Dai-Ichi Kangyp Bank and Burma Law

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>From International Financing Review, September 11th, 1998

ASIA
Myanmar

Loans
DKB loan may lead to US sanctions


Dai-Ichi Kangyo Bank appears to have stepped into a grey area of US
sanctions law by lending to the local partner in a joint venture gas
project in Myanmar. The bank is believed to be subject to the same lending
ban to the country as US banks because of its operations in San Francisco.

DKB lent US$20m at a price of more than 300bp over Libor to Myanmar Oil &
Gas Enterprise, the local sponsor of the Yetagun Gas project in the Andaman
Sea. The foreign sponsors are Premium Oil of the UK, Petronas of Malaysia,
Nippon Oil, and PTT Exploration and Production of Thailand.

Under US Executive Order 13047, US entities are prohibited from
"participation in royalties, earning and profits from the economic
development of resources" in Myanmar. DKB may have transgressed the order's
facilitation clause, which states that US entities cannot facilitate
investment in the country by others. The bank's presence in the US is the
problem area for DKB.

DKB's loan is part of a US$126m nine-year facility, which is believed to be
the only US-dollar fundraising to have emerged from Myanmar this year and
is a huge amount of money for a country whose foreign reserves are believed
to total less than US$100m. The loan is guaranteed by Myanmar's Ministry of
Finance, with additional security over an escrow account in Singapore.

The other lenders to Myanmar Oil & Gas are Mitsubishi Corp (US$49m),
Malaysia Insurance (US$15m) , Itocho Corp (US$15m), Thai Exim Bank (US$15m)
and Nichimen (US$10m). None of these is bound by the US sanctions since
they do not have financial activities in the US.

The revelation about DKB came as the World Bank on September 2 formally
ruled out further lending to Myanmar after it refused to service interest
payments on its US$720m credit line.

The country is believed to be in arrears to the tune of about US$14m.
According to a banker in the country, interest re---payments ceased
following Finance Minister Khin Maung Thein's "disappointment" at being
refused further loans during a meeting with World Bank chiefs last
September in Hong Kong.

Bankers said the World Bank's announcement put paid to any hopes the
country might have of privately raised foreign capital for its projects or
corporates - a market that has, in any case, been almost non-existent.

Growing political objections to Myanmar have precluded most international
banks from lending to the country. Chase Manhattan Sai and Citibank were
forced to pull out of a US$100m one-year loan for Thai company PTT
Exploration & Production pcl in July because funds were to be used for the
construction of a pipeline to Myanmar. Some Singaporean and Malaysian banks
are rumoured to have to Myanmar firms but refused to comment on their
activities.

Banks have also been putt off lending to Myanmar because of massive
differentials between official and black market exchange rates, and lax and
volatile currency control regulations.

"Officially there are six kyat to the dollar, but on the black market you
can get 360-370 kyat," said a banker in the capital Yangon (Rangoon). "Some
days, we can't exchange kyat for dollars; on others we can, and as for the
future, we don't know."

Of greater significance than the impact on lending to Myanmar, say bankers,
was the broader, negative implications for Asia of the country's failure to
service its debts. It is believed to be the first country in the region in
recent years to fail in its obligations to the World Bank, and joins a
rogues' gallery including Iraq, Liberia and Syria, which also have
protracted arrears.

"It's worrying because the assumption with a co-financing structure has
been that people never default on World Bank or World Bank-affiliate
loans," a banker said. "But I suppose [the World Bank] has given the
appropriate response by cutting Myanmar off."