Takeshi Mukawa and Win Naing, MHM
SECTION 1: Market overview
1.1 Please provide an overview of the project finance
market in your jurisdiction.
Project financing is at a nascent stage in Myanmar, although
it has been rapidly developing as Myanmar has opened up to
foreign investment and updated its laws relating to foreign
investment and financing.
The most active sectors are power and real estate. Recent
high-profile projects include the Myingyan independent power
producer (IPP), the Minbu power plant project in Magwe Region
and the Landmark Project led by Mitsubishi Corporation and
Serge Pun & Associates (see Question 2.1). Project finance
in Myanmar has typically been led by debt financing from
international finance institutions such as the International
Finance Corporation (IFC) or Asian Development Bank (ADB),
which have established precedents for international standard
documentation in such transactions.
1.2 What is the composition of the market in terms of the
types of active lending institutions and has this been
Project financing has primarily been led by institutions
such as the IFC and ADB. This is because Myanmar has only
recently opened up to foreign investment and reflects the
relatively higher commercial and political risks of lending in
Myanmar. Cross-border financing is also available from
international banks operating in Myanmar but local banks play
little or no role in financing projects, reflecting their
International banks may become more active as Myanmar's
finance sector matures and is liberalised. The Central Bank of
Myanmar (CBM) issued Directive 9/2017 on December 8 2017
permitting foreign banks operating in Myanmar to offer export
financing to local companies. Deputy governor U Set Aung
announced on May 4 2017 that the CBM would consider further
liberalising the sector after assessing its stability. However,
there is opposition to this from local banks.
1.3 Please describe any major current projects or
initiatives that are influencing activity.
On September 6 2016, the Ministry of Electricity and Energy
(MOEE) invited expressions of interest to implement a project
involving the import and regasification of LNG on a floating
storage regasification unit in Myanmar to meet the shortfall in
supply of Myanmar's growing energy needs. Around ninety
companies are understood to have expressed interest in the
project, and while the MOEE is still considering its potential
structure, if implemented, this is likely to be a significant
power project in Myanmar.
SECTION 2: Transaction structures
2.1 Please review some recent notable transactions
involving your market and outline any interesting aspects in
The Myingyan IPP was the first competitively awarded IPP in
Myanmar. It was financed by international finance institutions
and commercial lenders. The IFC also provided financial
advisory services to the MOEE and helped develop the power
purchase agreement (PPA) for the project, setting a precedent
for the use of international standard PPAs in Myanmar. The IFC
and ADB were also the lenders for the Landmark Project, while
the lenders in the Minbu power plant project were Thai
state-owned Krung Thai Bank and the Export-Import Bank of
These transactions highlight the role of international
finance institutions (IFIs) as financers. The IFC and ADB in
particular are very active in Myanmar, both in financing and
supporting law reform. The ADB supported the development of the
Myanmar Companies Law (enacted on December 6 2017) (MCL), while
the IFC supported the development and implementation of the
Myanmar Investment Law (enacted on October 18 2016) (MIL).
Their involvement has to date been important to developing
bankable projects in Myanmar.
2.2 What might the projects above mean for the market and
have you noted other noteworthy developments in the way project
finance transactions are being structured for a) energy
projects and b) infrastructure development?
The IFC played a significant role assisting the MOEE as part
of the Myingyan IPP, including developing an international
standard PPA. While there has been resistance from the Myanmar
government to using this template in subsequent projects, it
provides a useful precedent, particularly where there is
involvement by IFIs.
SECTION 3: Legislation and policy
3.1 Describe the key legislation and regulatory bodies that
govern project financing in your jurisdiction.
Foreign investment restrictions
Under the MIL, which replaced the 2012 Foreign Investment
Law (FIL), a permit will likely be required from the Myanmar
Investment Commission (MIC), which administers the MIL, for
project financed projects. MIC permits are required for
investments that are strategically important, capital
intensive, may have a large impact on the environment or a
local community, use state-owned land and for other designated
Sectoral foreign investment approval may also be required.
