October 2018 under Notification No 106/2018 of the Myanmar government to enforce Myanmar’s Competition Law (Law No 9/2015).

Foreign Investment Regulation

The MIL, which came into effect on 30 March 2017, combined the previous local and foreign investment laws into one law and provides for a streamlined investment approval process.

Foreign investment restrictions

The MIC issued Notification No 15/2017, titled List of Restricted Investment Activities in relation to Section 42 of the MIL (Negative List), on 10 April 2017 − thereby setting out the types of investments that are restricted to foreign investment, require approval of a Myanmar government ministry, or may only be made through a joint venture with a Myanmar company. Under the MIR, a Myanmar company is required to have at least a 20% shareholding in such a joint venture.

The Negative List was intended to be a comprehensive list of all such restrictions. However, the authors are not aware of any updates since 9 April 2018, when the criteria for approvals from the Ministry of Electricity and Energy (MOEE) for energy sector projects was updated. Investors are advised to obtain legal advice on the specific restrictions applicable to any proposed transaction at the time of investment.

Permissions to avoid foreign investment restrictions on land ownership

Foreign investors will require a land rights authorisation from the MIC under the MIL in order to have the right to enter into a long-term lease of land. This is in light of the restrictions under the 1987 Transfer of Immoveable Property Restriction Law (TIPRL) noted here, which may in practice limit leases of land for more than one year and transfers of immovable property to companies considered Myanmar companies without such an endorsement).

Approvals applicable for Myanmar projects

Generally, a permit will be required under the MIL from the MIC for foreign and local investments that are strategically important, capital-intensive, have a large potential impact on the environment or local community, and use state-owned land − as well as for other designated investments.

On 30 March 2017, the MIC issued the Myanmar Investment Rules (Notification No 35/2017) (MIR) setting out the process of obtaining approval under the MIL.

MIC approval will also be required for the direct (and, potentially, indirect) acquisition of a majority of shares or controlling interest in a company with an MIC permit or endorsement. Although the MIC has advised in the past that it need not be notified of indirect transfers of shares in companies with MIC permits or endorsements, a prudent approach would be to confirm this with the MIC on a case-by-case basis, as indirect interests are within the scope of the approval requirement under the MIL.

Foreign Ownership Restrictions in Relation to Property

The TIPRL prohibits the transfer of immovable property to − or its acquisition or lease for more than one year by − foreign citizens or “foreign-owned companies” (defined as companies that are not 50% or more owned or controlled by Myanmar citizens). However, notwithstanding this definition, in practice it is possible that Myanmar governmental authorities may restrict transfers or long-term leases by “foreign companies” (as defined in the MCL, being companies with a foreign ownership above 35%).

Foreign Share Trading on the YSX and PLB

The YSX, established in 2015, is still developing as a stock exchange, and there are currently only seven listed companies. The SECM and YSX have implemented a number of measures to encourage further listings and share trading.

In particular, foreigners were permitted to trade shares on the YSX from 20 March 2020, under Notification No 1/2019 issued by the SECM on 12 July 2019. The YSX issued the Framework for Trading by Foreign Investors on 6 September 2019 implementing the SECM’s notification by setting out the roles and responsibilities of listed companies, securities companies and the YSX in relation to foreigners trading shares on the YSX. The SECM subsequently issued Instruction No 1/2020 on 6 March 2020 setting out the requirements for securities companies to open accounts for foreigners to trade shares.

Under Instruction No 1/2020, both resident and non-resident foreigners are entitled to trade shares on the YSX. Each listed entity is also permitted to set its own limit for the shareholding by foreigners and, under its Framework for Trading by Foreign Investors, the YSX would suspend purchase orders by foreigners that risked exceeding the upper limit for foreign shareholding (ie, within 5% of the upper limit set by the company).

On 28 September 2020, the YSX also announced that it was launching the PLB to act as an initial step towards listing on the main board of the YSX and to provide greater opportunities for unlisted public companies to raise funds. The Securities Registration Business Regulations and Business Operations Manual for the Pre-Listing Board were subsequently published on 2 October 2020. The PLB was formally established by the SECM on 1 February 2022. As of 9 March 2023 no companies have registered on the PLB; however, as with the YSX, foreign share trading is permitted on the PLB. In the future, potential listing candidates on the YSX may register on the PLB first.

