19 January 2015

Myanmar Finance Report

Legal, tax and regulatory developments on banking and finance

Which foreign loans may not be approved

by the central bank of Myanmar? pg 3

A practical perspective on foreign financing

transactions in Myanmar pg 6

Use of offshore bank accounts by Myanmar

companies pg 9

Financing telecom network infrastructure

in Myanmar pg 10

New banking law to shake up related

party credit, leasing companies and profit
distribution by banks pg 15

Also featured:
DEAL: Myanmar non-recourse financing first explained VDB Loi assists as aircraft financing
pg 5 transaction closes in the wake of cape
town convention ratification
Thoughts on the selection of foreign banks awarded with pg 17
a Myanmar banking license
pg 13 Litigation firm U Aye Kyaw Associates
joins VDB Loi to form disputes resolution
Milbank & VDB Loi represent pan asia majestic eagle practice in Myanmar
limited in first ever non-recourse, cross-border financing pg 18
in Myanmar
pg 14
VDB Loi in Myanmar
VDB Loi Myanmar, a leading Myanmar legal and tax advisory firm, employs
Contents
over 40 lawyers and advisors in Yangon and its fully operational office in Nay
Pyi Taw. The firm is a leader in foreign investment, M&A, telecommunications, Which foreign loans may not be 3
energy, taxation, and real estate/infrastructure. Our experience includes a approved by the Central Bank of
multibillion dollar telecom investment, the Thilawa Special Economic Zone, Myanmar?
Hanthawaddy International Airport, the privatization of 3 SOEs, a US$400M
mixed-use real estate development and assistance to 3 of the oil and gas
supermajors. A practical perspective on foreign 6
financing transactions in Myanmar
Ranked as a Tier 1 law firm in Myanmar (IFLR) and awarded for its M&A
achievements (Finance Monthly M&A Law Firm of the Year-Myanmar, Use of offshore bank accounts by 9
Dealmakers Myanmar Best M&A Law Firm, Acquisition International Myanmar companies
Leading Advisor 2013-Myanmar), VDB Loi is widely recognized for its
transactional experience. Financing telecom network 10
infrastructure in Myanmar

Partners New banking law to shake up related 15

party credit, leasing companies and
profit distribution by banks
Jean Loi is widely recognized as one of the regions
most experienced professional advisors with DEAL: Myanmar non-recourse
a CPA background. She was formerly a partner financing first explained 5
with PricewaterhouseCoopers in Southeast
Asia. As the managing partner of VDB Loi, Jean
Thoughts on the selection of foreign
has extensive experience with licensing, energy,
banks awarded with a Myanmar 13
power, property and consumer product projects.
banking license
Her Myanmar tax experience is unsurpassed. She
lives in Yangon.
Jean Loi Milbank & VDB Loi represent pan asia
Managing Partner
Jean@vdb-loi.com majestic eagle limited in first ever 14
non-recourse, cross-border financing
in Myanmar
Edwin Vanderbruggen is VDB Lois partner
responsible for Myanmar. Formerly with Loyens &
VDB Loi assists as aircraft financing
Loeff and a partner at DFDL, Edwin lives full-time in
transaction closes in the wake of 17
Yangon, where he leads a team of approximately
cape town convention ratification
40 lawyers and advisors. Edwin has advised banks
and financial institutions on licensing, regulatory
issues, strategic cooperation and financing Litigation firm U Aye Kyaw Associates
transactions in Myanmar. He and his legal team joins VDB Loi to form disputes 18
advise commercial banks, development financial resolution practice in Myanmar
Edwin Vanderbruggen
Partner institutions, corporate borrowers and state-owned
Edwin@vdb-loi.com enterprises on financing transactions.

Our offices in Myanmar Offices in the region

YANGON
Level 8, Centrepoint Towers, No. 65
Sule Pagoda Road & Merchant Street,
Kyauktada Township Emerging markets are special.
So, we rethought the law firm.

NAY PYI TAW

No. S-204, Tha Pyay Kone Ward,
Zabu Thiri Township

On Yaza Thingaha Road, driving from

Junction Mall to the Gem Museum, look for
signage on the right directing you to our
office

Page 2
Which foreign loans may not be approved by the
Central Bank of Myanmar?
In the past six months, the Central Bank of Although Notification 7 addresses all types
Myanmar (CBM) has strengthened its grip over of foreign exchange remittances, foreign
Meet our team
foreign exchange remittances which particularly loans are a central issue.
affect foreign loans into Myanmar. The process
started with a new circular letter addressed to Ever since the Foreign Investment Law
Myanmar banks dated 3 July 2014 (the CBM (FIL) of 2012, the fate of foreign loans has
Letter), which the CBM used to reassert control always remained somewhat confusing.
over foreign loans that are provided to domestic Although there is no doubt that loans
and foreign owned borrowers in Myanmar. In from overseas are possible as a principle
the CBM Letter, the CBM has clarified approval under both instruments, in practice clients
requirements and increased the accountability often received conflicting information
of Myanmar banks for foreign loans that are from bankers and advisors with respect Thomas Edwin Hornby
brought into the country. On 30 September to the approvals and process concerned. Senior Counsel
2014, the Letter was followed up with full- Unfortunately, this confusion that was not Yangon
fledged amended regulations implementing really cleared up with the first CBM Directive Tom is a solicitor qualified in England
the Foreign Exchange Management Act (FEMA) which implemented FEMA (the 2012 Foreign and Wales with 17 year corporate
of 2012 (Notification 7/2014) (Notification 7). Exchange Directive). M&A and commercial experience. He
has worked with a number of major
UK law firms including Spratt Endicott
and Dentons. He has extensive
experience practicing in emerging
markets, where he led capital market
and financing transactions in a wide
range of industries.

Nar Wah
SENIOR LEGAL ASSOCIATE,
Nay Pyi Taw

Nar Wah, a Myanmar-qualified

lawyer, is an associate on VDB Lois
legal team. She has an exceptional
educational and career background
in both law and accounting. She
spent more than seven years working
in Singapore.

Real Estate Market & Legal Update

UMFCCI, 24 October 2014

Why the confusion?

Part of the problem is FEMA itself. In the text of the payments can be restricted by the CBM. So,
law, the crucial distinction that is made to allow it is crucial to know for any payment which
Aung Soe Moe
SENIOR LEGAL ASSOCIATE
foreign exchange remittances is that of current category applies. First of all, the definitions Yangon
account versus capital account, concepts are not ideally drafted in FEMA since there
that are of course adopted from international is only a very brief description of what Aung is an experienced Myanmar
qualified attorney with a Bachelors of
financial law. In the Myanmar system, any comprises the current account, and capital
Law degree from Dagon University.
payment that is a current account payment will account is basically defined as anything He has unique and extensive
not be restricted by the CBM. Certain capital which is not in the current account. experience in telecommunications,
land and licensing issues in Myanmar.

Page 3
Some of the confusion that has plagued Is the business plan of the borrower appropriate?
foreign investors stems from the fact
that payments on loans are mentioned The CBM Letter cleared up a few things, but review the points contained [above] on
in both categories, and without any also created a set of new challenges. The the basis of the local business situation,
clearly prescribed differences. In s.2 (l), a CBM Letter introduces a list of elements the situation of the project to be executed
short-term loan can resort under current that Myanmar banks need to take into with foreign loan and its expected income,
account, (without specifying the term account when evaluating foreign loans, capability to repay loan and profitability to
of such a short-term loan). However, in including: the country and its people.
s.30 reimbursement of loans in general
is also mentioned in connection with the Size of loan and tenure, and loan contract The CBM Letter envisages a new reporting
capital account. In other words, loans Whether the interest rate is market- and approval system, where Myanmar
are straddling the two different main based interest rate banks will need to collect certain data,
categories without clearly spelling out Whether the business plan of the resident make an assessment about certain criteria,
which characteristics would end up a loan borrower is appropriate report information to the CBM, and
in the one or in the other category. Type of the collateral and whether receive an approval. It seems to us that the
it is capable of being performed in Myanmar bank would have to go through
But there is more. The Foreign Exchange accordance with the law this new process for each loan, even loans
Directive of 2012, loans are included under Whether the repayment schedule is that were already approved by the MIC.
the current account, but it is unclear if appropriate; and For a Myanmar bank not to go through the
only short-term loans are meant. Plus, the Other elements detailed in the CBM process and receive CBM approval, which is
Directive only refers explicitly to loans Letter. theoretically possible as there is no physical
approved by the MIC in its overview table restraint on release of funds by a Myanmar
and leaves upon the question what would The CBM Letter provides that licensed bank, might engage its liability.
happen with borrowers which are non-MIC. banks trading foreign exchange shall

Finally, s.17 of the Foreign Exchange

Directive of 2012 specifies that Myanmar
banks need to review the purpose of
transfers to assess whether the transfer
was really a current account payment. If it is
not, the remittance may not be made.

