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CBM updates offshore loan criteria

27 February 2020

The Central Bank of Myanmar (CBM) has updated its criteria for offshore loans, lowering the minimum capital requirements for certain companies to access overseas financing and clarifying debt to equity ratio requirements. However, legal experts argue greater clarification is needed. 

The criteria published on the CBM website makes a clear distinction between Myanmar Investment Commission (MIC) approved companies and non-MIC companies. 

For non-MIC companies the minimum equity capital requirement has been reduced to $50,000 while MIC companies will still need equity capital of $500,000 to secure an offshore loan. 

The change suggests that the CBM is attempting to further liberalise the sector, as the updated criteria will hopefully help non-MIC companies with less capital access offshore loans. 

The update has the potential to affect local banks, as a new  group of companies will be able to access offshore financing, where previously they were forced to borrow locally.

For example, development banks might now have more scope to assist businesses in sectors that have a social impact, and startups will likely have an easier time tapping into more affordable overseas financing.

The announcement also clarifies the required debt to equity ratio, which was previously listed as between 3:1 to 4:1 for all offshore loan applicants. The updated criteria fixes the ratio at 4:1 for MIC approved companies and 3:1 for non-MIC approved companies.

Nishant Choudhary, partner at law firm DFDL, with expertise in banking and finance told Myanmar Financial Services Monitor that the reason behind the changes is “towards general liberalisation efforts by the CBM”, however the criteria “fails on certain fronts”.

Choudhary highlighted that the debt to equity ratio causes “major difficulty for large project companies in sectors like oil and gas, energy, and infrastructure since the debt portion in such companies is much higher as compared to the equity”.

He explained that the previous criterion requiring an 80%  equity commitment for a MIC company remains intact. 

“We were hoping that CBM would further clarify that in the case of a MIC company where the committed capital is based on a timeline, the 80% of capital injection requirement would not apply but the committed capital as per such timeline would be looked into. However, the recent change has failed to address this concern,” he said. 

At present, it is unclear how the changes will work in practice, as they do not reflect the realities of many companies on the ground. Furthermore, the clarifications are not law or sub-regulations and as Choudhary points out, “there have been precedents of deviations”. 

For example, the MFSM has learned that the regulator has given informal feedback to microfinance institutions that the 3:1 debt to equity ratio change for non-MIC approved companies does not apply to MFIs.