Arbitration has begun over Fraser and Neave's (F&N) stake in a Myanmar brewer seen by many as the crown jewel in its drinks business.
Its joint venture partner, Myanma Economic Holdings (MEHL), wants to take over F&N's 55 per cent stake in Myanmar Brewery, which makes the country's popular Myanmar Beer.
MEHL, which holds the remaining 45 per cent, said in a statement that F&N has defaulted on a term in the joint venture agreement, giving it a "clear right" to buy F&N's stake.
Neither party has identified the alleged breach but market rumours say it could be linked to the takeover of F&N by parties linked to Thai tycoon Charoen Sirivadhanabhakdi earlier this year.
Many joint venture agreements have clauses that allow for one party to buy the other out if there is a change in ownership of the joint venture partner.
The F&N arbitration will be under Myanmar law although the hearings can be held elsewhere, such as in Singapore.
"We exercised our rights in April this year and we are now going to arbitration after months of failing to resolve the situation bilaterally," said MEHL deputy managing director Myint Aung in the statement.
Property and drinks conglomerate F&N did not comment by last night but it had said in an August stock exchange announcement that there is no basis for MEHL's claim, which it "intends to vigorously resist".
Myanmar Brewery was set up in 1995 by MEHL, which invests money for Myanmar's armed forces personnel and veterans, and Dutch brewer Heineken, which invested through Asia Pacific Breweries (APB).
APB transferred its shareholding to F&N in 1997. At that time, APB had been jointly held by F&N and Heineken.
The transfer of the stake to an entity not part-owned by Heineken followed the imposition of United States trade sanctions on Myanmar.
MEHL has valued F&N's 55 per cent brewery stake at US$246 million (S$306 million), F&N disclosed in a recent document.
"Without prejudice to its position that MEHL has no basis to give the notice or make the claim, the company also does not agree with the propriety or process of the valuation or the amount and has communicated that to MEHL," F&N added.
Since the dispute was brought to light by F&N's stock exchange announcements, various international media reports have suggested that it was a test case for Myanmar's investment laws and that foreign investors should be concerned with the development.
But MEHL said in the statement that this case is not about the investment laws in Myanmar or how foreign investors are treated in the country.
"We know it will serve the interest of some parties to politicise the dispute but doing so does no justice to the case or to anyone interested in investing in Myanmar," said Mr Myint Aung.
"The fact is that we have a joint venture agreement that protects our rights in the event of a default by F&N. The arbitration speaks for our desire to adhere to proper and due process."
He said that allowing parties to exercise their contractual rights, including the right to arbitrate a dispute, will strengthen and not weaken foreign investor confidence in Myanmar.
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