Aug 30, 2013

Fraser and Neave Myanmar Brewery Dispute and the Business of the Golden Liquid

Fraser and Neave's joint venture partner in Myanmar Brewery Limited (MBL) has expressed an intention to stake a claim on F&N's shares in MBL. The partner, Myanma Economic Holdings Limited (MEHL) is run by the ruling military has begun a move to force the sale of F&N's ownership stake of 55% in MBL. While the price has yet to be determined, it may come as no surprise if the stake is sold at an unfair price.

While F&N has engaged lawyers to resist the claim and assess the financial impact of the dispute, I am very pessimistic on the effectiveness of lawyers in such a David and Goliath scenario.

It is very sad that such an ugly event has appeared at this juncture. It is a good warning to all who are still blinded by potential prosperity and riches that Myanmar is still a long way off from building an adequate legal structure to protect shareholders and businesses. I believe as of today the military still speaks the loudest in any issue of arbitration.

Points to note from my analysis

1. Fraser and Neave
In the short term, the loss of MBL will have a limited impact on F&N as it is still a small portion of their business. Yet, it has the most potential and is the fastest growing subsidiary and in the fastest growing market for F&N. In the long term, F&N will be left out cold from a possibly valuable business.

2. Thai Bev
Our favorite elephant beer, has earlier in the year, won approval to produce Chang Beer in Myanmar. Thai Bev owns 51% in its Myanmar operations and will be able to brew Chang beer in Yangon, Mandalay and Shan State.
Beer is a good prospect in Myanmar, with good domestic demand, coupled with tight regulations that prevent the import of beer. Which is no surprise why the Myanmar government is so interested to have its hand in the lucrative pie. An application by San Miguel of the Philippines had been rejected.

I have low expectations of international wrangling by Singaporean companies who seem easily out-muscled when swimming in the sea. I believe the Thai's are better at handling such tricky manoeuvres.

Restrictive policies on the import of beer and alcohol in Myanmar has fueled the black market trade. For fiscal year 2013, up to 10 million cans of Chang Beer will have been imported into Myanmar via the black market. Chang Beer is the top brand with more than 50% market share and such imports are expected to rise 20% a year.

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