Myanmar’s Competition Law entered into force on 24 February 2017. This law prohibits collaborations whose purpose is to “extremely raise market dominance” or lessen competition in a limited market, or which would result in a market share above the prescribed amount.

Business combinations prohibited under the Competition Law may be exempt in certain circumstances − for example, if the acquired business is at risk of insolvency or if it will promote exports, technology transfer or productivity. However, the Competition Law is a relatively new law and it is not yet clear how its requirements will be applied in practice. The Competition Commission is yet to systematically enforce compliance with this Law.

Employment is primarily regulated contractually in Myanmar, subject to the requirements of a number of labour laws that regulate minimum standards in aspects of employment such as overtime and occupational health and safety − for example, the Employment and Skills Development Law (Law No 29/2013), Shops and Establishment Law (Law No 18/2016), 1951 Factories Act and Occupational Safety and Health Law (Law No 8/2019).

Myanmar has amended several of these laws, and there continues to be a push for further amendment. Under the Employment and Skills Development Law, an employer is required to finalise a written employment contract within 30 days of commencement of employment. The employment contract is required to be filed with the local township office of the Ministry of Labour. To this end, the Ministry has issued Notification No 140/2017 on 28 August 2017 prescribing a template employment contract for the use of businesses in Myanmar.

There is no specific national security review of acquisitions in Myanmar. However, the MIC must consider − along with other criteria − whether an investment proposal is compatible with the national security policies and objectives of the Myanmar government.

Financial Action Task Force

At the Plenary Meeting of the Financial Action Task Force (FATF), held in Paris on 21 October 2022, FATF added Myanmar to the list of jurisdictions that are subject to a “Call for Action” (known generally as its “black list”). FATF noted that Myanmar’s failure to complete its action plan to address strategic deficiencies in relation to AML/CFT by October 2022 has resulted in Myanmar being added to the Call for Action list.

FATF has called on its members and urged all jurisdictions to apply enhanced due diligence to business relations and transactions with Myanmar, which should be proportionate to the risk arising from Myanmar. When applying such measures, FATF has noted that countries must ensure that funds for humanitarian assistance, legitimate not-for-profit organisation activities and remittances are not disrupted. These would include measures such as:

  • obtaining additional information on customers;
  • obtaining information on the source of funds and source of wealth of customers; and
  • enhancing the monitoring of business relationships.

As a result of these measures, it is expected that there may be additional complexity and therefore time required for payments and finance involving Myanmar or Myanmar citizens or companies.

The authors note that the Call for Action by FATF does not include a call for “counter-measures” − ie, the stricter measures that apply to the other jurisdictions on the Call for Action list (the Democratic People’s Republic of Korea and Iran). Such measures generally seek to limit financial transactions and business relationships with those jurisdictions.

Implementation of trade mark laws

On 10 March 2023, the State Administration Council announced (under Notification 82/2023) that the Trade Mark Law (Law No 3/2019) enacted on 30 January 2019 would enter force on 1 April 2023. Prior to that, the Ministry of Commerce’s Department of Intellectual Property invited the trade mark registration representatives who would be responsible for filing trade mark applications in Myanmar to attend a training course in February 2023 in preparation for the implementation of the law.

The implementation of this law is a significant development for the protection of trademarks in Myanmar. Trade marks are currently registered through registering a declaration of the ownership of a trade mark under the Registration of Instruments Law (Law No. 9/2018), which provides for the registration of certain documents.

Filings for registrations of trade marks already in use or registered under the Registration of Instruments Law (Law No 9/2018) have been accepted under the Trade Mark Law since 1 October 2020 under Order No 63/2020 of the MOC dated 28 August 2020. Trade marks for which such filings have been made will be registered under the Trade Mark Law with effect from the date it takes effect.

There have been no significant changes to takeover laws. No changes are expected during the next 12 months.

Building a stake in a target prior to launching an acquisition offer − albeit possible under the MCL − is not customary in connection with acquisitions in Myanmar.

Under Notification No 1/2016 of the SECM, an extraordinary report would be required in connection with share acquisitions that result in:

  • a change in a public company’s parent company or major shareholder (defined as a shareholder with greater than 20% shareholding); or
  • a transfer of a public company’s material undertaking.

