Home Insider Interview with the Banker Leading Yangon Stock Exchange Project

Interview with the Banker Leading Yangon Stock Exchange Project

Name: Shinsuke GOTO

Nationality: Japanese

Company: Daiwa Securities Group Inc.

Brief Background Summary:

Mr. Goto joined Daiwa Securities group, which provides individual and corporate clients with a wide range of financial ser- vices including brokerage, underwriting and M&A advisory, after graduating from Nagoya University, where he majored in clinical psychology as he initially wanted to become a counselor.

Mr. Goto spent two years in the corpo- rate finance department, five years in the IPO (Initial Public Offerings) department and a further five years in the corporate planning department, where he first be- came involved with Daiwa’s initiatives in Myanmar.

He also attended the executive education program of the Harvard Business School, USA.

Mr. Goto is married with three children. He and his wife have just celebrated their tenth wedding anniversary.


MI: When was the first time you visit- ed Myanmar?

Although I first became involved with our Myanmar Project in March, 2012, the first time I visited was a half year later, at the end of September 2012. I stayed for around 5 weeks in Yangon. The monsoon season had already finished, but due to good weather, it was comfortable.

MI: What was your experience back then? The city of Yangon was much more exiting and cleaner than I expected. People were friendly and diligent. I was a bit surprised by prices: prices of products in general were much higher than I had expected. Overall, I had an impression of the country’s huge po- tential.

In planning to tap into a new market, like other companies do, we first conduct basic research on market potential using statisti- cal data like GDP per capita, total amount of bank deposits and corporate tax reve- nue. Here in Myanmar, however, those data do not reflect the real potential of market growth.

MI: How did you end up stationing full time in Myanmar?

On my first visit in 2012, I began studying the long-term feasibility of capital market development and our business. By the begin- ning of 2013, I reached a conclusion and was determined to specifically focus on initial public offerings (‘IPO’) on the forthcoming Yangon Stock Exchange.

An attractive stock exchange of course would be nothing without attractive companies to list on it, and companies’ listing is the very first step to expand the securities business in the future. If we fail at the IPO business, other business will not succeed. As part of our efforts to encourage the development of capital markets in Myanmar, in February 2013, we started approaching established companies to offer them support in prepar- ing to eventually list on the Yangon stock ex- change. Since then, I have been going back and forth between Japan and Myanmar, spending half my time in Tokyo and half in Yangon.

As the importance of IPO are gradually rec- ognized both internally and externally, I was assigned in April 2014, to be stationed in Myanmar as Head of Investment Banking, which might be the first such position in Myanmar history. I moved to Yangon on the first day of May and currently do not plan to return to Japan, fortunately or unfortunate- ly, probably at least until the Stock Exchange opens—fortunately for my career but unfor- tunately for my family.

MI: What are your impressions of the country now and what you see in its future?

I have seen a lot of changes since my first vis- it. Now, Myanmar is the most exciting and bustling country in the world. As long as gov- ernment policy is stable, I believe it can main- tain continuous high growth and catch up to leading ASEAN countries in the next 10 years, though many reforms are still required.

MI: Could you share with us Daiwa Se- curities Group’s present activities in Myanmar?

We first came to Myanmar in 1993, and were fortunate to be chosen as partner to support the development of the country’s capital market, which means that we have more than two decades of experience here. Myanmar Securities Exchange Centre was established in 1996 as a joint venture be- tween Myanma Economic Bank (“MEB”) and Daiwa for the establishment of the capital market. Due to the Asian financial crisis and period of isolation after that, part of our mission was not able to be achieved and the whole project was delayed. After the new government took office, the project was resumed and MSEC restarted initiatives to open a stock exchange in 2015.

Though Daiwa has been involved in many projects, our main business as a securities company is the securities business (invest- ment banking and brokerage/dealing), which has a crucial role in capital market development. The main function of a secu- rities company is as a financial intermediary to bridge between investors and companies. Companies need large amounts of capital to finance growth and compete domestically and internationally. They have to find risk takers (investors) who are willing to provide that capital in exchange for a return on their investment. Capital markets are important financial infrastructure because they support companies to achieve high growth by sharing risk with a large number of investors.