To sum it up, the Myanmar regulation of the

Loans are caught in seemingly overlapping
local interpretation under FEMA which
goes well beyond the classic current
account and capital account bifurcation
as a change of ownership in domestic
assets, akin to what is found in international
financial law. Moreover, Myanmar banks
may have their own interpretation of the
purpose of a transfer.

Central Bank of Myanmar

Difficult to implement Whose permission is needed to obtain a foreign loan?

Obviously, the rather wide scope of this All foreign loans, including commercial Finally, it cannot be excluded that another
criterion in the CBM Letter may have loans, development loans and shareholder relevant Ministry is roped in by the MIC or
posed some problems for Myanmar loans, need to be approved by the CBM. the CBM, to give its view on the financing
banks to interpret and apply. There is little If the borrower has a permit under the transaction. That might be the case with the
to gain for a Myanmar bank by venturing Foreign Investment Law (MIC permit), the Ministry of Electric Power, for example, on a
out ahead of CBM approval, so the effect MIC will need to approve the loan and the financing transaction involving a company
will often be that inward funds will not be security arrangements as well. In cases which has received a concession from the
released until the CBM has so approved where the borrower has an MIC permit Government. Another case in point is the
based on a review of the information that the process thus becomes seemingly Microfinance Supervisory Board for the
must be collected under the CBM Letter. more complicated and longer due to the debt financing of microfinance institutions.
extra level of approvals that is required. In
To further clarify and regulate the issue of reality, however, the MIC may play the role
foreign loans as well as other remittances of facilitator, significantly helping to reduce
and foreign exchange issues, the CBM red tape and improving communication
then prepared Notification 7, which was where needed.
distributed to the local banks.

Page 4
Which loans may be rejected? DEAL: Myanmar non-recourse financing
Notification 7 is not very clear about the first explained
criteria that will be used to approve or reject This is written by Ashley Lee for IFLR, 31 October 2014 based on an interview
a foreign loan. A number of information and
with Edwin Vanderbruggen
documents are required to be submitted to
the CBM for prior approval including:

The purpose of the loan Myanmars first non-recourse financing telecommunications license in June 2013.
The interest rate involving international banks may open
All relevant agreements infrastructure financing in the frontier It signifies that lenders may now be open to
market. infrastructure financing in Myanmar, even
Presumably, a loan for a purpose which the though its legal framework for aspects such
CBM deems inappropriate or even illegal The deal, which closed at the end of as taking security are nascent and in some
will not be approved. For example, the September, saw Pan Asia Majestic Eagle cases, non-existent.
financing of a business in Myanmar which (Pamel) receive$85 million in financing
does not have the required operating from DBS, ING, OCBC Standard This has proven that a number of international
licenses may pose major issues. Chartered and Sumitomo Mitsui banks and some of the biggest players in the
Banking to support the construction region are comfortable taking risk in Myanmar,
We also understand that the CBM is keen to of 1,250 towers for Ooredoo Myanmar, said Edwin Vanderbruggen, partner at VDB Loi
watch out for onshore remittances which one of the two telecommunications who represented the borrower in obtaining
are disguised as offshore transactions. For companies that received a registrations and approvals.
example, the CBM may be on the lookout
for the reintroduction of undeclared foreign
funds belonging to Myanmar citizens.

When we take into account the earlier CBM Taking security Whats next
Letter as well as our own experiences with
the CBM, various other factors also come Earlier this year Vanderbruggen Enforcement may be the next step forward
into play, such as various key provisions completed the first registration of a for Myanmar. Vanderbruggen warned that its
of the financing agreements, the validity secured interest in Myanmar assets for a early to tell whether Myanmar courts will
of the security, the role of any local a foreign loan. While the country lacks recognise and enforce foreign arbitral awards.
Myanmar bank involved with the financing a registry of debentures and secured Although it does pose a number of challenges,
transaction, and the financing structure as interests, he believes he has perfected I believe that the country will be able to fulfill
a whole. security in Myanmar by including its international commitments under the New
a register of the security into the York Convention, said Vanderbruggen.
existing Directorate of Investment and
Company Administration (DICA) paper- But other challenges to projects remain.
How long does it take to based system. Land rights remain an important issue.
collect all required approvals? Vanderbruggen predicted that a number
But he believes that this deal was of other projects that are in the pipeline for
It is hard to gauge how long it will take more complex because of the assets financing may become easier because there
before CBM approval can be obtained. registered. I expect to see more deals are fewer land issues.
We have seen a few approvals that were but believe that others will be different
as fast as a few days but other cases may from this one, he said. Its no secret that land rights and reform will
take weeks or months. Note that we also be a concern for many years to come, he said.
see delays caused by submitting wrong This financing was harder than others
or incomplete documentation, or delays because this was for a tower company The legal status of 70% of the countrys land
associated with the local banks own with 1250 assets, and taking security is in transition following the Farmland Act of
process. of all of them is not easy, he added. 2012.
In comparison a power plant would
As is often the case in Myanmar, more require taking security over just one In the meantime investors and lenders may
than one Government authority may asset. need to accept these risks. It is important for
be involved, which can add to the time banks in Myanmar to realise that its still early
needed. As was noted above, the MIC will But Vanderbruggen warned that there days, and we are guided by whats actually
need to approve the loan and the security are still challenges registering security. feasible in Myanmar rather than what the laws
arrangements as well if the borrower has a Its something were still very much say, said Vanderbruggen.
permit under the Foreign Investment Law discovering, he said. Mortgages on
(MIC permit). In cases where the borrower land particularly the rights on leased The material on this site is for financial
has an MIC permit the process thus land havent yet been explored. institutions, professional investors and their
becomes seemingly more complicated but professional advisers. It is for information
it also plays the role of a facilitator helping And although the banks took a view on only. Please read our terms and conditions
to reduce delays. the legal risk, other lawyers in Myanmar and privacy policy before using the site. All
arent certain that this arrangement is material subject to strictly enforced copyright
Anything that is new, and that is just about valid. laws. 2014 Euromoney Institutional Investor
everything when it comes to financing in PLC. For help please see our FAQ.
Myanmar right now, may very well to take
much longer than both borrowers and
lenders expect. http://www.iflr.com/Article/3396324/Search/Results/DEAL%C2%ADMyanmar%C2%ADnon%C2%ADrecourse%C2%AD
financing%C2%ADfirst% C2%ADexplained.html?ArticleId=3396324&PageId=201716&Keywor%E2%80%A6

Page 5
A practical perspective on foreign financing
transactions in Myanmar
Meet our team
As is the case in many areas in Myanmar What is more, as international lending is
right now, there may often be a considerable new in Myanmar, more often than not rules
gap between theory and practice when it or precedents do not exist and one needs
comes to foreign financing and securities. to work with the authorities and sometimes
To get a financing deal through, lenders and other stakeholders to find a way forward for
borrowers would do well not just to take each individual case. Typically, lenders and
notice of the applicable laws, but also to borrowers alike underestimate what it takes
familiarize themselves with the actual practice to get a financing deal through in Myanmar
of the authorities and other stakeholders. at the present point in time.
U Aye Kyaw
SENIOR Counsel
Which approvals are needed in Myanmar for a foreign loan and how Yangon
long does it take? The principal of specialized litigation
firm U Aye Kyaw & Associates,
which teamed up with VDB Loi in
2014, this former judge, magistrate
and law lecturer has over 40 year
of experience with litigation and
arbitration in Myanmar. He also has
extensive experience with real estate
and construction issues in Myanmar.