The daily trades by foreign investors in listed companies and companies registered on the PLB would need to be reported to the YSX for the purposes of ensuring compliance with applicable restrictions on foreign shareholding (see 2.3 Restrictions on Foreign Investments for more information).

There are no limits on the ability of a company to include rules in its corporate charter that create barriers to an acquirer increasing its stake in a target. However, experience to date shows that these kind of hurdles are unusual.

There is currently no market for derivative instruments in Myanmar. It is expected that the regulatory framework for such instruments will develop over time as Myanmar’s financial market expands.

There is currently no market for derivative instruments in Myanmar.

There is no requirement for shareholders to disclose the purpose of their acquisitions. There is no practice of hostile takeovers in Myanmar.

There is no obligation to disclose a deal other than where the material shareholding disclosure thresholds are triggered for public companies (see 4.2 Material Shareholding Disclosure Threshold).

Disclosure of transactions is typically based on the commercial requirements of the parties involved and the applicable legal requirements (eg, any need of a foreign investor to make disclosures as per stock exchange rules).

As in other jurisdictions, the scope of due diligence will depend on the risk appetite of the acquirer. A typical legal due diligence would cover:

  • the corporate information of the company;
  • compliance with Myanmar law;
  • verification of its licences and assets (including IP);
  • review of material contracts;
  • labour and environmental compliance; and
  • outstanding financial obligations and securities granted by the company.

In Myanmar, it is particularly important to undertake thorough due diligence of the following.

  • Sanctions risk – as noted in 1.1 M&A Market, following the State of Emergency Order, sanctions have been imposed by a number of jurisdictions, including the USA, EU, the UK, Canada and Australia. As a result, it will be important to review the ownership and management of potential targets in order to assess if there are any risks to the transaction under an applicable sanctions programme.
  • Human rights – as noted in 1.1 M&A Market, businesses intending to operate in Myanmar would be advised to undertake a human rights due diligence review prior to making their investment (and while undertaking their business in Myanmar) to ensure that their operations in Myanmar will be conducted in an ethical and appropriate manner.
  • The licences and approvals obtained by the target company for its business – in particular, as there are varying levels of understanding of (and compliance with) applicable licensing and approval requirements in Myanmar.
  • Interests in land – this can be challenging due to the poor quality of official documentation regarding land title (Myanmar lacks a comprehensive land titles registry), and the prevalence of informal arrangements for land use in Myanmar (eg, companies often operate on land belonging to a third person such as a major shareholder).
  • Corruption, money laundering and terrorism financing – as noted in 3.1 Significant Court Decisions or Legal Developments, FATF returned Myanmar to its list of countries subject to a “Call for Action” for failing to complete its action plan to address strategic AML/CFT deficiencies. Myanmar had previously been listed in FATF’s “grey list” (in February 2020), only four years after being removed from the grey list.

To the extent that a target does not have information easily available in electronic format (which is often the case in Myanmar), there may be delays in obtaining relevant information.

Generally, due diligence for acquisitions continues to be challenging in Myanmar. This is mainly down to poor record-keeping and compliance by Myanmar companies, lack of familiarity with due diligence processes, and reluctance to disclose company information. Prospective acquirers are advised to engage early with potential target companies to explain the purpose and nature of due diligence procedures and build the relationships necessary to ensure an appropriate quality of disclosure.

Standstill agreements are not usually demanded in Myanmar. However, buyer protections such as exclusivity are often negotiated between parties.

Purchase terms are typically documented in definitive agreements. As in other jurisdictions, these typically take the form of:

  • a sale and purchase agreement for the applicable shares, business or assets;
  • a shareholders’ agreement (if applicable); and
  • any other document necessary to effect the transfer of the shares, business or assets (eg, land conveyances).

The timeline to process an acquisition or sale is typically several months and depends on the nature and complexity of the transaction, relationship of the parties, and the period required for due diligence.

There is no applicable mandatory offer threshold, reflecting the absence of takeover regulations in Myanmar.

