SINGAPORE (Nov 16): Serge Pun, executive chairman of Yoma Strategic Holdings, bats aside suggestions that he is accepting investment from Ayala only because Western enthusiasm for Myanmar’s growth story has waned. “Asian investors are a lot smarter than Western investors,” says Pun at a media briefing on Nov 16.

On Nov 14, Ayala Corporation, Philippines’ oldest business conglomerate, announced it is investing up to US$237.5 million ($324 million) in exchange for a 20% stake in Singapore-listed Yoma Strategic, and Yangon-listed First Myanmar Investment Company.

Yoma Strategic shares surged as a result. It closed on Friday, Nov 15 at 39 cents, up more than 18% from the 33 cents before the deal was announced. At this level, the company is valued at $731 million. Yoma Strategic started this year at 35 cents. In 2013, at the peak of the Myanmar boom, the company was traded as high as 87 cents.

The share price surged even as Yoma Strategic reported a loss of US$44.2 million for the three months ended Sept 30, 2019, reversing from earnings of US$18.8 million a year ago. The losses were largely caused by a revaluation loss of US$31.6 million for a shopping mall project in China.

Pun admits the growth this coming year or so will be relatively muted. Myanmar’s GDP growth hit a peak of some 8% in 2013 and has decelerated to as low as 5.9% in 2017. It rebounded to 6.8% in 2018 and is seen to end 2019 at 6.6%, according to the Asian Development Bank.

However, he is “extremely optimistic” over Myanmar’s prospects for the coming five to ten years. “We have a country blessed with resources, what we need are good infrastructure and good policies,” he says.

The same way China would never go through the Cultural Revolution again, Myanmese will not put up with another 26 years of closed-door economic policy under the military junta. “You can’t even stop it even if you want to,” Pun reasons.

For Ayala, the investment in Myanmar is part of its overall strategy of growing further in its home region, says Jaime Augusto Zobel de Ayala, chairman and CEO of Ayala Corp, at the same briefing.

“We have been overweight on our home market, we have now reached a stage where we have to build stronger ties in this Southeast Asian story. The Myanmar growth story is an extraordinary one. There’s a tremendous opportunity,” he says.

“If the right opportunities come, we will replicate such a partnership, but for now, we are focused on this,” he adds.

Both partners stress how they share plenty of similarities in the businesses they are in. For example, they are the distributors for Volkswagen cars in their respective markets, and they are both in key industries ranging from real estate to telecommunications to banking.

At the media briefing, Pun couldn’t praise his new partner enough. Pun, founder of his group of companies, started doing business 36 years ago. Ayala, by contrast, is 180 years old and is now run by its 7th generation. “They have much to teach us; we have much to learn,” says Pun.

Under terms of the deal announced on Nov 14, Ayala will be investing a total of US$237.5 million in the Yoma Group. First, Ayala will pay USS155 million, or 45 cents per share for up to 474.68 million new shares in Yoma Strategic. The price is a 37.7% premium over the last traded price of Nov 12.

The transaction will be divided into two tranches: an initial 332.5 million shares, which represents 14.9% of the enlarged issued and paid-up share capital, will be issued by end of November 2019 using the general share issuance mandate.

Next, Yoma Strategic will call for shareholders to approve the remaining 142.18 million shares, representing 5.1% of the enlarged issued and paid-up share capital, at a shareholders’ meeting at a date to be determined.

In addition, Ayala will lend US$82.5 million to FMI in the form of a convertible loan, which comes at the pre-determined conversion price of MMK15,000 into the money, and translate into a stake of 20% in FMI when fully converted.

Ayala explains that he is willing to pay such a significant premium over market prices because of the long term potential. “We see great opportunities,” he says.

Asean is going through a tremendous growth cycle, there is no doubt that consumption will grow, as will other demand, such as that for power. Development economists are familiar with how once per capita GDP hits a certain level, demand for power will increase exponentially, as everyone hankers after the modern trappings of modern that require power, he says.

Pun points out that Yoma Micropower is one Yoma’s newest subsidiaries, but one he is very upbeat on. This company makes use of solar power to run mobile base stations. The power generated is also sold to nearby villages, bringing them electricity for the first time. Yoma Micropower now has around 200 sites but plans to expand this to 2000, covering 70% of the population.

Yoma is in real estate, too. The real estate market in Myanmar has been pretty quiet over last two, three years, and Pun claims that only Yoma Land is able to keep up steady sales. Early this year, it has launched a project, City Loft, which is part of a larger mixed development called StarCity, with up to 10,000 new homes planned.

With easy mortgage terms of up to 25 years, City Loft is positioned as an affordable housing for first time buyers and the company is able to move between 60 to 70 units a month in this development, says Pun, who expects the pace to pick up soon to 100 units a month. Yoma plans to expand its property development business beyond Yangon to other parts of the country.

Pun is aware many foreign investors are wary of the political situation in Myanmar, where the military junta still has a significant hold.

In recent years, Western commentators have expressed dismay at how Aung San Suu Kyi, the former democracy icon, is not acting enough on certain domestic issues especially the plight of minority groups.

The country is scheduled to call for a general election in 2020. “We have experienced more than one government, seen through at least half a dozen minister in any government ministry,” says Pun.

He recalls how some of his senior executives would at times come back from meetings with government officials, feeling “disheartened”. “So I asked them are you serving the people or are you serving the government? When you have your focus on serving the people, you can easily overcome the political issues,” says Pun.