Real Estate Market & Legal Update

UMFCCI, 24 October 2014

All foreign loans, including commercial loans, require prior approval from the CBM and
development loans and shareholder loans, current account payments do not. Loans are
need to be approved by the Central Bank of mentioned to resort under both categories, Nishant Choudhary
Myanmar (CBM). short term loans (left undefined) resorting SENIOR LEGAL ASSOCIATE
It may be useful to note a bit of background on under the current account. In addition, Nishant is an experienced lawyer
the CBMs policy regarding foreign loans since current account payments that are unusual qualified in India with an extensive
the implementation of the Foreign Investment or significant also require CBM approval, background in finance and securities.
Law in 2012. Although the cornerstone while both terms are again left undefined. He assists finance institutions
legislation governing foreign exchange, the But, the legal definitions hardly seem to navigate the emerging regulatory
Foreign Exchange Management Act of 2012 matter. In reality, most local banks do not framework of foreign and secured
lending in Myanmar. Nishant also
(FEMA) has not been amended since its want to release funds for any inward loans
advises on corporate M&A and
enactment, in reality the policy has shifted a unless with specific CBM approval. This restructuring in a wide range of
few times since then. means that they need an actual schedule of industries.
drawdown, reimbursement and payment of
Initially, say in the period immediately interest which are all approved by the CBM.
following the enactment of FEMA, the CBM
relaxed particularly the inward remittance of It is hard to gauge how long it will take
foreign exchange. In 2013, the CBM became before CBM approval can be obtained. We
more concerned with the possible impact have seen a few approvals that were as fast
of debt financing connected with foreign as a few days but other cases may take weeks
investment, and began to recommend or months. Note that we also see delays
the investment regulator, the Myanmar caused by submitting wrong or incomplete
Investment Commission (MIC), to demand documentation, or delays associated with the
a higher equity proportion on FDI projects. local banks own process. Divyasree Damaraju
This culminated in mid-2014 in a fairly sudden LEGAL ASSOCIATE,
tightening of the policy by the CBM, as it If the borrower has a permit under the Yangon
imposed new requirements upon the local Foreign Investment Law (MIC permit), the A qualified company secretary,
banks before they release funds derived from MIC will need to approve the loan and the Divya leads a team of compliance
overseas, particularly as loans. security arrangements as well. In cases where professionals to assist clients
the borrower has an MIC permit the process with all corporate matters such
Theoretically speaking, foreign loans are thus becomes seemingly more complicated as incorporations, preparing and
actually a bit in a legal limbo in Myanmar. and longer due to the extra level of approvals maintaining statutory books and
registers, and all corporate filings.
Under FEMA, only capital account payments that is required. In reality, however, the MIC

Page 6
may play the role of facilitator, significantly relevant Ministry is roped in by the MIC or which has received a concession from the
helping to reduce red tape and improving the CBM, to give its view on the financing Government. Another case in point is the
communication where needed. transaction. That might be the case with the Microfinance Supervisory Board (BOARD)
Ministry of Electric Power, for example, on a for the debt financing of microfinance
Finally, it cannot be excluded that another financing transaction involving a company institutions.

Onshore or offshore borrower?

In many cases the lender and the borrower in terms of approvals because the facility the restrictions and procedures connected
can choose between two fundamental is between foreign companies, and it is with capital reductions in Myanmar. So,
options as far as the basic structure of the easier to enforce overseas. But, the assets a trapped cash situation would be built
financing is concerned: (1) the Myanmar are in Myanmar and some would argue into the structure in such manner, which is
operating or project company (the MMCo) that MMCos guarantee is one more step definitely to be avoided.
is the borrower and the foreign parent removed from the lender.
(which could very well be an SPV) may In our view, it would be mostly a mistake to
often be the guarantor; or (2) the foreign One of the most important considerations is think that in the case of option 2 there are
direct parent (the SPV) is the borrower and to figure out how the SPV will pass on the less approvals needed. Capital contribution
the MMCo is the guarantor. Other variations proceeds of the loan it has received from the being largely off the table in most situations
exist as well, of course, such as making both lender to its subsidiary MMCo if one opts because of the trapped cash issue, SPV will
companies co-borrowers. for option 2, the offshore route. Whatever have no choice but to supply MMCo with
happens, the lender needs to be assured shareholder loans, which require the same
Either way, the lenders need access to the that MMCo will be allowed to remit sufficient onshore approvals as the third party facility
Myanmar assets of MMCo so that they can cash to service the debt. The required anyway. Plus, would most commercial and
enforce in case of default. permissions and formalities will differ development lenders not prefer to get the
depending on the arrangement between transaction and the documents signed
Which one of these two fundamental SPV and MMCo. For example, if SPV uses the off by the Myanmar authorities anyway?
options is preferred? There are pros proceeds of its loan to raise the capital of Option 2 does have its advantages, as does
and cons to both. Seemingly, option 2 MMCo, MMCo cant easily reimburse funds option 1, but in our experience the approval
(offshore borrower) is less burdensome to SPV for SPV to service its debt because of process is by and large the same anyway.

Tax optimal structure?

Particularly borrowers, who in reality bear

the cost of all Myanmar taxes, will be keen
to take on board the withholding tax
implications of each structuring option. In
that sense, at least with lenders not residing
in a country that has concluded a double
taxation agreement (DTA) with Myanmar,
option 2 offers potential for withholding
tax reductions. That is to say, the borrowers
group can use an SPV in a country that
has concluded a DTA with Myanmar
usually Singapore- to reduce Myanmars
15% withholding tax on interest down to
10% under the Myanmar-Singapore DTA.
Of course, borrowers would also need to
factor in any tax implications in Singapore.
Most notably, Singapore applies a 15%
withholding tax rate itself on interest paid
to non-resident lenders, so the Singapore Internal Revenue Department
Large Taxpayers Office
route only makes tax sense in case the
ultimate lender is Singaporean or qualifies
for a (fairly rare) reduction or exemption
under one of Singapores DTAs. For However, in certain cases an indirect loan withholding tax exemption in Myanmar
example, under the Mauritius-Singapore through a Singapore SPV actually creates under a multilateral convention, routing
DTA the withholding tax on interest is, as a higher tax liability than otherwise. Notably, loan and interest through Singapore only
principle at least, reduced to 0%. in case the lender can benefit from a serves to create an additional tax liability.

Page 7
How long will it take to complete the CPs on the security package?

Registering or otherwise perfecting the are involved in the registration of secured of secured interest that is sought. Some
security interests in Myanmar is one of interests. The Company Registration interests can in our experience now,
the more difficult practical obstacles to Office, essentially the Registrar, has only since the way has been paved by the first
the completion of financing transactions. very recently resurrected its administrative few registrations, be registered within
Typically, the borrower can only drawdown process for registering charges by a reasonable timeframe. Even for those,
the facility once a set of conditions companies. Just a handful of registrations however, one needs to be very careful not to
precedent (CPs) are fulfilled, including CPs have been done, and there are still many trigger some tripwires in the agreements
on the perfection of the security package. misunderstandings and misconceptions or in the structure that will cause additional
Signing the security agreements is not a associated with the process with all scrutiny and delays. We try to stick as
problem provided the loan and the security stakeholders. The Office for the Registration much as we can to the documentation
agreements have already been approved of Deeds (ORD), comparable to some type we have already successfully used with
by the CBM (and, if applicable, by the MIC), of land registry although they also have the authorities before so as to not cause
but getting the interests registered and purview over other matters, would have unnecessary delays. Nevertheless, given
perfected is a whole other story. to be involved for registering charges and the inexperience with the issue it can never
mortgages over immovable property. It is be excluded that the authorities want to
Historically Myanmar law provides the full fair to say that the ORD, which has limited take time to look into some aspect of the
repertoire of English law secured interests resources, has some difficulty catching transaction or that they call in another
such as mortgages, fixed and floating up with the tide of new transactions. The regulator for approval, which might lead to
charge, pledge, as well as guarantees and ORD is since before 2012 also supposed delays.
assignments. However, most of these have to register long term leases of land with
only very rarely been used in the last four foreign lessees, but has had trouble coping In conclusion, one needs thus to take
decades. For example, Myanmars Transfer with the workflow. Other authorities may into account the evolving practice of
of Property Act recognizes six types of have to get involved as well depending the authorities before deciding which
mortgages, but in reality the mortgage on the circumstances, such as the registrations can be CPs and which should
by deposit of title deed, which is not Department of Civil Aviation or the Posts be conditions subsequent (CS). This is even
registered, is the only type that has been and Telecommunications Department. more problematic to plan for the deadlines
used with some regularity within the of registration and stamp duty payment.
country. How much time will be needed to register The mismatch between statutory terms
or otherwise perfect the secured interests and the actual practice by the authorities is
At least two Government organizations depends first and foremost on the type not easy to manage.

Recognition of VDB Loi Language, originals and

signatories
English being one of the official languages
of the Union of Myanmar, there is no
formal requirement to translate transaction
documents into Myanmar language. But,
that is just the theory. In reality, you will
still need to convince various regulators
that the documents are in compliance with
Myanmar law and regulations. If translating
the documents into Myanmar language
helps, one should note that translating
complex legal documents from English into
Myanmar language may take weeks. There
are no set rules yet whether an original
is needed for registration of company
charges, but registrations before the ORD
usually do require an original, which has
implications for the timing of stamp duty
as well.

A final practical point concerns the persons

that need to appear for the registration of
secured interests. When documents are
required to be signed before the official,
this would have to be done in person
only excluding proxies. That might pose
problems in case documents must be
signed by a person who cannot easily come
to Myanmar.

