F&N spat with Myanmar partner turning ugly

SINGAPORE - An ugly spat is unfolding between Fraser and Neave (F&N) and a Myanmar state-owned enterprise - at a time when Singapore companies are flocking to the emerging market that is just about to leave its pariah status behind for good.

Myanmar Economic Holdings Limited (MEHL), the joint venture partner of F&N in Myanmar Brewery, yesterday said that it had a "clear right" to buy out the Singapore conglomerate's stake in the beer-making business - which it values at US$246 million - adding that the deal is not political in nature.

The Myanmar military-linked investment firm, which holds 45 per cent of Myanmar Brewery, has commenced arbitration proceedings to claim F&N's 55 per cent stake in the brewery, the company said in a statement yesterday.

F&N has described MEHL's arbitration claims as having no basis, and added that MEHL was also significantly undervaluing the asset. F&N said that it has engaged lawyers and "intends to vigorously resist the claim".

In a circular dated Oct 28, F&N said: "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."

The spat is the first major dispute between a foreign investor and a Myanmar state-owned enterprise since the country embarked on its road to reform after decades of isolation under military rule. The resource-rich nation has drawn many international investors, including big corporations such as Coca-Cola and Unilever.

Myint Aung, MEHL deputy managing director, is contesting various media reports which suggested that the dispute was a test case for Myanmar's investment laws. The case, he said, is not about the investment laws in Myanmar or how foreign investors are treated in the country.

"We believe that allowing parties to exercise their contractual rights, including the right to arbitrate a dispute, will strengthen and not weaken foreign investors' confidence in Myanmar," he said yesterday. "The arbitration speaks for our desire to adhere to proper and due process."

While MEHL did not specify the term in the agreement that it said F&N had defaulted on, BT understands that it is connected to F&N's recent takeover by Thai tycoon Charoen Sirivadhanabhakdi.

Mr Charoen completed his takeover of F&N in February and now holds about 90.3 per cent of F&N shares - 61.7 per cent through privately controlled TCC Assets and 28.6 per cent through listed Thai Beverage Public Co.

There might have been a clause in the agreement that allows either side to buy out its partner if the ownership of the partners changes.

"Change-of-control clauses are quite common in joint venture agreements," said Lo Kim Seng, a director at Stamford Law.

Myanmar Brewery, which sells the Myanmar Beer and Andaman Gold brands, is the country's biggest beer supplier and its top taxpayer. Its 83 per cent market share in Myanmar makes it the leading brewer in the region's fastest growing beer market, F&N has said.

The brewery is F&N's only beer asset after the company sold its stake in Asia-Pacific Breweries (APB) last year to Dutch brewer Heineken.

"If the judgment goes against F&N in any way, it will have an impact on the group's overall profitability with regards to its food and beverage division," DMG & Partners analyst Goh Han Peng said.

F&N does not typically specify how much it makes from Myanmar Brewery. In a report during its recent takeover, F&N's independent financial adviser JP Morgan placed net income for the year ended September 2012 at $52 million for the brewery, based on management guidance.

Given that F&N owns 55 per cent of Myanmar Brewery, this would have contributed about $29 million, or 72 per cent, of F&N's $40 million in net profit from beverages in fiscal 2012.

Based on this, the US$246 million valuation by MEHL works out to around 12 times earnings. "For this kind of market leader, the market value is probably in the range of 20 times," Mr Goh said.

Myanmar Brewery was started in 1995 as a joint venture between APB and the Union of Myanmar Economic Holdings. APB transferred its shareholding to F&N in 1997.

As the unit was incorporated in Myanmar, the agreement between F&N and MEHL will be governed by Myanmar law. Arbitration hearings are likely to be held in Singapore, BT

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