Exim Seeks Clout in Myanmar as China Pours Cash: Corporate IndiaAnurag Joshi
Myanmar, called Asia’s “next economic frontier” by the International Monetary Fund, is the new battleground for Indian companies seeking to wrest business from Chinese firms.
Export-Import Bank of India, the state-controlled trade financing institution, has pledged $800 million in Myanmar, which includes funds to upgrade the Yangon-Mandalay railway and a plant for Tata Motors Ltd. to assemble vehicles in the Southeast Asian nation, Executive Director David Rasquinha said. China, which has beaten Indian companies in the race to invest in energy assets from Kazakhstan to Venezuela, has agreed to lend more than $2.4 billion in Myanmar.
Exim Bank of India faces an uneven contest as China Development Bank Corp., which has a loan book more than three times the size of the World Bank, and the Export-Import Bank of China offer cheap loans to snare business. The Indian lender plans to sign credit agreements of as much as $500 million by next month to participate in an economy that the IMF forecasts will expand 7 percent over the next five years.
“We shouldn’t get pessimistic because competition is there,” Rasquinha said in an interview in Mumbai. “We should be seeing the size of the pie and fighting smart.”
State-run Chinese companies have spent $19.5 billion this year acquiring energy and resources assets overseas versus India’s single $2.5 billion investment by Oil & Natural Gas Corp.
China Development Bank signed a $2.4 billion loan agreement with Myanmar’s Foreign Investment Bank in 2010, according to Myanmar Times, to help fund a natural gas pipeline between the two countries. In May 2011, the bank agreed to provide Myanmar’s Ministry of Taxation and Finance with a 540 million euro ($718 million) line of credit during a meeting between Myanmar President Thein Sein and former Chinese President Hu Jintao.
Yields on Mumbai-based Exim Bank’s 4 percent dollar-denominated notes maturing January 2023 fell 16 basis points, the most in more than two weeks, to 5.27 percent today, according to Royal Bank of Scotland Group Plc prices.
Exim Bank has been focusing on Africa. About 60 percent of the Indian lender’s lines of credit are for countries in the continent, Rasquinha said. Export-Import Bank has so far signed 172 lines of credit with commitments of about $10.5 billion, covering 75 nations, he said. That compares with a $219 billion loan book at Exim Bank of China.
Indian Exim Bank in part helped boost India’s trade with Africa, according to a report by the lender. The South Asian nation was Africa’s fourth-largest trading partner as of 2011, with $63 billion trade. That compares with business valued at $5.2 billion in 2001, the lender’s data show.
“No single country and no matter whichever country, can provide that kind of funds to Africa,” Rasquinha said. “The pie is so big that there is room for all of us.”
Rasquinha cites a World Bank study that Africa needs about $50 billion every year for developing its infrastructure. Export-Import Bank signed a $216 million of lines of credit with Mozambique this month, according to a statement on the lender’s website.
The lender expects to mirror some of its African success in Myanmar. Exim Bank is trying to “excite” Indian companies to conduct business in Myanmar, Rasquinha said. The lender charges a floating 50 basis point over the London interbank offered rate to a fixed 2 percent on overseas lines of credit, Rasquinha said.
India in 2010 approved plans by state-owned ONGC and GAIL India Ltd. to invest a combined $1.3 billion in natural gas projects in Myanmar. Larsen & Toubro Ltd., India’s biggest engineering company, is “discussing about some things but they are at a very initial stage,” Chief Financial Officer R. Shankar Raman said.
Bharti Airtel Ltd., India’s biggest mobile carrier, was among companies that had bid for a telecom license in Myanmar, the nation’s selection committee said on its website in April. Norway’s Telenor ASA and Ooredoo QSC of Qatar won licenses to expand telecommunications in Myanmar, one of the world’s last remaining untapped markets where only about one in 10 people has a mobile phone.
U.S. President Barack Obama in July 2012 authorized the nation’s companies to invest in Myanmar after President Thein Sein started a democratic process that saw opposition leader Aung San Suu Kyi elected to parliament following years of house arrest and prompted visits by U.K. Prime Minister David Cameron and India’s Manmohan Singh.
Myanmar needs $650 billion of investments by 2030 to support an 8 percent gross domestic product growth potential, according to McKinsey Global Institute, the research unit of McKinsey & Co. Global companies wanting to do business in Myanmar, that seeks to emerge from 50 years of economic and political isolation, will need to deal with the military’s pace of opening the country and corruption in one of Asia’s poorest countries.
The Southeast Asian nation, that shares borders with India and China, is ranked No. 172 of 176 in Transparency International’s 2012 corruption perception index.
Myanmar’s liberalization may reduce the nation’s dependence on China, according to Olivia Boyd, a Beijing-based energy analyst at IHS Global Insight. She cited opposition from local residents against Wanbao Mining Co.’s Latpadaung copper mine as an example.
“Myanmar’s dependence on China is lessening,” Boyd said. “Chinese companies wield less bargaining power, meaning that Chinese companies may face further contract revision of this sort in the future.”
Indian companies may be able to tap part of the business if they take a long-term view, said Rasquinha.
“The pie is so big that there’s room for all of us,” he said. “China has large large amounts of money available and can lend at very low rates, but they can’t finance every single project.”