Page 8
Central Bank needs to approve use of offshore
bank accounts by Myanmar borrowers

Meet our team

Helen Sullivan-Looney
SENIOR LEGAL ASSOCIATE,
Yangon

Helen is a qualified attorney with a

masters degree in international law
Myanmar Banking Update: Security on Shore Assets, Licensing of
and has worked in the legal field
Foreign Banks and New Foreign Exchange Rules
The Westin Singapore, 19 September 2014 for the past 11 years. Her practice
focuses on investment, corporate
and commercial law. She lives in
Yangon
While the 9 selected foreign banks are not The text of FEMA itself does not provide
yet ready to operate in Myanmar, particularly that the use of a foreign bank account by a
foreign-owned corporate borrowers prefer to Myanmar company is subject to approval of
have the disposal over bank accounts overseas. the CBM. Nevertheless, a new Central Bank,
These offshore bank accounts can be used by Notification 7/2014 (Notification 7) has late
Myanmar registered companies for a wide range 2014 introduced that condition in sections 11
of purposes, including paying foreign vendors and 12::
and for facilitating financing transactions. The
Foreign Exchange Management Act (FEMA) 11. Persons residing within Myanmar shall
of 2012 explicitly allows Myanmar registered seek the permission of the Central
companies to open and use a bank account Bank of Myanmar to open a foreign
overseas for a number of purposes. S. 14 FEMA currency bank account in an overseas
provides that: country pursuant to section 14 of the
Foreign Exchange Management Law. Chris Sheridan
Persons residing within the State may open a LEGAL ASSOCIATE, Yangon
foreign account in a foreign country and for the 12. A person who has a bank account
following purposes: in an overseas country shall furnish A barrister and a solicitor admitted
the Central Bank of Myanmar with in Australia, Chris has a solid
background in commercial practice
(a) Transportation by land, sea and air, monthly bank statements pursuant to
for a wide range of sectors including
insurance, foreign tourism, migrant clause 11. financial services, resources and
workers, to fulfill foreign contractual finance. At VDB Loi, Chris advises
obligations. The problem is, as the CBM sees it, that these foreign investors on commercial and
(b) Settlement of debts for foreign loans. bank accounts can also be used to keep funds corporate law, M&A, real estate law
(c) Opening of branch office or agent office of the account holder out of Myanmar. Just as and dispute resolution.
abroad and operating foreign currency well as FEMA allows offshore accounts, FEMA
trade abroad with permission of the also obliges Myanmar companies to bring
authorities concerned. foreign exchange proceeds back to Myanmar:
(d) Engagement in businesses permitted S. 12 FEMA provides:
by the respective governmental
department, organization or the Central Persons residing within the State shall
Bank as appropriate. repatriate any earnings in foreign
currency to Myanmar in accordance
Persons residing within the state is defined in s. with the regulations. These earnings
2 FEMA as including as per domestic law, legally shall be deposited into a bank account
established companies, organizations and at an institution with the license to trade
offices, and as per foreign law, legally established foreign currencies. YuKi
companies, organizations and offices and its LEGAL ASSOCIATE, Yangon
branch offices in the State. Clearly, even a Therefore, based on our experience, the CBM Yuki holds a Bachelors degree in
foreign-owned Myanmar registered company policy with respect to the use of offshore bank Law from the Yangon University and
must be regarded as a person residing within accounts has, along with the supervision of a Diploma in Business Law. She is
the state for purposes of FEMA. capital account foreign exchange remittances, currently studying in a Diploma in
become significantly more restricting. International Law.

Page 9
Financing Telecom Network Infrastructure in
Myanmar
While at least three mobile network operators roll out their networks, a number of tower Meet our team
and fiber companies are reaching out to commercial lenders, mezzanine finance providers
and development financial institutions for their financing needs. A number of deals have
already been announced. Central in such financing transactions, which are among the
first ever international commercial lending deals with security on Myanmar assets, are the
network assets.

Chen Xi
LEGAL ASSOCIATE, Yangon

Xi is a Chinese-qualified lawyer who

graduated from Peking Universitys
prestigious school of law. She has
a masters degree in corporate
and financial service law from the
National University of Singapore.
A fluent Japanese speaker, she
spent 3 years with Mori Hamada &
Matsumoto. She is an associate in our
legal team focusing on investment
and real estate.

What are some of the typical land use right issues of tower
companies and fiber companies?
In most places, telecommunications network assets and infrastructure is still in course of being
deployed. It is fair to say that the regulatory framework of land use for network assets by foreign
invested companies has not yet caught up with the needs of the operators. Although the
Foreign Investment Law and the Telecommunications Act both provide in rules on land use, the
implementation of these and existing land laws continues to cause delays and uncertainty. These
are some of the issues we often encounter: Su Pyi Sone
LEGAL ASSOCIATE,
The permission for the use of rural land will With respect to the national authorities Yangon
in nearly all cases require the authorization which administer farmland and agriculture Su is an experienced Myanmar
of local authorities. Leases are being land, which is in practice the most frequent qualified attorney with a Bachelors
signed with local land right holders, and type of land outside of urban areas, we of Law degree and an overseas MBA,
it is in practice in our experience possible have lobbied the Presidents Office, the formerly working in the legal field
for tower companies and fiber companies Myanmar Investment Commission and in Myanmar and overseas. Su has
extensive experience in real estate
in most cases to obtain local approvals (at the Ministry of Agriculture and Irrigation
law, IP and financial services. She is
village level) for the use of the site. It is to argue that use of a small portion part of the team advising.
sometimes unclear whether the particular of farmland or agriculture land does
authority that has supplied the approval not require a change of use under the
in fact has that authority. For example, Farmland Act. We lost that argument, and
certain type of Village Land is destined as a result approval from the Ministry of
for use by the village community, and it Agriculture and Irrigation (MAI) (which
is unclear if the right of the person who in reality oversees the National farmland
signed the lease with the tower company Management Committee) is required for
falls into that category. any lease of farmland or agriculture land.

I n reality, we have seen very few leases I n many areas, the lessors do not have the
processed by MAI to date. In practice, the required land title documentation yet to
Myanmar Investment Commission (MIC) evidence their rights to the land. This is Khin Tha Zin Min
is unable to approve leases on farmland particularly the case with land under the LEGAL ASSOCIATE
or agriculture land without the approval Farmland Act, which provides in Farmer Yangon
of the MAI. This means that one of the Certificates, which are essentially the
key requirements of the FIL, notably the land title for the lessor. These Farmer Tha Zin has five years of experience
as a lawyer for Daw Ohmmar Law
approval by the Myanmar Investment Certificates are issued on an area per Firm and U Aye Kyaw Law Firm. Khin
Commission (MIC) of any lease granted to area basis, and many areas have not been holds a Bachelor of Law from the
a foreign invested company, is subject to serviced yet. So, whether this is an issue University of Dagon.
delays. This delay depends on the geographical area which
the tower company covers.

Page 10
Can tower companies and fiber companies obtain construction permits?

Construction permits for towers and fiber of a building vary in function of the Outside the CDC areas, the only rule is that in
are still problematic in many areas in type of land as per its relevant land law. very general sense, some type of permission
Myanmar. In practice, less than 200 actual Only the major cities with Development for the use must be obtained from local
construction permits have been issued Committees (CDC) have a clear legal regulators, not for the construction of the
based on our information from MCD, basis for the authority to permit an building in and of itself. These are the main
YCDC and the Ministry of Construction. actual construction permit (rather than types of land which are relevant for tower
Most notably because in several regions a general use permit see below) as in companies and fiber companies, and their
there is no way to obtain a construction s.9 (t) CDC Law granting permission for respective rules on construction permits:
permit for a tower or the concept of a construction of private buildings within
construction permit does not exist. We the Development Committee boundary ith respect to farmland (and garden
W
note that PTD, as the principal regulator, is limit and supervision thereof. Only the land), the Farmland Act and its
reviewing prospective infrastructure sites. CDCs have to some extent an actual implementing Rules do not provide in
process, an inspection, an evaluation. the permitting of a construction as such,
In Myanmar, the laws and regulations In practice, YCDC Notification 9/99 is but rather the use of such farmland for
governing the permit for the construction the only comprehensive one in its kind a building with a certain purpose. s.17
currently in existence. (f ) Farmland Act of 2012 includes in
the duties and authority of the Central
Farmland Management Committee
to [] scrutinize and approve the
submission of the Region or State
Farmland Management Committee
in respect of using the farmland to be
required for a school, health center,
hospital, clinic, library, market, cemetery
or other buildings to develop the social
life of the rural population. s.80 d) of the
Farmland Rules provides that, for such
other use it suffices that the project is
sanctioned by the relevant ministry and
its funds are likely to be available.

ith respect to village land the general

W
principle exists with respect to buildings
that are used as residences under s.17 of
the Village Act of 1908 which states that a
person who is not a resident of a village-
tract shall not build any house, hut or
enclosure, or take up his residence in
the village-tract without the permission
Myanmar Banking Update: Security on Shore Assets, Licensing of
Foreign Banks and New Foreign Exchange Rules of the village committee. Most tower
The Westin Singapore, 19 September 2014 companies have already obtained this
village committee approval in each case
where it intends to use village land.

ith respect to vacant, fallow or

W
virgin land, again, there is no actual
construction permit provided in the
relevant law, but rather a permission for
a certain use only. s.10 (d) of the Vacant
Fallow Virgin Land Act (VFVLA) provides
that The Central committee shall permit
the following land area of Vacant, Fallow
and Virgin Lands in relation to []
Government allowable other purposes
in line with law shall be permitted with
the agreement and coordination with
the Union Government of the relevant
Ministry. In addition, s. 12. states that The
Central Committee shall permit the right
to use land in a case where application
is made by Investors who have been
permitted in accordance with Foreign
Investment Law. Most tower companies
and one fiber company already have both
such permissions.

