Myanmar Investments International Limited

Interim results to 31 March 2021

Myanmar Investments International Limited [AIM: MIL] ("MIL" or the "Company"), the AIM-quoted Myanmar focused investment company, today announces its unaudited interim financial results for the six months to 31 March 2021.

Myanmar

Myanmar is currently in its fifth month of a politically induced crisis after the military took over the government on 1 February 2021. At one level an artificial sense of normalcy has returned to parts of Yangon while at the same time signs of the crisis are everywhere; long queues to withdraw a maximum of USD 120 from ATMs per day, as well as regular daily bombings.

In these five months, over 840 people have died, 4,500 leaders and protestors have been imprisoned and civil liberties curtailed, not to mention internet restrictions. The public has shown its defiance through civil disobedience that has paralyzed, inter alia, the healthcare, banking and education sectors. A parallel shadow government has been formed that is challenging the military installed government and the Ethnic Armed Organizations have increased their skirmishes with the military in the rural areas.

Equally worrying is the recent formation of the Peoples Defense Force at both the national and village level. Daily explosions and killings have become the norm in Yangon and other cities. The opposition is increasingly better armed.

International condemnation and sanctions against the military have been issued but with little effect.

The strong determination of a computer savvy gen Z who have enjoyed a decade of openness and of ethnic groups who sense an opening to push for a long desired federal structure is likely to mean that the current conflict could be protracted.

Throw in a looming financial crisis, a weakening currency and sharp price rises, Fitch Solutions has forecast a 20 per cent decline in GDP in 2021.

This is a potent and combustible mix to which, as of now, there appears to be no resolution in sight and may deteriorate further.

Overview

The Company's shareholders approved a change to the Company's investment objectives at the AGM held on 24 October 2019 and, as a result, the Directors have commenced the process of planning and implementing an orderly disposal of the investment portfolio with the intention of returning surplus cash to shareholders with a view towards an eventual winding down of the business.

As at 31 March 2021 the Company had two investments in Myanmar:

·   an indirect shareholding of 4.1 per cent in AP Towers Holdings Pte. Limited ("AP Towers"), one of Myanmar's leading independent tower companies ("ITC"). This investment will most likely continue to be held until such time as our joint venture partner looks to create an exit opportunity. At this stage, no discussions are underway and there is no defined timeframe for such an exit.

·   a 37.5 per cent shareholding in Myanmar Finance International Limited ("MFIL") a well-established microfinance company. On 1 April 2020, the Company announced that it has accepted an offer to sell its shareholding in MFIL. Due to the outbreak of COVID-19 and the change of government on 1 February 2021 the transaction has not been closed yet. On 26 April 2021, the purchaser's shareholders approved a one-year extension for closing the transaction.

The Directors have determined that MIL's Net Asset Value ("NAV") as at 31 March 2021 was US$28.3 million, or US$0.74 per share.

The valuation of the two investments has been consistent with the methodology of previous years. However, given the uncertainty regarding the political and economic development in Myanmar, the Directors have applied a portfolio discount of 30% to reflect this uncertainty.

The Company has continued to streamline its operations and as a result reduced its overheads. In the period to 31 March 2021, the core cash-based overheads were US$339,000 which is 51.6 per cent lower than for the same period last year.

As at 31 March 2021, the Company had cash resources of US$2.1 million (2020: US$2.8 million).

AP Towers

Background

AP Towers is an independent tower company ("ITC") in Myanmar, managing one of the largest networks of towers in Myanmar. Its wholly owned subsidiaries Apollo Towers and Pan Asia Towers provide tower and power services to Myanmar's mobile network operators ("MNOs").

MIL's 66.6 per cent subsidiary, MIL 4 Limited ("MIL4"), has a shareholding of 6.2 per cent in AP Towers, of which 4.1 per cent is attributable to MIL.

MIL4 sits on the board of AP Towers and contributes to the strategy and growth of the company.