Notification 15/2017 (List of Restricted Investment
Activities), issued by the MIC on April 10 2017 in relation to
section 42 of the MIL (MIL Notification), is intended to
comprehensively list such requirements. Among others, it
requires MOEE approval for power projects producing more than
30 megawatts. This list has not proved comprehensive in
practice, however and investors should obtain advice on the
actual requirements for particular projects.
The 1987 Transfer of Immovable Property Restriction Law
(TIPRL) prohibits the transfer of immovable property to, or its
acquisition or lease for more than one year by, foreign
companies. As noted below, this currently captures companies
with any foreign shareholding. A foreign company with an MIC
permit may obtain a land rights authorisation to lease
immovable property with an initial term of up to 50 years
(followed by two extensions of 10 years each).
A project company in Myanmar will be incorporated under, and
be governed by, the 1914 Myanmar Companies Act (MCA), which
will be replaced in the future by the MCL. While enacted, the
MCL will not enter into force until the issue of an
implementing notification by the President of Myanmar, expected
to be after implementation of a computerised companies'
registry. The Directorate for Investment and Company
Administration (Dica) of the Ministry of Planning and Finance
(MOPF) has reportedly committed to implement the MCL by August
1 2018, which appears optimistic as we understand that work on
the new computerised registry only began after the MCL was
enacted on December 6 2017.
Importantly, the MCL will permit up to 35% foreign
shareholding in companies classified as Myanmar companies.
Under the MCA, a Myanmar company may not have any foreign
shareholding. This is important because, as highlighted above,
Myanmar companies do not face restrictions such as those under
Laws relating to lending
In practice cross-border remittances of funds to or from
Myanmar are governed by the 2012 Foreign Exchange Management
Law (FEML). Under the FEML, remittances are classified as
ordinary transactions (for example, short-term operational
remittances or fees), or capital transactions (for example,
loans or business investments). Generally, prior CBM approval
is required for capital transactions but not ordinary
transactions. However, the definitions of both categories in
the FEML are unclear and the CBM's practice is inconsistent, so
in practice it is necessary to confirm with the CBM how to deal
with each foreign remittance.
The rules under the FEML require prior CBM approval for
disbursements of foreign loans in Myanmar. The CBM announced in
July 2016 in relation to this approval requirement that it
would take into consideration matters relevant to the borrower,
including the capital amount already brought into Myanmar, the
terms of the loan agreement and the debt-to-equity ratio. It is
not necessary to obtain CBM approval for each subsequent
remittance repaying the loan principal and interest.
Under the FEML and Notification 7/2014 of the CBM, Myanmar
companies can open offshore foreign currency accounts with CBM
approval, provided they file monthly bank statements with the
CBM. In practice, we understand the CBM has been willing to
approve companies using such accounts for the purpose of
obtaining foreign currency-denominated loans for project
financing. The funds from the loans are transferred into
Myanmar by the Myanmar project company itself.
On April 10 2017, the MOPF issued Directive 1/2017,
detailing the requirements for procurements and tenders valued
above a prescribed threshold by Myanmar government departments,
agencies and entities. However, it has not been followed to
The key applicable regulatory bodies are the MIC, Dica and
the CBM, as well as sector-specific regulators and state-owned
entities like the MOEE.
3.2 Have there been any recent changes to regulations or
regulators that may impact the finance structuring in terms of
guarantee and security regimes, local currency rules and
foreign investment restrictions?
Guarantee and security regimes
One important reform which will be introduced by the MCL
once it is in force is section 228(b), which states that
neither the granting nor enforcement of a mortgage or charge
will breach the TIPRL. The TIPRL was understood to prohibit the
creation of security over immovable property by foreign
It is also expected that Dica will maintain an electronic
register for charges and mortgages under the MCL.