Page 11
To the best of our knowledge, only few
construction permits have been issued
for rooftops or towers in urban areas,
with significant differences from one city
to another. In Mandalay we have noted
significant progress, at least compared to
Yangon.

For fiber companies, the problem

is compounded by the fact that the
authorities disagree whether facilities
and stations accessory to fiber requires a
construction permit.

Can a tower company create a mortgage on its immovable assets?

A foreign owned company in Myanmar to the characterization of plant and immovable property situated in certain
is not ipso facto excluded from creating a installations as immovable property, designated towns without intervention
mortgage on a tower site, including to the but the definition of the Registration of the court (nearly all towns feature on
benefit of a foreign lender, but such requires Act is often held to be determinative. the list). In other cases, if the mortgage
the permission of the MIC and the Central money has become due without
Bank of Myanmar (CBM). This permission is The Government has taken the informal payment or deposit, the mortgagee
currently in process for the first time. position in a Stamp Duty case that fiber may file a suit for foreclosure with the
constitutes an immovable property in court.
Myanmar law recognizes six types of the sense of the Registration Act.
mortgages on immovable property, namely Can the land (and thus the buildings)
the simple, conditional sale, usufructuary, Leased land can in theory be be mortgaged at all? A major issue in
English, deposit of title deeds and the mortgaged in Myanmar: Foreign actual cases is whether the land right
anomalous mortgage. Most of these are invested borrowers would normally holder has the right to mortgage this
not used in current Myanmar practice. The have a 50-year extendable lease, it is particular type of land under the land
simple mortgage seems to us most in line in practice important to know that law that corresponds with the land
with international practice. a leased property can indeed be the in question. The right to mortgage a
subject of a mortgage under Myanmar property depends of the provisions of
These are some issues we often encounter law. In fact, unless the lease agreement one of a dozen land laws. For example
in connection with deployment of provides otherwise a lessor can by law the Vacant, Fallow and Virgin Land
infrastructure: mortgage his interest in the immovable Act provides that cabinet permission
property. However, in practice nearly is required to create a mortgage on
Approval by the MIC: A complicating all leases, particularly leases of land that resorts under this category.
factor is that foreigners are not allowed Government land state that the lessee is Needless to say that the due diligence
to acquire immovable property by way not entitled to transfer or mortgage his should focus on this issue as early as
of purchase, gift, mortgage, exchange interest without the express permission possible.
or transfer without special Government of the lessor.
permission, which is granted by the Perfection: The perfection of most
Myanmar Investment Commission The authorities have indicated that they types of mortgages on immovable
(MIC) after recommendation by the will soon start with such registration, property in Myanmar requires
CBM. but without any fixed time frame. besides a registration of the charge
with the corporate authorities, an
efinition of immovable property:
D Enforcement: Security on any type additional registration with the Deed
One of the more comprehensive of mortgage or fixed charge on Registration Office. Although the laws
definitions of immovable property immovable property can, as a matter and regulations to perfect a mortgage
used in Myanmar law is found in of law, be enforced without the on immovable property may exist,
the Registration Act: immoveable intervention of a court, subject to a these rules are largely untested in
property includes lands, buildings, number of conditions and restrictions. practice. At present, we are working
hereditary allowances, rights to Most importantly, the mortgage deed with the authorities to arrange for the
ways, lights, ferries, fisheries or any must state the right of the mortgagee registration of the first long term leases
other benefit to arise out of land, or chargee to foreclose without court and secured interests.
and things attached to the earth or intervention. In addition, a default must
permanently fastened to anything have occurred and have been notified Stamp Duty: A stamp duty of
which is attached to the earth, but not to the mortgagor. Furthermore, the self- 1.5% applies to most mortgages of
standing timber, growing crops nor enforcement depends on the location immovable property, but a 3% rate
grass. There is some conflicting case of the immovable property in question. applies in case there is possession by
law of the Myanmar courts with respect A mortgagee may foreclose on the lender.

Page 12
Fixed and floating charge on the rights Thoughts on the selection of foreign
and assets of a Myanmar company banks awarded with a Myanmar
banking license
Myanmar law recognizes fixed charges on a specific fixed-
asset or class of fixed assets to repay a loan. Under the The Government of the Union of Myanmar has announced that the
Myanmar Companies Act, a fixed asset can be created following 9 banks will be allowed to provide banking services to
on (at least) immovable property, uncalled share capital, foreign corporations and domestic banks:
book debts, movable property and stock in trade. A
floating charge can under Myanmar law be created on the 1. Australia and New Zealand Banking Group Limited (ANZ)
undertaking or property of the company. It has a defined
2. Bangkok Bank
value which takes effect over a range of property but not
over any specific property until the occurrence of a future 3. Bank of Tokyo-Mitsubishi UFJ (BTMU)
event, typically a default by the chargor.
4. Industrial and Commercial Bank of China (ICBC)
Approvals by MIC is always necessary, even if 5. Malayan Banking Berhad (Maybank)
unrelated to immovable property: It is unclear in
the law whether the approval of the MIC is needed to 6. Mizuho Bank
create a fixed and floating charge. However, the MIC 7. Oversea-Chinese Banking Corporation (OCBC)
has recently advised that the entire package must be
submitted for their approval. 8. Sumitomo Mitsui Banking Corporation (SMBC)
9. United Overseas Bank (UOB)
erfection: Most charges need to be registered by the
P
chargor with the Company Registration Office. We have The license will include permission to grant loans and take deposits
successfully completed this procedure. It takes about from both foreign corporations and domestic banks in international
10 days in our experience, provided the CRO does not currency and Myanmar Kyats (MMK). The licensees are expected
require any prior approvals from other Government to contribute to the development of the domestic banking sector
agencies. In case the borrower has an MIC Permit, the notably but not exclusively by participating in the interbank market,
MIC must first approve the registration of the charge. by lending to domestic banks to support their financing activities of
domestic corporations and by engaging in foreign exchange.
Enforcement: As a matter of law, the chargee of a fixed
and floating charge can appoint a receiver to enforce The licenses, at this time, will not provide these banks with permission
his rights over the secured assets. As is the case in to conduct retail banking services. This is expected at a later date.
English law, creditors with a fixed charge have a higher
rank than those with a floating charge in a winding-up A few first thoughts on the selected banks:
situation.
All three Japanese banks awarded: SMBC, Mizuho and Bank of
Stamp Duty: The stamp duty rates for loan instruments Tokyo-Mitsubishi UFJ all were awarded. Remarkable, because
themselves and for security agreements range between these were the only Japanese banks that put in a proposal. In
a nominal fee to 1.5% or 3% on the secured amount other words, all three candidates from Japan were selected.
depending on the specific definitions and categories in
the Stamp Duty Act. For loan instruments, these include Bangkok Bank prevails: Bangkok Bank was able to beat
bond, mortgage deed, promissory note, bill of Kasikorn, Krung Thai and SCB to the punch. SCB and Krung Thai
exchange, marketable debenture, and memorandum made a marketing effort in recent weeks, but it was Bangkok
of agreement. For security agreements, the most Bank that was able to take the crown.
relevant categories are mortgage deed (including a F rom Singapore, both UOB and OCBC get the prize. Two
mortgage of movables), pledge and mortgage by licenses for traditionally well-capitalized Singaporean banks,
deposit of title deeds. but without DBS.
M
aybank prevails over the newly married CIMB and RHB:
Maybank has been longer in Myanmar than the other
Malaysian banks, which might have helped.
I CBC is, as only Chinese bank submitting a proposal, not a
surprise.
A
NZ is awarded a license, which was expected given its strong
presence throughout Asia.
Banking Regulatory Update: Licensing of Foreign Banks, Mobile N
o Korean banks: Three Korean banks submitted a proposal to
Banking, and Security on Onshore Assets
VDB loi Office, 29 July 2014 the CBM, notably the Industrial Bank of Korea Kookmin Bank
Shinhan Bank. None of them made the cut. We were expecting
that at least one Korean bank would be able to clinch the
license.
Charge on an onshore bank account
S imilarly, no Vietnam, Taiwan or India in the line-up, which is
Although possible in theory, in practice Myanmar local definitely a pity.
banks are not accustomed to charges on bank account and A
missed opportunity for Myanmar to bring in the only EU
likely refuse to acknowledge a charge without blocking the bank that submitted a proposal, BRED Banque Populaire.
bank account altogether. Foreign banks are not yet allowed
to operate, although this is expected to change in 2015.