Consideration is most commonly in the form of cash. Where the consideration is financed through loans, such finance has historically been obtained offshore, given that Myanmar’s banking sector is still developing. However, recent restrictions by the CBM may impact the availability of such financing in future. Specifically, on 13 July 2022, the CBM issued Letter No FE-1/744 (Ka), in which it requested that authorised dealer banks in Myanmar instruct customers who are borrowers under offshore loans to negotiate a suspension of the repayment of those loans − including principal repayments and interest under those loans − whether in cash or in kind. In addition, such payments require FESC approval under CBM Notification No 12/2022. These restrictions have significant implications for offshore lenders.

If an M&A transaction is in the form of a joint venture between a foreign and local Myanmar partner, the Myanmar joint venture partner would typically make its contribution to the project company in kind by contributing assets (such as immovable property), whereas the foreign joint venture partner would provide cash.

In terms of valuation certainty, obtaining accurate financial information on a target company in Myanmar is often challenging, owing to the poor accounting practices and record-keeping of companies in the country. However, while tools to mitigate this uncertainty (such as closing accounts) are available, in practice the purchase price is generally not adjusted − thereby reflecting, in part, the difficulty of obtaining relevant financial information.

In addition, it is generally understood that, in practice, all transfers of funds into or from Myanmar are governed by the Foreign Exchange Management Law (Law No 12/2012) (FEML). Prior approval from the CBM is likely to be required for loans, whereas equity fund transfers need only be declared to the CBM under the FEML. Remittances offshore for any distributions or return of capital can be expected to require FESC approval, however.

Obtaining approval from the CBM for loans is likely to be delayed as a result of the State of Emergency Order and, in any case, further approval from the FESC would be required for offshore repayments of the loan (or payments of interest).

The terms of M&A offers are negotiated between the parties. However, schemes of arrangement are subject to court supervision − although these are seldom used in practice.

For schemes of arrangement, which are available as a matter of law (albeit not used in Myanmar in practice), schemes approved by 75% of shareholders (or creditors) are binding on all shareholders (or creditors). A court can make provisions for the transfer of a company’s undertaking or its shares, pursuant to such a scheme, either by the order sanctioning such scheme or a subsequent order.

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

There are, in principle, no restrictions on including conditions (such as for obtaining finance) as part of business combinations. Schemes of arrangement could be conditional, subject to the court’s supervision.

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

Given the changing situation and the potential for further downside risk, it is expected that acquirers and investors would seek to include material adverse change clauses as a condition to transactions.

There have been no regulatory changes that have impacted the length of interim periods. However, disruptions to governmental services may impact on the ability to meet closing conditions for an investment.

A bidder that does not seek 100% ownership of a target may be able to negotiate governance rights such as board representation and other protections typically found in a shareholders’ agreement (eg, reserved matters and pre-emptive rights).

Under the MCL, individual shareholders may approve a proxy and corporate shareholders may approve a corporate representative to represent them at general meetings.

As noted in 2.1 Acquiring a Company, schemes of arrangement provide a means of squeezing out minority shareholders that have not agreed to an acquisition. In addition, the approval of an offer to acquire the shares of a public company by 75% of shareholders within four months of such offer will give rise to a right on the part of the acquirer to compulsorily acquire the shares of dissenting shareholders upon notice within two months, subject to any objection proceedings.

Irrevocable commitments of shareholders in relation to an acquisition are not used in Myanmar, which reflects the fact that a public takeover market has yet to develop in Myanmar.

Other than the disclosure obligations applicable to public companies described in 4.2 Material Shareholding Disclosure Threshold, there are no specific legal obligations to make a bid public.

Companies may issue shares to individual investors from time to time. However, a prospectus approved by the SECM would need to be prepared under the MCL and SEL in connection with an offer to the public − except in the situations described in Notification No 1/2020 of the SECM dated 15 May 2020 (eg, offers to prescribed classes of sophisticated investors).

Financial statements do not have to be disclosed as part of any legal disclosure requirement for bids in Myanmar.Under the Myanmar Accountancy Council Law (Law No 31/2015), financial statements are required to be prepared in accordance with the Myanmar Financial Reporting Standards, which are based on the International Financial Reporting Standards (IFRS).