Update

·   The Myanmar telecoms sector has grown rapidly since 2015. Myanmar's mobile penetration rate is estimated to be as high as 107 per cent though this is based on SIM cards and not unique subscribers. Coupled with this is the prevalence of data enabled devices. Smartphones are estimated to account for approximately 80 per cent of the mobile phones in use in the country and data demand drives the need for connectivity. Connectivity requires an extensive network of telecom towers with reliable power. Myanmar currently has 20,000 towers, of which 11,000 are owned by ITCs, and is expected to reach 22,000 towers within the next few years.

·  Apollo Towers and Pan Asian Towers have both built strong reputations in the market for their valuable site locations, operational excellence and strong customer focus. AP Towers will look to leverage the best practices of both companies in providing a full suite of services that are commercially attractive to the customers of both businesses.

·   The Myanmar telecom tower sector, following a period of rapid growth, has continued to slow in the last 18 months in terms of both new towers and new co-locations.

·   Mobile network services in Myanmar have been significantly disrupted since February 2021, primarily as a result of the suspension of data services. APTH and other tower and power providers have also faced difficulties in maintaining the up time of the power services as movement of key suppliers and personnel has been restricted. APTH has focused on maintaining the safety and security of its staff. Whilst the operating environment has been very challenging, APTH has been able to continue to provide a reliable service with high up times, thereby contributing the continued availability of mobile phone services to the population of Myanmar.

·   Contrary to other industries, the telecoms sector has not suffered greatly due to the outbreak of COVID-19.

·   As at 31 March 2021, Apollo Towers and Pan Asia Towers together had an aggregated portfolio of 3,255 towers, 6,668 tenants and a co-location ratio ("Lease-up-Rate" or "LUR") of 2.05x. This compares to an LUR of 2.05x at 30 September 2020.

·   By adding additional tenants to existing towers, the yield on invested capital can significantly improve, making each additional tenant highly accretive in terms of EBITDA and eventually enterprise value. Market analysis for Myanmar points to an expected LUR of 2.2x or higher over the next few years.

·   As of 31 March 2021, AP Towers annualised adjusted "run rate" revenue and EBITDA has increased to US$108.6 million and US$88.9m, respectively. This represents an increase of 3.9 per cent and 6.6 per cent, respectively compared with September 2020.

·   Going forward, AP Towers will be looking to increase the number of tenancies either from new "Build to Suit" towers or from adding co-locations to its existing towers.

·   AP Towers' net debt was US$ 416.8 million as at 31 March 2021, a decrease of US$ 12.5 million since the end of September 2020.

Valuation

Using the same methodology as at 30 September 2020 with updated trading and comparable data and on the basis that the trading environment and outlook is the same as at the time of the 30 September 2020 valuation, the value of this investment would be US$33.8 million, an increase of US$5.5 million compared with the valuation as at 30 September 2020.

This value of AP Towers represents a profit of US$13 million over the cost of the investment and an IRR since the initial investment in July 2015 of 9.0%.

Myanmar Finance International Limited ("MFIL")

Background

MFIL is one of the leading microfinance operators in Myanmar. Through 15 main branches and 3 sub-branches it provides loans of between US$150 and US$5,000 to individuals and small-scale business operators in rural and semi-urban areas in Yangon, Bago, Ayeyarwady and Mon. In October 2020 MFIL was granted a license to operate in the Mandalay region.

MFIL was established as a microfinance joint venture in September 2014 by MIL and Myanmar Finance Company Limited ("MFC"). In November 2015, the Norwegian Investment Fund for Developing Countries ("Norfund"), the Norwegian development finance institution, also became a shareholder such that the shareholdings today are MIL 37.5 per cent, MFC 37.5 per cent and Norfund 25 per cent, with a total paid up capital of over US$7 million. MIL's total investment cost to date is US$2.7 million.

MFIL is a well-established microfinance company that has a positive impact on the lives and economic well-being of its clients.

A representative of MIL sits on the board of MFIL and works closely with the management and shareholders on strategic and restructuring issues.

Update

·   Although COVID-19 and the related lockdown was difficult for the microfinance industry, until February 2021 MFIL was relatively unscathed with Portfolio at Risk over 30 days ("PAR 30+") of around 2%, a growing loan book and operating profits.

·   The current political crisis is having an adverse impact on the country's economy, finances and business landscape.