Page 13
How can the shares of a Myanmar company be Milbank and vdb loi
pledged? Represent Pan Asia
A shareholder can under Myanmar law provide a guarantee to a lender and
Majestic Eagle Limited in
can create a hypothecation or a pledge (assuming constructive possession First Ever Non-Recourse,
can be assumed) on its shares in the company/seller. In practice, two layers Cross-Border Financing In
of share pledges will often be called for, because sellers will frequently
have a foreign holding company (more often than not in Singapore) which
Myanmar
owns the shares in the Myanmar project company. It should be noted that
enforcement, i.e. the transfer of the charged shares, will require approval SINGAPORE, October 14, 2014 Milbank,
from the foreign investment regulator, the MIC. Tweed, Hadley & McCloy LLP acted as
international counsel to Pan Asia Majestic Eagle
The legal title to a share is in Myanmar law transferred by the notation in the Limited (PAMEL), an independent provider
shareholder register by the board of directors. Under Myanmar corporate of telecommunications infrastructure in
law, the directors have the right to refuse the transfer of shares from one Myanmar, in the first ever non-recourse, cross-
shareholder to another in a number of circumstances. border financing in Myanmar. The agreement
provides US$85 million of financing to support
a roll-out of telecom tower site infrastructure
in Myanmar. This first-of-its-kind facility was
arranged by DBS Bank, ING Bank, OCBC Bank,
Standard Chartered Bank and Sumitomo
Mitsui Banking Corporation (the Lenders),
who provided the financing directly to PAMEL,
a Myanmar borrower. ING Bank in Singapore
is acting as the Facility Agent and Offshore
Security Agent and CB Bank in Myanmar is
acting as the Onshore Security Agent.

The transaction is significant as Myanmar,

formerly isolated from the global markets, re-
establishes and modernizes its banking and
capital markets presence. It is also expected
to spur similar infrastructure development
across Myanmars telecommunications sector,
which is poised for rapid expansion.

PAMEL, headquartered in Yangon, was

established in 2013 to serve as an independent
provider of passive telecommunications
infrastructure to support the rapid
modernization of Myanmar. The focus of
PAMELs current roll-out is the construction
of over 1,250 towers for Ooredoo Myanmar,
as part of Ooredoos provision of 3G mobile
Which authorities are involved for obtaining communications services nationwide across
the country.
approvals and registrations for a security package?
A leader in telecommunications and other
By way of a quick overview of required approvals, permits and registrations, project financings, Milbank has advised
please refer to the below list: telecom companies and financial institutions
around the world, with a particular focus on
IC: Security package, foreign exchange flows, assignment of shares (if
M the developing markets of Southeast Asia,
any) India, and Latin America.
Ministry of Communications and Information Technology (MCIT): MIC
may request the recommendation from MCIT as this concerns a licensed Milbanks Singapore-based team, led by
activity partner Giles Kennedy, and associates James
Central Bank of Myanmar/Ministry of Finance: Foreign exchange flows McFarlane and Leroy Langeveld acted as
Company Registration Office: Mortgage, fixed and floating charge (note: International Counsel to PAMEL and VDB-
the register does not yet exist) Lois Edwin Vanderbruggen acted as Local
Land owner (likely a Government agency, state or region; approvals are Myanmar Counsel to PAMEL.
needed at local and at Union level): Approval of the mortgage
Attorney General Office: May be asked to opine on the security

documents
Deed Registration Office: Mortgage, fixed charge on the leased land and
buildings
Internal Revenue Department (state and region offices): Payment of
stamp duty

Page 14
New Banking Law to Shake Up Related
Party Credit, Leasing Companies and Profit
Distribution by Banks Meet our team
In the wake of awarding licenses to 9 foreign banks, the Financial Institutions of Myanmar Law
of 1990 (FIML), the key legislation on the licensing and operation of banks and other financial
institutions, is set to be revamped. Judging from an advance draft of the Bank and Financial
Institutions of Myanmar Law (Draft Law) which was released for comments, a long list of bank
supervision legal provisions will be fleshed out in more detail, and in many cases extended, while
a number of entirely new rules are also introduced. The Draft Law is now before the National
Assembly.

One of the more eye-catching new provisions is the creation of a new category called Non-Bank
Financial Institution (NBFI) comprising among other businesses finance companies, leasing
Shine Myat Khin
companies and money services businesses. There is precious little regulation on NBFIs in the Draft LEGAL ASSOCIATE
Law for now, but businesses will do well to take note of the new requirement for leasing and Yangon
renting companies to receive a license from the CBM, as is discussed in more detail below. We also
noted that existing finance company licenses will have to be confirmed by the CBM to be valid, Shine holds a bachelors degree in law
from Dagon University and a masters
which raises the possibility that the CBM might change the conditions under which the license
degree in law from International
may be issued. Islamic University Malaysia.

Provisions on related party transactions, payment of dividends to shareholders, advertising and

rules on the acquisition or transfer of shares in a bank are also changed. Almost entirely new
chapters on administratorship, rehabilitation and insolvency of banks have been created. In this
note we provide a quick overview of some of the salient features of the Draft Law which caught
our attention.

No more credit to a banks What about credit to the

shareholders other companies of a banks
shareholder?
The FIML provided in a relatively well
articulated framework for related party Under the Draft Law, a bank may continue
transactions. Banks are allowed to do to provide credit to companies which are Thazin Ei
business with related parties as defined directly or indirectly owned by its shareholder LEGAL ASSOCIATE,
in the FIML, but the transactions need or chairman. But, the Draft Law adds two Yangon
to be at arms length, must comply with important conditions which did not exist in the Tha Zin Ei worked as a junior lawyer
any restrictions imposed by the CBM and FIML: (1) the relevant Board approval, which for U Aye Kyaw Law Firm. Tha Zin
must be first approved by a decision of already existed in the FIML, must be granted holds a Bachelor of Law.
the board. Principal shareholders and the with a 2/3rds majority and not a simple
companies they control, administrators and majority and; (2) all credit must have collateral.
their families as well as the companies they The general requirements on internal policies
have at least a 10% stake in, are all deemed and limitation on large exposure remain
related under the FIML. applicable as well, of course. For example,
financial exposure on any one person or group
The Draft Law largely restates the existing is limited 20% of the core capital of a bank.
concepts, although there seems to be
some confusion in the Draft with respect Although it is clear that the Draft Law indeed
to significant or substantial interests. improves the protection of the consumer, the
With respect to shareholders, the Draft question remains if this is sufficient. A bank
Law introduces a new idea. Regardless which is controlled by one major shareholder
of any board approval, the bank may not can easily arrange for a 2/3rds board decision.
provide ANY credit to its own shareholders, In addition, the nature and quantity of the Kyawt Mon Min
or at least those shareholders holding at collateral is not defined. One could imagine a LEGAL ASSOCIATE,
least 5% voting shares in the bank. The Yangon
scenario where a major shareholder extracts
same goes for members of the board or credit from his bank for a risky real estate Kyawt Mon has both a law and
other officer with voting right. Given that venture and offers only the shares of the accounting background. She has
a number of Myanmar banks are a part of project company as collateral. In case the an LL.B and a diploma in business
a wider business conglomerate, one might venture collapses, the shares will have little law and is currently working on her
wonder why the specification directly or value. Perhaps the CBM might consider issuing masters degree in banking and
indirectly, often used throughout the rest additional requirements for related party
finance. Prior to joining us, Kyawt
of the Draft Laws related party provisions, Mon was a lawyer for Win Mu Tin
lending, which is also foreseen under the Draft Intellectual Property Law Office and
was not added here as well. Law. an accountant for Sea Wolf Marine
Resources Co-op Ltd.