The MOPF Minister may also grant government guarantees, with
the approval of the Myanmar government and parliament under the
Public Debt Management Law of 2016. However, there is no
practice of issuing such guarantees in Myanmar. This can impact
the bankability of projects, as it is unclear whether
off-takers' obligations (typically the Electric Power
Generation Enterprise of the MOEE) can be considered to be
obligations of the Myanmar government itself. In practice, this
issue has been solved by obtaining an assurance from the
Local currency rules
The CBM reissued Letter MaVaBa – 1/111
(FEMD)/(904/2015) on January 3 2017 (first issued on May 28
2015) instructing state and regional governments to only accept
payments, and direct private business to undertake local
transactions, in Myanmar kyat. As a result, government parties
are reluctant to agree to US dollar-denominated payments. This
can raise bankability issues because of the low convertibility
of the kyat, and its volatility, which raises significant
foreign exchange risks for foreign currency-denominated
There are limited options to hedge currency risks in
Myanmar. In January 2016, Sumitomo Mitsui Banking Corporation
and Kanbawza Bank reportedly entered into a forward contract to
exchange Myanmar kyat to US dollars, but this was only a test
case for a limited sum ($100,000).
3.3 Please describe the regime governing renewable energy
No specific legal framework governs renewable energy
investments. Under the 2014 Electricity Law and MIL
Notification, approval will generally be required from the
MOEE, and for small and medium-sized power projects producing
less than 30 megawatts which are not connected to the national
electricity grid, from state and regional governments.
3.4 Does your jurisdiction have incentive schemes in place
for various types of energy or infrastructure project
Under the MIL, the MIC has discretion to grant company tax
exemptions for three, five or seven-year periods to investments
in promoted sectors, depending on the designation of the place
of investment in Notification 10/2017 issued by the MIC on
February 22 2017. The promoted sectors are set out in
Notification 13/2017 (Classification of Promoted Sector),
issued by the MIC on April 1 2017. They include, in particular,
infrastructure investments, including road, rail, port and
power. Investors may obtain these exemptions by applying for an
MIC permit or endorsement and making a tax incentive
Myanmar has not to date implemented incentives like
viability gap funding, which is offered in neighbouring
countries like India to attract investment in financially
unviable but economically important projects, by subsidising
part of the project.
3.5 Are there any rules, legislation or policy frameworks
under discussion that may impact project finance in your
Public private partnerships (PPPs) are currently negotiated
individually and there are no standardised bidding processes or
documents, and therefore no standardised approach between
ministries. The Japan International Cooperation Agency (Jica)
and Dica have been discussing standardising the English
language bidding and PPP documents.
A new Insolvency Law is currently being developed with ADB
assistance and lenders should carefully assess the rights of
secured creditors in the event of liquidation under this law
once it is published. The effect of insolvency of a project
company on the rights of secured creditors under the MCA (and
MCL) is unclear. We would expect based on common law principles
that although appointments of receivers by lenders would be
suspended, in general the rights of secured creditors would
take priority over unsecured creditors.
SECTION 4: Market idiosyncrasies
4.1 Please describe any common mistakes or misconceptions
that exist about the project finance market in your
Investors often misconceive the difficulty of organising a
security package in Myanmar. Security can be created through
creating a mortgage or charge over a project company's
immovable property or a pledge over its movable property,
including shares. Equitable mortgages have also been created as
part of the security package for some loans.
Stamp duty of 0.5% of the loan amount is payable on
mortgages, and for pledges, an amount based on the duration and
value of the loan.
Any security over a company's assets must be registered
under the MCA within 21 days with Dica (28 days in the case of
the MCL) or it will be void against the liquidator and any
creditor if the company becomes insolvent. Mortgages over
immovable property must also be registered under the
Registration Act 1908 to be enforceable. Offshore lenders have
in the past used onshore security agents to hold their security
interests in order to comply with the TIPRL and register their
security under this law. As noted in Question 3.2, Section
228(b) of the MCL will remove this requirement.
The MIC must also be notified of the mortgage or transfer of
shares in companies with MIC permits or endorsements.
4.2 What measures should be taken to best prepare for your
Investors should anticipate and prepare for considerable
liaison and negotiation with the government. The involvement of
institutions like the IFC or ADB may be useful to navigate such
SECTION 5: Practical considerations
5.1 How established is the legislative framework and
authorities that govern PPPs and where have PPP structures most
successfully been applied?