Fitch Solutions has forecast a 20 percent decline in GDP for 2021. This will impact livelihoods and the earning capacity of MFIL's clients.

·   In addition, sporadic violence in some of the areas that MFIL operates in has affected its clients' mobility and impacted collection. This difficulty was compounded when mobile internet was turned off for 6 weeks as mobile remittance agents were unable to function.

·   The Civil Disobedience Movement that sprung up has led to strikes in many sectors including banking which has nearly paralyzed the country's financial system. Cash shortages and difficulties in making remittances is now a daily struggle for most citizens.

·   Against this background and with no clear indication of how this crisis might be resolved, MFIL has adopted a cautious approach. It has been repositioning its balance sheet into safer assets while also increasing liquidity. MFIL has also reduced operating costs and will be adjusting its product lines. This process is ongoing.

·   MFIL continues to see substantial demand for its products but before it can consider increasing its loan book, it needs stability and it needs to assist clients who are unable to repay their full monthly schedule by giving them appropriate restructuring. MFIL continues to witness clients showing their willingness to repay regularly even though their capacity has diminished and they offer reduced repayments.

·   During the height of the violence in March, MFIL had given approximately two thirds of its clients a 2-month repayment holiday.

·   Foreign lenders to the microfinance industry, primarily DFIs, have indicated their support for the sector and are starting to extend the tenor of their loans to microfinance companies to facilitate liquidity while the inevitable restructuring of clients' loan portfolios take place.

·   In the six months to 31 March 2021, due to the continuing effects of COVID-19 as well as the initial impact from the civil disturbances, MFIL incurred a loss of MMK1.38 billion (US$0.9 million). This was due to additions in loan loss reserves of MMK837 million (US$0.6 million) and having maintained a high liquidity level and therefore having negative net interest margin on the cash holding. MFIL's shareholders' funds at 31 March 2021 was MMK7.0 billion (US$4.8 million)

·   MFIL's current loan book, at the end of May 2021 is MMK19.5 billion (US$12.1 million) (MMK21.66 billion (US$14.7 million) at 31 March 2021). At 30 September 2020 its PAR 30+ was 3.1%. This has increased to 6.6% at 31 March 2021. Given the weak economy and the need to restructure clients, this is expected to increase significantly over the next few months before MFIL will see a reduction.

·   MFIL is a strong and liquid microfinance company, as at the end of May 2021 it had free cash on the balance sheet of over MMK6.3 billion (US$3.9 million). This should allow MFIL to navigate its way through the current crisis.

·   In October 2020, the Financial Regulatory Department (FRD), the microfinance industry's regulatory body, awarded MFIL a license to open branches in Mandalay, Myanmar's second most populous region. However, because of the violence in and around Mandalay, MFIL has not yet started operation.

·   Acquisition of MFIL: COVID-19 related travel difficulties and the current political crisis have made it difficult to carry out the closing audit and to complete the conditions precedent. The purchaser's shareholders at their latest AGM on 26 April 2021 have approved a one-year extension. We have also extended the exclusivity period and continue to update the potential purchaser on events at MFIL and in Myanmar.

We intend to recommence the completion process as soon as it is practical to do so. This may also require additional negotiations on the terms as well as updating the due diligence work as it is over a year since we had agreed terms.

Valuation

As at 30 September 2020 the Directors had assessed the value of the Group's investment in MFIL to be US$4.4 million using the price to book value methodology.

Using the same methodology as at 31 March 2021 the Directors have assessed the value of this investment to be US$3.5 million which is US$0.9 million lower compared with 30 September 2020.

This value of MFIL represents a profit of US$0.8 million over the cost of the investment. This equates to an IRR since the initial investment in September 2014 of 5.2 per cent.

Ad hoc market discount

The change of government has increased the uncertainties and risks of investing in Myanmar which is compounded by the current paucity of information. These risks could include, but not be limited to:

·    reduced investor interest in a trade sale of assets or in an IPO;

·    increased domestic regulatory uncertainties;

·    a material and sustained decline in economic activity impacting investment and consumer demand;

·    severe reduction in liquidity in the financial system;

·    a volatile foreign exchange rate;

·    prolonged political crisis paralyzing the country's administrative capacity;

·    increases in the number of demonstrations, strikes and violence;

·    enhanced COVID-19 risks;

·    potential broader international sanctions.