Page 15
All leasing and renting Existing finance company licensees need to re-apply
will require Central bank
license? The Draft Law does not only raise interesting Back to the Draft Law. Now included in the
issues for foreign and local banks. The 1990 group Non-Bank Financial Institutions
The booming business of equipment FIML did create the possibility for finance (NBFI), finance activity receives much
leasing and rental faces new challenges company business in Myanmar, but very attention from the legislator. The Draft Law
as the Draft Law introduces a few such licenses have ever been granted. foresees that an NBFI can carry on (one or
completely new requirement to obtain The scope of activity of a finance company more of ) the following activities:
CBM approval for carrying on leasing under the 1990 FIML was, according to s. 6
or rental business. These businesses 1990 FIML primarily financing the purchase 1. finance company;
must within 6 months of the effective of goods or services. Specific to finance 2. leasing;
date obtain written acknowledgement companies is that they do not and are not 3. factoring;
of compliance from the CBM to carry allowed to finance their activities by taking 4. credit token;
on a non-bank financial institution deposits. Besides stating that, the 1990 5. money services;
business. FIML did not elaborate much on financing 6. any other credit services the Central
business. Given the reluctance of the CBM Bank may prescribe;
It is unclear if it is the intention of the to license businesses for this activity, the
legislator to subject leasing businesses whole matter attracted little attention. The Draft Law does not reveal much on the
of each size to the new regulatory regulatory framework of finance companies,
supervision by the CBM. We believe That changed in 2013, when rumors or other NBFIs for that matter. It is clear that
that the resources of the CBM are circulated that the CBM was about to any existing finance companies must re-
overstretched as it is, so presumably license a number of wholly Myanmar apply for a license under the new law within
some type of threshold would be owned finance companies. It was a bit 6 months following of its effective date.
appropriate. unclear how many companies indeed Unlike as is the case for banks, the Draft Law
received the coveted license. In any event, does not set forth the documents required
Furthermore, it is difficult to see why the wave of new finance companies which for applying for a NBFI finance company. In
letting of equipment is explicitly put was expected by at least some in the market combination with the CBMs past reluctance
within the scope of activity requiring a did not materialize, but some licenses are to license finance companies, we think that
license from the CBM. Financial lease indeed out there. new finance company licenses might not be
is part of the core business of many the highest priority for the CBM right now.
financial institutions but renting is
not. There is no doubt, however, that
it is the intention of the legislator, at
least based on the present Draft Law,
to include renting of equipment in the
scope of the financial laws. Leasing
business is in the Draft Law defined as
the business of letting or sub-letting
movable property on hire, regardless
whether the letting is with or without
an option to purchase the property.

It is unclear what regulation the CBM

has in mind for leasing companies.
The Draft Law merely states for all
NBFIs that the CBM may impose such Myanmar Connect 2014
conditions as it sees fit and may issue Nay Pyi Taw, 17 September 2014
necessary regulation and guidelines.
No mention is made of any specific
conditions for leasing companies. Threshold for CBM approval of a transfer of shares in a bank is
lowered
Including all types of leasing and
renting into the scope of a law mainly The Draft Law provides in a much more The Draft Law thus differs in two major ways:
written for banks is not an obvious detailed organization of transfers in (1) it lowers the threshold from 15% to 10%
way to go about it. As we speak, substantial interests. A substantial interest or more, and; (2) it adds the transfer of voting
many companies are already active in the Draft Law means owning, directly rights as a separate category of rights which
in this space and more are set to or indirectly, ten percent or more of the may trigger the need for CBM approval.
be established. Various suppliers, capital or of the voting rights of a financial
including manufacturers and vendors institution or, directly or indirectly, The change is important. Changes in voting
of rolling stock and equipment have exercising control over the management rights of preferred stock, or transfer in
an interest to get into this market. A of the financial institution, as the Central preferred stock may in and of itself trigger
new licensing requirement without Bank may determine. By comparison, the CBM approval. Of course, any change in the
protection in a transition phase, and FIML only stated that transfer of a block articles of association of a bank must be
which is left entirely undefined may of shares representing 15% of the capital approved by the CBM anyway, which means
cast considerable uncertainty on the would require CBM approval. that their involvement is required when
future existing operators and contracts. classes of shares are created.

Page 16
Banks may setup a subsidiary for insurance VDB Loi assists as aircraft
business and securities brokerage financing transaction closes
in the wake of Cape Town
There where the FIML was drafted under the basic principle that banking
and insurance are separately regulated activities, the Draft Law creates a Convention ratification
clear connection between the two. The Draft Law more or less assumes
that banks will be permitted to engage in insurance business, even VDB Loi, a leading Myanmar law and advisory
without stating explicitly that such business will require a separate license firm with offices in Yangon and Nay Pyi Taw, has
(although that might have been the intention). The Draft Law provides as assisted a foreign non-bank financial institution
follows: with a financing transaction involving a number
of aircraft for use in several countries including
Through a separately incorporated subsidiary, a bank may engage in Myanmar. The names of the lender and the
(a) insurance business; borrower are not disclosed at this time. The
(b) securities broking business; firm acts as lenders Myanmar counsel and was
(c) any other activity related to banking business as approved by the charged with, among other things, Myanmar
Central Bank; law advice on the facility document and security
package, the funding structure and due diligence.
The Draft Law continues to specify that any such subsidiaries shall be The firm is also charged with the registration and
subject to supervision under this Law to the same extent as the bank and perfection of the secured interests in Myanmar.
the Central Bank may require any information otherwise required with
respect to such bank and its subsidiary to be reported separately for each The transaction comes in the wake of Myanmars
entity and on a consolidated basis. implementation of the Cape Town Convention
(CTC), a 2001 multilateral treaty acceded by
Myanmar which regulates the creation and
enforcement of international security interests
Deposit taking perhaps too widely defined? on mobile equipment such as aircraft. Myanmar
implemented the CTC through the enactment of
As can be expected, taking deposits is one of the crucial issues of any
a special law called The International interests
banking law, and the Draft Law is no exception. In the Draft Law, a deposit
in Mobile Equipment (Aircraft Equipment) Law
means a sum of money paid on terms under which it will be repaid or it
(The 2014 Pyidaungsu Hluttaw Law No. 37) on
is repayable, either wholly or in part, with any consideration in money or
1, August, 2014 (the Implementing Law). Under
moneys worth and such repayment being either, on demand or at a time
the CTC and its Myanmar Implementing Law,
or in circumstances agreed by the person making the payment and the
an international security interest created and
person receiving it.
registered in accordance with the CTC will be
recognized and enforceable in Myanmar. Under
This catch all language may present a bit of a problem. There is no
the Implementing Law, a supervisory authority
reference to the purpose of the deposit or the business of the deposit-
will be formed in the framework of the Ministry
taker. The definition of a deposit and the provision stating that no person
of Transports Department of Civil Aviation.
shall receive, take or accept deposits (except if having been granted a
banking license) are made on a purely objective basis. That is to say, any
The firms partner in charge of this assignment,
person taking a deposit as defined in the law, even just a commercial
Edwin Vanderbruggen, said The ink on the
company, as a principle falls within the scope.
Myanmar law implementing the Cape Town
Convention is not yet dry, so as is often the
To be deemed a deposit within the Draft Law, it essentially suffices that
case in Myanmar extensive consultations with
the sum of money which is paid, is agreed to be repaid in time or subject
the authorities were necessary for this ground
to condition with a consideration.
breaking deal, one of the very first of its kind. The
recognition and enforcement of an international
There are, however, plenty of businesses which take a deposit as so
interest on aircraft leased here in Myanmar
defined. Persons engaged in trade with one another may agree that
will definitely increase the sense of comfort of
one pays a deposit to the other, which can be repaid with an interest.
foreign lenders and thus hopefully bring down
Individuals buying property might agree with the seller that their deposit
financing costs for borrowers.
is reimbursed with interest in certain circumstances.
Earlier, still in the financing space, VDB Loi was
It would probably be better to define the scope of a deposit a bit stricter,
tapped to assist Pan Asia Towers with the first
for example with a reference to transactions primarily aimed at generating
international non-recourse loan by a consortium
a financial return on the deposited cash.
of international commercial banks. The firm is
also lenders Myanmar counsel to an international
development bank on a financing transaction
in the financial services sector, and advises a
number of foreign banks on their market entry
Changes to profit distribution and reserves in Myanmar following the awarding of bank
licenses to 9 foreign banks by the Central Bank
The Draft Law only slightly amends the rules on compulsory reserves,
of Myanmar. VDB Loi also made news advising
but more are expected to follow by the more appropriate medium of
the Myanmar Government on the privatization
detailed regulations. A compulsory reserve equal to 100% of the capital,
of a number of state owned enterprises. Besides
which under the FIML is to be funded through reserving 25% of net-profit
Myanmar, VDB Loi has additional offices in
after tax, is slightly amended by ordering 50% of net-profit after tax to be
Cambodia, Indonesia, Laos and Vietnam, and
reserved up to 50% of the paid-up capital (and 25% up to 100% of the
liaison offices in Singapore and Tokyo.
capital, as was previously the case).