There is no legislative framework or standardised approach
to PPPs. Such structures have been most commonly used for power
projects, and use of PPPs in this sector is more advanced.
5.2 What are the key considerations relating to foreign
investment into projects as regards insurance and tax
Foreign investors may structure their investment as either a
Myanmar subsidiary company or branch. A resident company (such
as a subsidiary) will generally be taxed on its worldwide
income while a non-resident company will only be taxed on its
foreign income. Companies with MIC permits or endorsements may
apply for tax exemptions as set out in Question 3.4.
The main taxes applicable to foreign investments are company
tax, commercial tax, special goods tax and stamp duty.
Withholding taxes apply for certain categories of corporate
income, at varying rates depending on the taxpayer's residency.
Myanmar tax residents can offset withholding taxes against
their end of year tax liability, while it represents
non-residents' final tax liability. The MOPF also issued
Notification 51/2017 on May 22 2017 exempting some large or
mid-sized taxpayers from the obligation to withhold sums from
payments of around $1,000 or less to resident taxpayers,
provided they notify the Internal Revenue Department of such
Withholding tax rates may also be reduced under applicable
double tax treaties, and foreign investments are often
structured to take advantage of this. The double tax treaty
with Singapore for example, reduces the amount withheld on
interest payments to Singapore resident companies from 15% to
eight percent if it is to a bank or financial institution, or
10% if it is to any other person.
Insurance in Myanmar is available from Myanma Insurance, the
government insurer. While to date no foreign insurer has been
permitted to operate an insurance business in Myanmar, on
August 24 2017, the MOPF issued Notification 87/2017
establishing a board to review and select foreign insurance
companies for licensing.
5.3 Are there any specific issues creditors should be
mindful of regarding a bankruptcy and restructuring
In principle, a company which is being or about to be wound
up, may enter into a scheme of arrangement with its creditors
under the MCL. Winding up proceedings may be either by the
court, voluntary or court-supervised. However, the insolvency
provisions of the MCA have not been widely used in Myanmar and
it is unclear how these requirements would be applied or an
insolvent company's assets disposed of, in practice. The
winding up of companies may be clarified in the insolvency law
reform referred to in Question 3.5.
SECTION 6: Outlook
6.1 What are your predictions for the next 12 months in the
project development and financing sector and how do you expect
legal practice to respond?
Myanmar has significantly improved its investment
environment since opening to foreign investment. The MCL is the
latest example of Myanmar updating and modernising its laws.
The upcoming insolvency reforms are likely to further bolster
the framework for projects and financing in Myanmar.
Myanmar's test is in the extent to which it adapts its local
practices and regulatory culture in implementing these reforms.
There also continue to be challenges in negotiating
transactions with the government, and negotiating international
standard agreements for use in project financing. Depending on
how Myanmar handles the challenges of its regulatory framework,
it is likely to remain of significant interest to
Co-representative partner, MHM
T: +95 1 255134
F: +95 1 255143
Takeshi Mukawa is the co-representative partner of
MHM Yangon. He is qualified in Japan and California. He
has advised on many finance and corporate transactions,
including the first aircraft financing in Myanmar,
which created a mortgage over aircraft operating in
Myanmar, the acquisition by Kirin of Myanmar Brewery
(which is the biggest M&A transaction to date in
Myanmar) and the establishment of the Yangon Stock
Exchange. He has also assisted the Myanmar government
in making new laws and regulations, including the
Securities and Exchange Law and the amendment of the
Special Economic Zone Law.
Partner, MHM Yangon
T: +95 1 255134
F: +95 1 255143
Win Naing is a partner in MHM Yangon and a leading
corporate lawyer in Myanmar specialising in foreign
direct investment, international business transactions,
cross-border M&A and intellectual property laws,
oil and gas and property. He has been in practice for
20 years and prior to joining MHM Yangon he was partner
in law firms based in Myanmar. Naing has also made a
significant contribution to the development of the
legal system in Myanmar. He works in cooperation with
Jica and the Union Attorney General's Office to assist
the Attorney General and, in particular, review draft