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You're reading: Myanmar gets its first investment bank

YANGON, Myanmar — Alisher Ali knew on the morning of his second day in Myanmar that the long-closed country was a risk worth taking. Less than two months later he moved his wife and four children to crumbling, tree-lined Yangon and opened Myanmar's first-ever investment bank with $1 million of his own money.

This places him in sparse company. While many chatter about
the economic potential of one of the world’s last frontier markets,
very few foreigners have actually set up shop. The first thing Ali had
to do was explain to people in Myanmar, including some of his new
employees, what an investment bank is.

Decades of isolation have
left Myanmar with a weak education system, feeble banks, questionable
courts, uneven electricity supply, entrenched corruption and an
underdeveloped mobile phone network. In the last two years, sweeping
political change has resulted in the release of hundreds of political
prisoners, the election of Nobel Peace Prize winner Aung San Suu Kyi to
Parliament, and the lifting of most U.S. and European sanctions.

Today,
the Southeast Asian country’s bureaucracy is scrambling to keep pace
with multiple transitions, from socialism to capitalism, dictatorship to
democracy, and conflict to peace. The legal environment for investors
remains murky, and beneath the flurry of reforms, many feel a tug of
doubt: Will this change endure? Have the country’s military rulers,
under the leadership of reformist president Thein Sein, really
surrendered the power they grasped with such violent fervor for nearly
50 years?

These things don’t bother Ali.

Looking at the
early sun on Yangon’s Inya Lake from a hotel balcony on his second day
in Myanmar, Ali saw a country with enormous untapped potential, a bit
like Mongolia — where he made his name and his money — only with 20
times more people and in a better location.

“It’s an enormous
bet,” he said. “Over the last 20 years, you don’t have any precedent
where an economy of 65 million people is joining the global economy.”

Ali
sees his investment bank, Mandalay Capital, as a bridge between foreign
investors keen to find their way into Myanmar and local companies that
need capital and guidance. The business is modeled on Eurasia Capital, a
boutique investment bank in Ulan Bator, Mongolia, which has attracted
loyal clients and a raft of awards since Ali founded it in 2008. Ali,
who was born in Uzbekistan and educated at
Columbia and Oxford universities, has also raised $25 million for
Myanmar’s first dedicated investment fund, which closed its fundraising
last month.

Many things are missing in Myanmar. There is no local
equivalent of a Securities and Exchange Commission that might grant Ali a
license. There is not even a provision for an investment bank in
Myanmar’s existing financial services law, according to Sean Turnell, an
economist at Australia’s Macquarie University. A much debated foreign
investment law was recently sent back to Parliament for further
modification.

Such deficiencies scare off some people,
particularly Westerners who tend to seek safety in the letter of the
law. But to others, like Ali and his investors and clients from Kazakhstan, Mongolia, Russia and Uzbekistan, they look like opportunities.

Marat
Utegenov, executive director of Mongolia Development Resources, a
property developer based in Ulan Bator, is one of Mandalay Capital’s
first clients. Utegenov wants Mandalay to help him find and structure
real estate deals in Myanmar, where foreigners need a local partner, or
nominee, to own property, he said.

“If we wait until the rules are
in place and I can legally buy property without nominees, I will have
to give up a sizeable amount of profit because prices will be
different,” said Utegenov, who is planning an initial investment of
around $5 million.

Oil and gas and mining account for 99 percent
of foreign investment into Myanmar’s $52 billion economy. But Mandalay
Capital is staying away from extractive industries, in favor of
fast-growing sectors more likely to be free of cronyism, corruption and
political baggage, like information technology, telecom services, media,
education, health care, real estate and financial services. Ali said
he’s targeting a rising generation of local entrepreneurs, rather than
cultivating relationships with established crony businessmen.

Htet
Nyi is one of Mandalay Capital’s first local clients. The son of a
clinical psychologist and a doctor, Htet Nyi started Myanmar Finance
Co., a trading company, 17 years ago. He launched a business
specializing in small loans for the poor in March and is now in talks
with foreign companies about setting up a joint venture or raising
capital to grow the microfinance business. “So far I’m financing it from
my own pocket,” he said. The only funding he can get now is a local
bank loan at 14 percent interest a year, down from 18 percent last year,
he said.

Mandalay Capital’s five employees work from a bungalow
in a residential neighborhood, rather than an office. Yangon has just
63,000 square meters (678,126 square feet) of office space — that’s less
than half as much as in a single skyscraper, Empire Tower in Bangkok,
according to Colliers International, a real estate company. With such
limited supply and rising demand, prices have shot up.

“The
landlords demand rates that don’t exist anywhere besides Singapore,” Ali
said. Rather than pay $150,000 a year for a small office, he rented a
bigger house for a sixth the cost in Yangon’s coveted Golden Valley
neighborhood.

Ali said the biggest challenge has been finding the
right people to hire. The local education system withered under military
rule and Mandalay Capital has found it difficult to convince Myanmar
nationals educated and living abroad to return to the country.

Alyor
Khasanov, head of human resources at Silk Road Finance, Mandalay
Capital’s parent company, said he has been trying to convince a Myanmar
expat that his career opportunities in Papua New Guinea pale in
comparison to what Myanmar has to offer, but it’s been tough to overcome
the man’s skepticism.

“My task is to make him understand this dramatic change, because here is a country of tremendous opportunity,” Khasanov said.

Khine
Zyn Tha, 25, returned to Yangon after studying accounting in New
Zealand and became Mandalay Capital’s first research analyst.

She has no investment banking experience, but did manage to explain to her parents what an investment bank is.

“I
had to explain it’s not a bank bank,” she said. “It involves finance.
There are investors who would like to invest and there are people who
need funds to develop their business. We are the intermediaries.”

She
wanted to stay in New Zealand — the good medical care and ability to
get a mortgage, an impossibility in Myanmar, were deeply tempting — but
had to return for family reasons. At first she was unhappy, discouraged
by the lackluster professional standards of the local auditing firm
where she worked.

“I wanted to become a professional,” she said.
“I have a huge appetite for higher education. If I go to Bangkok and I
see my peers from other countries, if I can’t speak at the same
intellectual level as them, I feel inferior.”

Now that the world
is coming to Myanmar, Khine Zyn Tha’s ambition is finding a new outlet.
With each passing day, the possibility that this opportunity will be
curtailed strikes her as ever more remote.

“We’ve already tasted freedom,” she said. “They cannot take it back.”

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