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In addition, the Draft Law introduces new restrictions on dividend distribution: Litigation firm U Aye Kyaw
No bank licensed institution shall declare or pay any dividend or make any
form of distribution to its shareholders
Associates joins VDB Loi to
(1) until all its capitalized expenses, including preliminary expenses and form disputes resolution
other items of expenditure not represented by tangible assets, have been practice in Myanmar
completely written off;
(2) if, as a result thereof, the aggregate book value of its assets would be less
than the sum of the book values of its liabilities and unimpaired capital VDB Loi and U Aye Kyaw & Associates, a
funds; specialized litigation firm in Yangon, are
(3) as long as the bank licensed institution is in breach of a requirement teaming up to provide dispute resolution
imposed by or under a provision of this Law. services in Myanmar. The principal U Aye
Kyaw is a former judge, magistrate and
The text of the MCPA is silent as to which amount is allowed to be distributed law lecturer with nearly 25 year experience
as dividends. However, section 97 of the table A provides that directors can in civil and commercial litigation and
only declare dividends out from profits or any undistributed profits. arbitration. He and his team of litigators have
served clients in a broad range of industries
with services since 1990. U Aye Kyaw
Term Investment banking may only be used by regularly acts for clients in the property and
licensed banks construction sphere.

The FIML already provided, in general terms, that an institution receiving VDB Loi is a leading firm in Myanmar,
deposits [] shall be deemed to be banks. Such institutions only shall have boasting a team of 40 lawyers and advisers,
the right to use the name bank. Other institutions shall be prohibited from and is mainly known for racking up high
using the name bank in their business name. profile transactional mandates in TMT,
power, oil and gas, real estate and consumer
These rules are now more detailed. The Draft Law specifies that also banker goods. Preparing its move into the disputes
and banking are prohibited from use by anyone except a licensed bank. space, the firm recently made key hires of
Also translations of the term in other languages may not be used. Some foreign lawyers with a litigation background.
exceptions are provided in the Draft Law, such as for associations of banks For example, Chris Sheridan is a solicitor with
and for international organizations. over 10 year experience in the legal field,
including work as an insolvency litigator
There are no general exceptions for use of the word bank in a non-financial with Rigby Cooke in Australia.
context such as blood bank or movie bank. Such organizations would be
able to apply for a case-by-case exception, the Draft Law states. It seems U Aye Kyaw and his team joining us and the
there is no room for financial advisory companies to use the term investment new foreign hires are meant to get us ready
banking unless when they are a licensed bank. This corresponds with the for the disputes side of the legal market
position of the CBM under the current law, by the way. explains managing partner Jean Loi. In sync
with Myanmars economy, our focus has
been mostly transactional for the past few
years. Clients are investing now, acquiring
assets and launching projects. There will be
a need as well for assistance and advice in
connection with litigation and arbitration.
We want to make sure that we are well
prepared for that, she continues.

Edwin Vanderbruggen, who heads the legal

team in the firms Yangon and Nay Pyi taw
offices notes: A solid litigation capability is a
not only attractive as such, it is also a strong
support to our advisory work. We want to
understand how matters would play out
in the Myanmar courts when we advise on
transactions or compliance.
Control of advertisements by banks
Myanmar revamped its arbitration
Banks may not advertise whatever they like. Under the Draft Law, adds which
framework by adopting the New York
are false, deceptive or misleading in the eyes of the CBM must be amended
Convention and is upgrading its Arbitration
or withdrawn. Advertising is in fact also covered under the Law on Consumer
Act to be in line with the Uncitral Model Law.
Protection as well, which provides in additional remedies by consumers.
A recent arbitration procedure in a dispute
Consumers are entitled to file any disputes with banks to the Consumer Dispute
between Myanmar Economic Holdings and
Settlement Committees (CDSC), a statutory body established by the Central
Fraser & Neave with regard to Myanmar
Consumer Protection Committee (CCPC) for settlements. It is not specifically
Brewery illustrates the need for dispute
addressed which regulator would have priority in circumstances where
settlement services in connection with this
advertising by a bank is deemed misleading. Presumably, both the CBM and
newly opened Southeast Asian country.
the CCPC have their own proper authority. The CBM can have the add stopped,
while the CDSC may initiate an investigation on the consumers complains,
and take administrative measures, such as warnings, order to compensate the
consumers, and terminate licenses after liaising with other ministries. The Law
on Consumer Protection further provides criminal penalties on banks where
they soliciting customers by giving false information.

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OVERVIEW OF VDB LOI EXPERIENCE IN THE FINANCIAL SERVICES SECTOR
Highlights of our experience in the financial services sector:

ssisting Development Financial Institutions (DFIs) on a number of financing transactions in Myanmar

A
Registered the first security for a foreign loan on an onshore asset in modern times
Charged with securing all approvals and registrations for the first ever non-recourse commercial finance
Secured licenses and approvals for Ooredoo, Nokia, Ericsson, Dagon City, Heineken
Assisted on the first aircraft financing transaction post Myanmars accession to the Cape Town Convention

The financial services sector is poised for significant growth in Myanmar, but the challenges are daunting. Improving the capacity and regulatory
architecture, and increasing foreign investment in certain areas are some of the Governments immediate policy objectives. VDB Loi has assisted clients
with a wide range of issues regarding Myanmars financial services sector. We have created a knowledge center for financial services law to meet client
needs for transparency in the web of bank supervision regulations, foreign exchange rules and licensing of foreign investment in banks and insurance.

Foreign exchange regulations Banking

In the increasingly liberalized context of Myanmars With over 30 foreign banks already present through representative offices, Myanmar
foreign exchange management, clients are faced is poised for significant growth as soon as the industry is opened to foreign
with questions and problems on a daily basis with investment. The country is a significantly underbanked market, where less than 20%
respect to inward and outward remittances. Our of the population has access to basic financial services. Currently, there are four state-
clients are Myanmar state-owned and private banks, owned and 11 private banks in Myanmar, all locally owned. The country is seen as a
foreign investors and financial intermediaries. Foreign major area of interest for regional and international banks. The central bank, which
exchange is one of the area where the firms nuts-and- supervises financial institutions and manages currency, was made an independent
bolts philosophy truly works. institution in 2013.

Licensing Our clients seek us out for advice on market entry, banking regulations and financial
Our team often assists clients with advice and laws.
assistance in connection with securing business
licenses in the financial sector, such as for finance Insurance
companies, foreign banks, consumer finance, hire-
purchase, Dedicated E-Money Issuers and mobile The nature of risk in Myanmar is constantly changing. Legal, political and
banking economic dynamism make for a high risk, high reward environment. Insurance is
a comparatively new concept in Myanmar, but it has a very important role to play.
Investment licensing by the MIC For insurance providers, this is a high-growth market with incredible potential. The
As Myanmar is poised to admit access to foreign state-owned insurance agency, Myanma, ended its monopoly in 2013 and already,
banks and insurance companies, our team advises numerous private insurance companies have opened for business. But with new laws
clients on the investment licensing aspects of their and regulations continuously reshaping the market, a local ally is essential.
market entry.
We can assist you in identifying these opportunities and guiding your investment
In order to meet clients needs for a flexible, highly into this sector. In the first few months of an open insurance market, we have already
responsive team with interdisciplinary skills, we provided assistance to a North American insurance company entering the market.
have formed core teams of foreign lawyers, financial While this insurance sector remains small, VDB Loi has already positioned itself as a
specialists and local attorneys. Time is of the essence leader.
in Myanmar deals. To ensure an efficient licensing
process, our partners personally drive the effort, Microfinance
from advising on the investment structure to less
glamorous but equally crucial tasks such as document In emerging markets, microfinance forms a cornerstone of entrepreneurship,
collection. consumer spending and future growth. Myanmar is no exception. It has been
estimated that demand for microfinance exceeds supply by as much as four times.
Regulatory The industry is still in its infancy, but the growth potential is tremendous.
Our financial services team is often asked to advise
on regulatory aspects including banking supervision Microfinance clients face unique risks in Myanmar, including a rapidly evolving
regulations, foreign exchange rules, competition regulatory framework and complex foreign exchange restrictions. Our professionals
rules, and new areas such as mobile banking and understand the microfinance sector in Myanmar and take the time to listen to our
issuance of e-money. clients needs.

Secured lending The firms financial services knowledge center ensures that we are always prepared
Our firms team is at the forefront of the developments to solve the practical challenges faced by our microfinance clients.
in relation to creating, perfecting and enforcing various
types of secured interests including mortgages, fixed Whether the issue is obtaining a license, obtaining foreign financing or expanding
and floating charges, pledges and guarantees. As is your company, VDB Loi has the knowledge and experience to be a partner in
often the case in Myanmar, it is not the theory but the microfinance sector. With experience in the commercial and policy aspects
the practice which is of particular concern to clients. of microfinance, as well as important tax issues, VDB Loi brings the same high
Our team works very closely with the authorities to standard of service to its microfinance clients, whether they be high-growth start-up
implement secured interests in actual practice. microfinanciers or multinational microfinance institutions.

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