The Central Bank of Myanmar (“CBM”) has made changes to the offshore loan criteria published on its website. For the first time, there has been a clear demarcation outlining the varying requirements between Myanmar Investment Commission (“MIC”) approved companies and non-MIC approved companies.
One strong distinction concerns minimum capital requirements for the purpose of securing offshore loans. For MIC companies, the CBM will review whether the MIC company has equity capital of USD 500,000 or more while for non-MIC companies the equity capital required has been reduced to USD 50,000.
Furthermore, the CBM will verify whether the MIC approved company has injected 80% of its equity capital while approving offshore loans. However, MIC approved companies are permitted, in accordance with the capital injection timetable under its permit, to inject the committed capital in tranches. Consequently, many projects have not injected 80% of the committed capital upfront. Therefore, if an MIC company were to apply for an offshore loan without having injected 80% of the equity, an offshore loan application runs the risk of being rejected, regardless of whether the MIC company has complied with the equity injection timetable. The CBM needs to clarify and state whether offshore loan applicants which have not injected 80% of the committed capital but have complied with the MIC approved timetable would still be eligible to secure offshore loans.
The CBM update also makes a distinction concerning the maximum debt-to-equity ratio, which previously stood at 3:1 to 4:1 for all offshore loan applicants. The updated criteria sets the debt-equity ratio for MIC companies at 4:1, whereas it is 3:1 for non-MIC companies. Again, the CBM has failed to properly take into account that larger projects often have much higher debt-equity ratios. Therefore, larger projects applying for an offshore loan may fail to secure CBM approval based on the 4:1 debt-equity threshold.
While the CBM’s new criteria make a welcome distinction between MIC approved and non-MIC approved companies in terms of their ability to secure offshore loans, much greater clarification is needed. As they currently stand, the criteria do not adequately reflect the practicalities faced by companies and realities on the ground.
The criteria published on the website would normally be published in the Official Gazette to render them legally enforceable. However, this may have not been done due to the CBM wishing to retain flexibility and the ability to carve out rights on setting thresholds without having to amend the notification any further.
The ‘Criteria for Offshore Loans’ are available at: https://www.cbm.gov.mm/content/2066.
The information provided here is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
Contact
Partner & Managing Director, DFDL Myanmar & Singapore
Authors
Partner, Deputy Managing Director and Head of Banking & Finance Practice, DFDL Myanmar
Legal Adviser, DFDL Myanmar