On 1 December 2020, the Office of the President issued Notification No 118/2020, further implementing the Extractive Industries Transparency Initiative (adopted in 2014 by Myanmar) by requiring all contracts in the extractives sector to be made publicly available from 1 January 2021. This requirement has not been enforced to date. There are no broader requirements under Myanmar law for transaction documents to be disclosed.

Directors owe statutory directors’ duties to the company under the MCL − for example, to act in good faith, in the company’s best interests, and with due care and diligence. These duties would apply to a directors’ conduct in the context of overseeing M&A activities. However, Section 166(e)(i) of the MCL provides that − when exercising their duty to act in good faith and in the best interests of the company − a director may consider the likely long-term consequences of their decisions, including the impact on employees, business relationships with customers and suppliers, the environment, and the company’s reputation.

Special or ad hoc committees are not typically used for business combinations.

While the business judgement rule applies in Myanmar under Section 165(b) of the MCL, directors’ duties and this rule were only introduced in Myanmar as part of the MCL reform. As such, its application has yet to be tested in the country’s courts.

The nature of independent outside advice is subject to the discretion of the directors. Typically, the directors of a target company will retain independent legal advisers.

The MCL provides for statutory directors’ duties, including the duty to act in good faith and in the company’s best interests. However, there has not been judicial scrutiny of these duties as yet. While obligations regarding conflicts of interest also applied to directors under the former MCA, this has not to date been the subject of judicial scrutiny in Myanmar.

In practice, hostile tender offers are not possible in Myanmar.

See 9.1 Hostile Tender Offers.

See 9.1 Hostile Tender Offers.

See 9.1 Hostile Tender Offers.

See 9.1 Hostile Tender Offers.

Litigation is not common in Myanmar, including in connection with M&A deals. This reflects how Myanmar’s legal system – particularly in relation to sophisticated commercial disputes – is still developing its capacity.

The matter is not applicable in this jurisdiction.

Although there are ongoing commercial disputes regarding broken-deal disputes, these have not yet been resolved. As a result, no major precedents were established in 2021 regarding “broken-deal” disputes.

Following the declaration of the State of Emergency Order on 1 February 2021, there has been a strong activist pressure on companies operating in Myanmar. The focus has been on companies with ties to Myanmar’s armed forces; however, companies operating in Myanmar more broadly are also affected. This pressure has come from within the Myanmar community and the Myanmar diaspora, as well as from the wider international community. Pressure has been brought to bear through publicity campaigns, boycotts of products within Myanmar by distributors and consumers, and reports and open letters.

The aim of activists is primarily to pressure companies with business ties to Myanmar’s armed forces to sever those ties by, for example, withdrawing from supply or purchase arrangements or investments. However, as noted in 11.1 Shareholder Activism, this has also had a broader effect on companies that are operating in Myanmar.

To date, activists have primarily targeted completed transactions. The primary goal of activists in Myanmar is to disrupt business dealings between third parties (including local and foreign investors) and the Myanmar armed forces and affiliated entities.

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Trends and Developments


Authors



Myanmar Legal MHM Limited is the Yangon office of Mori Hamada & Matsumoto and provides an international standard of service in Myanmar. The firm practises Myanmar, Japanese and English law, with a focus on investments, M&A and financing. Recent major transactions include advising Myanmar Agro Exchange Public Ltd on its proposed listing on the Yangon Stock Exchange, the Kirin Group on the divestment of its Myanmar business, AEON Mall on its joint venture with Shwe Taung Real Estate to develop and operate shopping malls in Myanmar, and four international insurers on their joint ventures with Myanmar insurers following the recent opening of the insurance sector to foreign investment. Since 2012, the firm has actively contributed to the updating of laws and regulations in Myanmar, as well as helping to establish new bodies in the country and developing the Thilawa Special Economic Zone. As a result, the firm has developed a comprehensive understanding of how to efficiently and effectively navigate the political and economic landscape in Myanmar.

Introduction

The numerous recent foreign exchange measures implemented by the Central Bank of Myanmar (CBM) are of particular legal significance for businesses in Myanmar. The changing nature of these regulations has presented difficulties for the conduct of business in the country, and Myanmar-exposed companies need to pay close attention to further changes in such regulations.

