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LEARNING ABOUT THE RISKS AND REWARDS OF FRONTIER MARKETS FROM BURMESE BEER


Rip Van Winkle is a story about a villager who sleeps for years and realises when he awakens that the world has passed him by. Myanmar;  the Rip Van Winkle of Asia, was an isolated pariah state for decades. From 1962 to 2011, the country was ruled by a military junta that wielded absolute power  despite wide condemnation. In 2011, the military junta loosened its grip and the country is now open to investment

Three years on, the vestiges of myanmar’s long slumber are still plainly evident. Barely two-fifths of the country’s 51 million people have a mobile phone. Event consumer goods like soft drinks and instant noodles are in shortage. It’s citizens have only just discovered ATMs, credit cards and iPhones over the last three years.

Yet, there is one consumer item that Myanmar’s  tormented people were not denied during the country’s dark era – beer, in 1995, Fraser and Neave, a Singaporean Conglomerate, entered into a joint venture with the union of Myanmar Economic Holdings (UMEHL), a wing of the Burmese military. Together , they formed Myanmar Brewery (MBL), which has a commanding market position in the country’s tiny beer industry.

In 2013, I was part of the flood of curious business visitors who arrived in Myanmar, and sampled MBL’s products in Yangon’s watering holes. The immense potential of the business became clear to me. F&N’s investment in MBL was one of the largest taxpayer, with revenues of over US $250 million. In FY2014, MBL’s earnings rose 50%. But beer consumption in Myanmar is still at a nascent stage.

Vietnam , a country with a similar income and culture to Myanmar’s beer consumption per capita. Myanmar’s beer industry seems to be on the same trajectory as that of Vietnam, Cambodia and Sri Langka when their isolation ended. Vietnam was closed to consumerism until around 1985. Cambodia opened its doors around 1995. Sri Langka was embroiled in a vicious conflict that ended in 2009. Since then, visitor arrivals have accelerated in these countries and beer sales have boomed.

MBL’s success underscore the merits of investing in consumers in frontier markets. Beer is a cheaper and safer alternative to the crude, homemade hard liquor that is common in these markets. Indeed, beer is viewed as an aspiration intoxicant. Andaman Gold one of MBL’s main brands, has 8 % alcohol content.

MBL is also an example of the potent mix of branding, expertise and incumbency. UMEHL has unparalleled logistical capability, which enables MBL’s products to be distributed effectively. Meanwhile, the brewing of MBL’s beers is based on the processes of Asia Pacific Breweries (APB), which F&N once jointly controlled with Heineken. (APB was F&N and Heineken’s joint-venture vehicle in Asia. But Heineken opted out og investing in MBL because of the sanctions on Myanmars at the time. APB has since been privatised by Heineken). The result is that MBL’s brands such as Myanmar Double Strong and Andaman Gold are ubiquitous and respected In Yangon.

However, recent developments at MBL have highlighted the risks that accompany the reward of frontier markets. UMEHL’s principals are connected to the Myanmar military. It is projected as a welfare organisation for the officers. Last years, UMEHL launched a claim on F&N’s 55% stake in MBL. The argument was that the change in control of F&N after it was acquired by companies linked to The billionaire Charoen Sirivadhanabhakdhi meant UMEHL should have the chance to buy F&N’s stake in MBL.

Last  November, commercial arbitrators in Singapore ruled in favour of UMEHL. The arbitrators also ruled that an independent valuer will determine the value of F&N’s stake in MBL’s.

The loss of its stake in MBL is a blow to F&N. It also casts a cloud over Thai Beverage, which spent  $3.6 billion on a 29% stake in F&N. (F&N included a substantial property business at the Straits Times Index by 113 % in the last three years, and currently trades at 20 times earnings. F&N trades at 27 times earnings. Those valuations partly reflect the euphoria around the opportunities in Myanmar. The growth in the rest of their business is comparatively tepid. For instance, beer volume growth in Thailand is just 4 %. Myanmar may have just risen from its deep sleep, but its thirst for beer is already a lucrative business. Investors, however, must tread gingerly.

Nirgunan Tiruchevam is director, research at Religare Capital Markets

The Edge Singapore. Juni 29,2015

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