When ownership of companies is limited to a small number of shareholders, the bene- fits of ownership accumulate within a priv- ileged few. It increases economic disparities in society. However, when large numbers of individuals are able to buy stocks and par- ticipate in capital markets including through mutual funds and pension plans, this pro- vides citizens with the opportunity to build their wealth. When large numbers of citizens build wealth and use it to consume goods and services, a virtuous economic cycle can be established.

MI: Daiwa Securities Group (“Daiwa”) is tasked to assist Myanmar to set up the Yangon Stock Exchange (“YSE”) together with Japan Exchange Group (“JPX”). Could you describe the role of Daiwa and JPX in this joint project please?

Daiwa and JPX are cooperating to promote the development of the capital market in Myanmar.

JPX is playing a major role in the set up of the YSE by advising on the design and imple- mentation of stock exchange functions, es- tablishment of rules and regulations and hu- man resource development. Daiwa is playing a major role as a securities company to en- sure that YSE is an effective, efficient and attractive market place with qualified listed companies and well educated investors.

Our mission is not only to open a stock ex- change, but create a well-functioning and at- tractive capital market. Supported by Korea, Laos Securities Exchange was established in 2010, and Cambodia Securities Exchange in 2011, but to date they have only three and two listed companies, respectively. Inves- tors will not come to the exchange if there are no attractive stocks. At the same time, if there are no investors, there is no incentive for companies to list. The establishment of stock exchange is not, by itself, enough to promote the development of the capital mar- ket. Merely establishing a stock exchange is not enough since it’s just a platform for the capital market. We also need to consider users who will utilize that platform. There needs to be a comprehensive approach, in- cluding the establishment of the regulatory framework, enforcement capacity, education for investors, advice to potential listing com- panies, etc.

With regard to capital market regulation, the Japanese government, particularly the Min- istry of Finance and the Financial Services Agency, is actively assisting the Myanmar government.

At the same time, Daiwa is taking the ini- tiative to establish best practices and pro- cedures for public offerings by exchanging knowledge and experience with local and international professionals in Five Parties Meeting organized by Daiwa. The meetings are attended by Daiwa, MSEC, JPX, account- ing firms, and legal firms.

In carrying out our objective, Daiwa and MSEC also look for companies that are good candidates to list on the exchange and pro- vide IPO advisory services.

MI: When the government announce to have the stock exchange ready by 2015, it has drawn lot of attention in the region. Investors both in the coun- try and outside of the country are anx- ious for the moment to arrive. You have the honor to lead this project, share with us what is the challenges you have encountered so far.

A certain amount attention is beneficial in terms of getting the market off to a good start, but excessive enthusiasm could be a risk that it could lead to a stock market bub- ble. To reduce that risk, it will be essential to ensure that proper information and edu- cation are provided to companies and inves- tors alike.

Among the many challenges we are facing, the biggest one is the shortage of local human resources. There is a shortage of people who know about capital markets and are able to lead initiatives in both the government and private sectors. This is a local issue that will have to be dealt with locally over a num- ber of years but education can’t be achieved overnight, taking at least 3-5 years. In this respect, foreign knowledge and expertise will be important in the initial stages at least.

MI: What is the most pressing task that must be accomplish now in order to have the Stock Exchange ready for launch in 2H of 2015?

Priority must be placed on four aspects. The first is enhancing enforcement capac- ity by establishing a financial regulator to supervise the capital market. The second is promoting participation by newly formed se- curities companies. The third is encouraging companies to come to the exchange to raise capital. The fourth is educating the general public about stock investing.

These four components are critical to the success of the Yangon Stock Exchange. The failure of even one of them could mean the failure of the project.

MI: How many companies will be included in the first batch of YSE launch? What are the criteria the local company must fulfill before they can be considered as a target company to be listed in the YSE?

We are targeting around 5 companies in the first 6 month after launching in October 2015.

Basically, the stock exchange is open to any company regardless of its industry and size as long as it meets listing requirements. For the first listing companies, however, as it will determine the future of stock exchange, these companies should be carefully select- ed based on their reputation and potential, sustainability, etc, so that they would attract more investors to participate in the capital market and other small and medium compa- nies would follow after second stage. Import- ant point is that we provide advisory services as a securities company but this is just an assistance to meet the listing requirements. We don’t have any authority to approve the listing. IPO approval will be made by SEC and the stock exchange.