Foreign Currency Conversion Requirement

The CBM has issued a number of instruments concerning foreign currency held by Myanmar residents since April 2022. These instruments have been implemented in the context of shortages of foreign currency in Myanmar and the depreciation of the Myanmar kyat during 2021 and 2022.

Specifically, the CBM issued Notification No 12/2022 and Directive No 4/2022 (each dated 3 April 2022) and Directive No 5/2022 and Directive No 6/2022, (each dated 5 April 2022), requiring that:

  • Myanmar residents (apart from Myanmar government entities and those provided an express exemption by the CBM) deposit earnings, capital income and borrowings and unilateral transfers denominated in a foreign currency in an account at an authorised dealer (AD) bank in Myanmar and convert those amounts to kyat at the CBM reference rate (MMK2,100 per USD since 5 August 2022) within one business day;
  • foreign currency amounts already held by such Myanmar residents are converted to kyat at the CBM reference rate; and
  • all foreign currency remittances from Myanmar (including payments for goods and services, dividend distributions and loan repayments) are subject to the prior approval of the Foreign Exchange Supervisory Committee (FESC), which was formed under Order No 28/2022 of the State Administration Council of Myanmar on 4 April 2022.

The requirement for FESC approval for offshore remittances introduced a new and significant regulatory requirement for companies in Myanmar. Previously, under Chapter VIII of the Foreign Exchange Management Law (Law No 12/2022) (FEML), “ordinary account transactions” (defined in the FEML to include short-term bank loans and payments for goods and services, interest repayments and payments relating to amortisations of loans and depreciations of direct investments) could be made offshore without restriction.

The CBM has provided certain exemptions in relation to the compulsory conversion of foreign currency to kyat, such as the following.

  • On 20 April 2022, the CBM issued Letter No FE-/69, which exempted a number of entities and individuals from Notification No 12/2022, including for foreign direct investment carried out with the permission of the Myanmar Investment Commission (MIC) – ie, foreign direct investments for which an MIC permit has been granted – and investments conducted in special economic zones (SEZ) (eg, the Thilawa SEZ).
  • Relief has been provided for certain activities, such as trade. By way of an example, exporters are permitted to use 35% of export proceeds for their personal use for a period of 30 days (including transfer of such proceeds outside of Myanmar).

For foreign companies (other than those undertaking investment with an MIC permit), the CBM issued Letter No FE-1/754, informing AD banks of the FESC’s decision to require compulsory conversion of foreign currency held by Myanmar-incorporated companies with foreign investment of up to 35% as soon as possible. However, on 30 December 2022, the CBM subsequently notified AD banks that the FESC had determined that – in the case of companies with a foreign ownership greater than 35% (“foreign companies”) ‒ it would not be necessary for banks to compulsorily convert foreign currency-denominated amounts held by them to kyat and that such currency could be used for their own use or converted to kyat at banks. Nonetheless, the notice also provides that:

  • foreign companies continue to require FESC approval to make outbound remittances; and
  • foreign companies may not undertake export of non-value added agriculture or livestock products, while those undertaking export of value added agriculture or livestock products remain subject to the requirement under Notification 36/2022 to convert 65% of the export proceeds to kyat.

Request for Suspension of Repayments for Offshore Loans

On 13 July 2022, the CBM issued Letter No FE-1/744 (Ka), under which it requested that AD banks notify customers who are borrowers under offshore loans to negotiate a suspension of the repayment of those loans – including both principal repayments and interest under those loans – whether in cash or in kind. In addition, such payments require FESC approval under CBM Notification No 12/2022. These restrictions have significant implications for offshore lenders and, as such, there has been a considerable impact on offshore lending into Myanmar.

Measures to Encourage Repatriation of Foreign Currency Earnings

The CBM has also been introducing measures that appear intended to incentivise remittances of foreign currency to Myanmar by liberalising some of the restrictions on the use of foreign currency. However, it remains to be seen whether these measures will result in further foreign currency flows to Myanmar in practice, especially when considering that – apart from cases where entities are exempt from the requirement to convert foreign currency to kyat under Notification No 12/2022 – the liberalisations in question are for limited periods of time only. In addition, the requirement for FESC approval to undertake cross-border payments in a foreign currency imposes a significant limitation on the ability of those holding foreign currencies to utilise such foreign currency within the applicable time limitations.

