SIM Report: Foreign firms face elevated political risks impeding withdrawal of operations from Myanmar

MYANMAR: Foreign firms face elevated political risks impeding withdrawal of operations

The military junta has denied an unnamed senior executive from state-owned multinational telecommunications firm Telenor departure from the country, according to a report by Norwegian government-owned media organisation NRK on 23 February. The executive’s family is in Norway, and he has not been outside of Myanmar for more than a year. Telenor CEO Sigve Brekke said that the company’s management is in daily contact with him to remedy the situation as best as possible. Norwegian authorities are also involved in the case. Following the 1 February 2021 military coup d’état, Telenor sold its mobile operations in Myanmar to the Lebanese investment company M1 Group (‘M1’).

The Norway-based firm was one of many foreign businesses that have divested from Myanmar since the junta takeover, which has triggered mass protests, as well as armed confrontations between the Myanmar military and forces affiliated with the National Unity Government (NUG). The NUG is Myanmar’s government in exile. Seven months after the sale, however, Telenor has yet to obtain approval for the transaction. The telecommunications ministry is pressuring Telenor to find a new Myanmar-controlled buyer, and campaigners are criticising Telenor for failing to mitigate possible human rights risks associated with a sale to M1. Telenor responded that its decision to sell followed pressure from the junta to install surveillance technology, which the company said would have breached EU and Norwegian sanctions against Myanmar. Overall, the case of the stranded Telenor executive suggests that the junta is resorting to tactics akin to hostage-taking to force companies into sales agreements working in its favour.

Meanwhile, Japanese beverage company Kirin Holdings on 21 February said that its military-linked partner Myanmar Economic Holdings Public Company Limited (MEHPCL) on 27 January filed a new petition to a Yangon court to liquidate their joint venture. The petition came a day after the same court dismissed a similar petition. Kirin has been in a dispute with MEHPCL on how to dissolve their joint venture since the Japanese firm decided to withdraw from Myanmar over the coup. Telenor and Kirin’s situations suggest likely heightened confiscation, expropriation, nationalisation, and deprivation (CEND) risks in Myanmar in the long-term forecast (12 months+). Myanmar authorities are likely attempting to impede sanctions-induced investment outflows as a way of reducing economic damage inflicted on the country due to the ongoing conflict and the COVID-19 pandemic.

Indeed, international firms from countries such as Japan, South Korea, and Singapore are facing challenges in divesting from Myanmar despite reputational hazards, possible exposure to sanctions violations, and potential severance of links with international fund portfolios. Despite pledges from Kirin and South Korean steelmaker POSCO to extricate themselves from Myanmar, Dutch pension fund APG, for instance, threatened to divest from both firms if they did not make meaningful progress by early 2022. Furthermore, blocking of withdrawal from the country as a prelude for nationalisation of foreign-owned assets cannot be ruled out at this juncture. While the Myanmar Investment Law (MIL) ostensibly provides guarantees against expropriation and nationalisation, there are exceptions included in the law, such as for public interest. Additionally, the MIL could be subject to amendments. Overall, CEND risks will probably increase as Myanmar’s economic outlook continues to worsen.

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