Given the uncertainties and increased risks the Directors have decided to apply an ad hoc discount of 30% on the company's entire portfolio. This will be reviewed regularly.

The impact on MIL's carrying value of the investments after applying the discount are:

APT:

This discount reduces the value of this investment to US$23.7 million, which is US$4.7 million lower than at September 2020.

This valuation of AP Towers represents a profit of US$2.9 million over the cost of the investment and an IRR since the initial investment in July 2015 of 2.3%.

MFIL:

This discount reduces the value of this investment to US$2.45 million, which is US$1.95 million lower than at September 2020.

This valuation of MFIL represents a loss of US$220,000 over the cost of the investment.

Financial Performance

Unaudited Financial Statements

The unaudited financial statements for the six months to 31 March 2021 are attached at the end of this announcement. They have been prepared in compliance with IFRS.

Profit and Loss

For the six months to 31 March 2021, MIL's unaudited consolidated loss after tax was US$5.3 million, compared with a profit of US$0.86 million in the same period last year.

This is principally represented by:

·   the overheads associated with running the Company's business (US$347,000);

·   the Company's share of MFIL's losses (US$331,000);and

·   the loss on re-evaluation of the investment in AP Towers (US$4,667,000).

Within this the cost of MIL's cash-based overheads (i.e. the joint venture results, and re-evaluation gains) was US$339,000 compared to US$702,000 for the six months to 31 March 2020, a reduction of US$363,000 or 51.6 per cent. On a per share basis this has dropped from 1.84¢ to 0.89¢, a reduction of 51.6 per cent.

Net asset value

The Directors have determined that MIL's Net Asset Value ("NAV") as at 31 March 2021 was US$28.3 million, or US$0.74 per share. This is comprised of:

·   the investment in AP Towers, the telecommunication tower business, of US$23.7 million, excluding the non-controlling interests, determined using a comparable EBITDA multiple methodology and applying a portfolio discount of 30%;

·   the investment in MFIL, the microfinance business, of US$2.45 million, determined using a comparable price to book value methodology and applying a portfolio discount of 30%;

·   cash and other net assets/liabilities of US$2.1 million.

In accordance with the Company's stated policy, the Company's investments have been determined by reference to the prevailing International Private Equity and Venture Capital Guidelines.

Summary of NAV

The NAV valuation of US$28.3 million is a net decrease of US$7 million (19.8 per cent) from US$35.3 million as at 30 September 2020. This is mainly attributable to:

·   the fact that the AP Towers investment, is valued US$4.7 million lower than as at 30 September 2020);

·   the reduction of the valuation of MFIL by US$ 1.9 million compared with September 2020; and

·   overheads and transaction costs of US$0.4 million.

In the attached financial statements, the NAV attributable to shareholders differs from the above stated value of US$28.3 million due to the following adjustment:

Note 1: In accordance with IFRS 11 Joint Arrangements, the investment in MFIL is accounted for as an investment in a joint venture using the equity method. Whereas in accordance with the Group's Valuation Policy the Directors' valuation for MFIL is determined by reference to the International Private Equity and Venture Capital Guidelines.

Working Capital

As of the date of this announcement the Group has adequate financial resources to cover its working capital needs for the next 12 months.

Commenting on the Interim Results, Nick Paris, Managing Director of Myanmar Investments International Limited, said "The last 6 months have been challenging. Not only COVID-19 had an impact on the development in Myanmar but the circumstances got even more difficult after the change of government in February 2021. Nevertheless, we think that we have two healthy investments. The sale of MFIL is still on the way as the purchaser's AGM has approved a one-year extension to close the transaction. The investment in APTH was holding up well. As we have pointed out, we have applied a portfolio discount of 30% on both investments to reflect the uncertainty regarding the development in Myanmar. Our operating costs have been reduced significantly and are kept under constant review to seek to minimise our cash burn in order to return surplus capital to our shareholders."

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

For further information please contact:

For more information about MIL, please visit www.myanmarinvestments.com