Listing criteria are still under discussion and we hope they will be announced soon by the stock exchange. Under current discussions in JPX, there are two types of requirements, like other stock exchanges have. One is for- mal requirements, which are quantitative criteria such as the number of shareholders and minimum paid-up capital. For most Myanmar companies, these formal require- ments will not be a big issue, since they will be set very low. On the other hand, meeting substantial requirements, which are qualitative criteria, will be challenging for many companies. These include profitability, sus- tainability, corporate governance and capac- ity for timely disclosure.

MI: Is the share purchases and trad- ing restricted to local only? How could foreign investors invest into the listed companies?

This is still under discussion with the gov- ernment, but foreign participation might be difficult in the initial stage. In my opinion, there will be a limit on foreign participation (e.g., 30% initially), with increasing limits as investors become more sophisticated.

MI: Many of the Myanmar are cash rich; however they have limited ac- cess to the world financial market as far as investment is concerned. This was the primary factor for the surge in land prices in Yangon and other developing cities; Will foreign compa- nies be allowed to tap into this group of cash rich individuals and raise fund in Myanmar?

I expect listings of foreign companies will be restricted for the time being.

MI: What are your plans to promote investors’ awareness and education campaign?

We have acknowledged that awareness and education are among the most important factors for the successful development of the capital market and the YSE.

More promotion and education should be done through TV programs, newspapers, magazines, seminars and web sites. We have plans to do so.

MI: How is the process for companies to participate in these capital markets by being brokerage companies, un- derwriters, etc?

Interested companies will be able to apply for a license for their respective business once the rules, regulations and regulatory bodies are established. We expect there to be several types of licenses for brokerage, underwriting, etc. We are not sure at this moment how many securities companies will be permitted and whether or not foreign companies will be allowed to participate in the securities business.

MI: As of skill development, what do you see is still lacking to prepare the readiness of the implementation of YSE? How do you go about solving these concerns?

Skills are lacking in every aspect. There needs to be a plan with clearly defined pri- orities in order to continuously raise the skill level.

Daiwa signed an MOU with MICPA last De- cember to provide capital markets training to Myanmar CPAs. When I initially planned this MOU, my idea was to prioritize CPAs since every company has to assign auditors, and if they have enough knowledge about capital markets and initial public offerings, it will be more efficient and effective than just holding ad-hoc seminars for the general public.

I believe they will be able to contribute sub- stantially to the development of the capital market by sharing their knowledge and ex- pertise.

MI: If anything could be intro- duced by the authorities quickly (for example, over the next 6 months) to improve the readiness of implemen- tation, what measure(s) would you choose to implement?

The most important thing for the Myanmar capital market to achieve sustainable devel- opment is the establishment of a financial regulator with a strong enforcement capac- ity. This should be done very soon.

MI: From a business standpoint, what do you feel are the biggest risk you will face in the next 1-3 years?

A general election will be held in 2015, which is around the time of the opening of the YSE. We hope the government’s strong commit- ment to the capital market will not change.

MI: How do you see YSE comparing with its Asian neighbors in the short and long term future? And what are the pitfalls and lessons that we can learn from the neighboring countries?

I feel optimistic for the future of YSE and hope it will grow much more quickly in the near term than markets in neighboring Asian countries because of the country’s emerging economy along with the wide range of re- forms.

Of course we have to learn from other mar- kets, not only from those in neighboring countries but also from other established markets. NYSE which is considered to be the World’s largest stock exchange has experi- enced many ups and downs during its long history. In Japan, JPX has had similar expe- rience. We have to learn from both good and bad experiences and improve continuously.

MI: What would the messages that you would like to pass to local inves- tors when buying shares of the future Myanmar public listed companies?

Investing is not gambling. Investment puts money to the most promising and produc- tive uses. Investment drives the economy gradually upward. Investors should provide the capital to those companies which need to accomplish their goals. In order to be a good investor, you need some knowledge about valuation and an understanding of compa- nies’ operations and performance.

Lastly, I would say that we have many chal- lenges and so many things to do. We still have a long way to go. But I believe the best days of Myanmar and the best days of Japan will lie before us after 2015 if we determine to go there together.