Minimizing risk on a Myanmar pharmaceutical manufacturing investment
Background: Tractus was asked to assist with a Myanmar pharmaceutical investment by a large international pharmaceutical manufacturing and trading company that had been in joint venture talks for more than a year with a local manufacturing party. The company came to Tractus in the midst of a growth by acquisition period including major M&A activity across Asia.
Project: Rules and regulations governing foreign investment in Myanmar require joint venture participation for a large number of industries. These restrictions on the 100 percent foreign ownership of certain investments in Myanmar mean that foreign companies considering investment in sectors of the Myanmar economy including manufacturing and packaging must take a local partner.
In the first month, Tractus undertook a regulatory review of the options for 100 percent foreign ownership of the client’s proposed investment and worked with voting members of the Myanmar Investment Commission (MIC) to confirm exemptions to local ownership requirements under rules governing the manufacture of pharmaceutical products and classification of packaging activities. Tractus was able to support its negotiations with the Myanmar government by undertaking a preliminary economic impact assessment, evaluating the direct and indirect employment impact and new tax revenue generation potential represented by the production and sales forecast of the client.
In the subsequent months, Tractus conducted reputation and integrity due diligence through its business intelligence network in Myanmar, identifying potential legal, compliance and reputation risks posed by the client’s potential partner. Based on a risk probability Decision Tree analysis model, Tractus worked with its client to reach a decision on and terminate joint venture talks amicably and establish a strategy for going ahead as a 100 percent foreign owned investment.
Tractus began an industrial site selection process identifying 26 industrial sites and short listing 3 based on critical location factors and in parallel discussions with the Myanmar Japan Thilawa Development Co. responsible for the Thilawa Special Economic Zone (SEZ). Based on tax and duty exemptions, industrial property leasing costs and industrial site selection criteria, Tractus built comparative cash flow models assessing the SEZ and non-SEZ location options on an investment performance basis.
Solution: The ultimate result was a 24% improvement on the Net Present Value of the client’s proposed manufacturing investment, exemptions on local ownership requirements and the elimination or mitigation of reputation, legal and compliance risks.
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