On 5 August 2022, the CBM published Notification No 36/2022 requiring exporters to convert 65% of their export earnings to kyat. The CBM issued Letter No FE-1/PaKa/1848 on 10 August 2022 to implement this notification. That letter was subsequently repealed and replaced on 16 August 2022 by Letter No FE-1/PaKa/1956. Under these instruments, AD banks are required to convert 65% of the export earnings of exporters into kyat within one business day of receipt of the proceeds in Myanmar. Exporters are permitted to use the remaining 35% of the proceeds for their own purposes. Recipients of the foreign currency may use it for their own purposes or convert it to kyat at an AD bank. All transactions involving such foreign currency by the exporter or third-party purchasers of the foreign currency need to be completed within 30 days of receipt of the foreign currency in Myanmar, after which the balance will be converted to kyat by the AD banks at which they are held. Letter No FE-1/PaKa/1956 clarifies that, insofar as any cross-border payments are made using foreign currency by an exporter or any third parties to whom it transferred foreign currency, such payments require approval from the FESC.

Under Letter No FE–1/PaKa/1957 of the CBM (dated 16 August 2022), Myanmar resident entities who are exempt from the obligation to convert foreign currency held by them into kyat under Notification No 12/2022 – including any company with a MIC permit or operating in Thilawa SEZ – and who receive income from abroad in a foreign currency are permitted to:

  • use such foreign currency for their own purposes;
  • sell the foreign currency to third parties (who may use it for their own purposes or convert it to kyat at an AD bank within 30 days, after which the balance would be converted to kyat by the AD banks at which they are held); or
  • convert it to kyat at an AD bank.

The foreign currency may be used for cross-border payments by the local resident who originally received it or by any third parties to whom it was sold (subject to the approval of the FESC).

Under Notification No 39/2022 of the CBM (dated 30 August 2022), Myanmar citizens who receive wages or salaries in a foreign currency overseas and remit such wages or salaries to Myanmar via AD banks are permitted to use such foreign currency for their own purposes, sell the foreign currency to third parties, or convert it to kyat at an AD bank. The balance of the foreign currency after 21 days from the date on which it was remitted to Myanmar (whether held by the person who originally remitted the money to Myanmar or a purchaser) would be converted to kyat by the AD banks at which they are held.

Myanmar Legal MHM Limited

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Law and Practice

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Myanmar Legal MHM Limited is the Yangon office of Mori Hamada & Matsumoto and provides an international standard of service in Myanmar. The firm practises Myanmar, Japanese and English law, with a focus on investments, M&A and financing. Recent major transactions include advising Myanmar Agro Exchange Public Ltd on its proposed listing on the Yangon Stock Exchange, the Kirin Group on the divestment of its Myanmar business, AEON Mall on its joint venture with Shwe Taung Real Estate to develop and operate shopping malls in Myanmar, and four international insurers on their joint ventures with Myanmar insurers following the recent opening of the insurance sector to foreign investment. Since 2012, the firm has actively contributed to the updating of laws and regulations in Myanmar, as well as helping to establish new bodies in the country and developing the Thilawa Special Economic Zone. As a result, the firm has developed a comprehensive understanding of how to efficiently and effectively navigate the political and economic landscape in Myanmar.

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Authors



Myanmar Legal MHM Limited is the Yangon office of Mori Hamada & Matsumoto and provides an international standard of service in Myanmar. The firm practises Myanmar, Japanese and English law, with a focus on investments, M&A and financing. Recent major transactions include advising Myanmar Agro Exchange Public Ltd on its proposed listing on the Yangon Stock Exchange, the Kirin Group on the divestment of its Myanmar business, AEON Mall on its joint venture with Shwe Taung Real Estate to develop and operate shopping malls in Myanmar, and four international insurers on their joint ventures with Myanmar insurers following the recent opening of the insurance sector to foreign investment. Since 2012, the firm has actively contributed to the updating of laws and regulations in Myanmar, as well as helping to establish new bodies in the country and developing the Thilawa Special Economic Zone. As a result, the firm has developed a comprehensive understanding of how to efficiently and effectively navigate the political and economic landscape in Myanmar.

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