YANGON -- In the heart of Yangon, the commercial capital of Myanmar, the former headquarters of Myanmar Railways is surrounded by white steel frames. The historic redbrick building, more than a century old, is being restored and will be the future site of the Peninsula Yangon, a luxury hotel set to open in 2021.
The grand structure sits near the Yangon Central Railway Station on a 4-hectare development called Yoma Central, a commercial complex that will include four modern high-rises, including the hotel. The company spearheading the massive projects is Serge Pun & Associates.
While the conglomerate, known as SPA Group, may not be a familiar name globally, it is known to everyone in Myanmar's business community. It began as a real estate developer, founded by Serge Pun, the group's chairman, in 1991. Today, it operates in six sectors, including food and beverage, financial services and health care.
Serge Pun was born into a Chinese-Burmese family in Myanmar in 1953. Three years after Gen. Ne Win seized power in a coup in 1962 and turned the country into a totalitarian socialist state, 11-year-old Serge and his family left for China, and in 1973, he moved to Hong Kong.
Myanmar's socialist regime collapsed in 1988 amid a pro-democracy movement and several years later, Gen. Saw Maung, the leader of the then-ruling military junta, partially introduced capitalism. Keeping an eye on the changes in the country, Serge, who ran a real estate business in Hong Kong, returned to his country of birth and established SPA Group.
Democratization and economic liberalization -- specifically, the end of military rule and the launch of the democratic government led by State Counsellor, and de facto leader, Aung San Suu Kyi -- have brought an influx of foreign capital and drastic change to Myanmar.
Serge has now shifted his attention from the management of his business empire to contributing to his country. He is working with the chief minister of Yangon Region to help implement a plan to build a new urban center in an area across the Yangon River from central Yangon. He serves as vice chairman and chief executive officer of New Yangon Development Co., the regional government's entity set up to promote the project.
"I took this position because I wanted to serve for the country," Serge said in March at the NYDC launching ceremony, which was held at the Lotte Hotel in Yangon, and drew hundreds of political figures and business executives. He said that the companies within SPA Group would not profit in the construction of the new urban project.
The group's core company, Yoma Strategic Holdings, is listed on the Singapore Exchange, and it has two other listed companies: First Myanmar Investment, which trades on the Yangon Stock Exchange as one of five listed companies, and Memories Group, a tourism spinoff, which also trades in Singapore. Yoma Strategic has a market capitalization of 549 million Singapore dollars ($399 million), while First Myanmar Investment has a market cap of 298 billion kyat ($190 million) and Memories Group with SG$62 million.
The combined revenue of the three listed companies, excluding the banking business, was $105 million in the fiscal year ending March 2018.
SPA's headquarters is about a 20 km drive from central Yangon, resting alongside the Yangon River in a lush green surrounding. The four-story building features glass walls, creating an environment not unlike tech companies' offices in Silicon Valley. It sits next to the vast Pun Hlaing Estate development, with golf courses, high-end condominiums, stand-alone houses and a hospital -- all of which Yoma Strategic and First Myanmar Investment are jointly developing.
Yoma Strategic and First Myanmar Investment together handle a real estate business -- two companies set up in joint ventures under the name Yoma Land. Yoma Strategic separately runs other businesses, including food and beverage, financial services and automobile sales. First Myanmar Investment operates businesses subject to relatively strict regulations, such as hospitals, clinics and banking.
While final decisions at SPA are still made by Serge, his 40-year-old son, Melvyn Pun, will eventually succeed his father, whom Melvyn calls "visionary." Cyrus Pun, Melvyn's younger brother, serves as head of the group's real estate business. While Melvyn concentrates on strategic expansion of the business portfolio, Cyrus takes responsibility for the traditional parts of the group.
"I never expected to come back to Myanmar," Melvyn told the Nikkei Asian Review in an interview at the group's headquarters. Before he joined SPA Group six years ago, he worked at Goldman Sachs for 12 years in Hong Kong, where he was born. He was educated at the University of Cambridge in the U.K., and he rarely speaks Burmese. He also does not wear a longyi, the traditional skirt-like garment for men, and instead usually opts for a Western-style suit for work. "I was very happy as a banker working in a very prestigious" company, he said.
But Melvyn had a change of heart after talking to his father, who wanted him to return to Myanmar. "If you look at current Myanmar people, many of them deserve to be much better [off]," he said. "They deserve a much better education, a much better system and a much better lifestyle or livelihood."
He compared his work in the country to a soccer match, saying that it was more exciting to be playing in the game than sitting in the seats to watch the action. He said he felt that "if I don't come back, it will be a big regret."
Myanmar's economy has seen a jump in growth in recent years. World Bank data show that gross domestic product per capita stood at $139 in 2001, but soared to $988 in 2010 when the first general election in 20 years was held. The latest data put per capita GDP at about $1,300. Disposable income has also increased, signaling that the country's consumer society is poised to expand.
"I think the company has changed a lot," said Melvyn, who doubles as the CEO of Yoma Strategic and director of SPA Group. The biggest change is that the group has shifted its focus to consumer-related businesses from real estate. "When I came back to Myanmar six years ago, [Yoma Strategic] was in a different position. More than 90% of our revenue came from the real estate business," he said.
Yoma Strategic currently earns half of its sales from businesses other than real estate. Both Yoma Strategic and SPA have set their sights on the growing ranks of the middle class. SPA obtained a franchise from U.S. fast-food chain KFC in 2015, and has since opened 24 outlets in Myanmar.
In May, Yoma Strategic announced two expansions in the beverage and food business. It set up a joint venture with Pernod Ricard, the French distillery, to produce and market whiskey. It also announced plans to bring China's popular Little Sheep hot pot restaurant chain to Myanmar. Yoma Strategic aims to have more than six restaurant brands, or more than 125 restaurants, in the next five years.
SPA's other consumer-oriented businesses include mobile money. A joint venture with Telenor Myanmar, the country's second-largest telecom operator, in 2016 introduced a service that allows payments and remittance using mobile phones. "I believe, in the next few years, you will see a sudden shift into digital money, just like we saw in China," Melvyn predicted. Payments using the service are expected to surpass 1 trillion kyat this year.
Meanwhile, the group's real estate business, which has focused on high-end properties for the wealthy and foreigners, is now looking to tap the market for lower-priced properties.
SPA has grown rapidly along with progress in Myanmar's shift to democracy. During the period of military rule, the country's business community was dominated by crony companies close to the junta. Many of those companies were subject to U.S. sanctions for their role in the military regime, but SPA kept its distance and engaged in the development of golf courses and residential areas, targeting consumers -- especially high-income earners.
After military rule ended in 2011 and the road to democracy was clear, the group saw opportunity. It began talks with global companies for potential tie-ups and soon expanded its business portfolio using foreign expertise. Its partners include Japan's Mitsubishi group, with which SPA is developing the Yoma Central complex, and Metro Group, of Germany, operating in food distribution.
"A lot of other businesses [in Myanmar] may be bigger than us, but they are very much relying on the government," Melvyn said, adding that such reliance makes business "a lot less flexible or resilient." SPA's willingness to publicly list three group entities is a somewhat unusual strategy among Myanmar companies. "Why do many of the companies choose us as partner? It is because of the level of its transparency," he said.
The Transparency in Myanmar Enterprises report, which covers 182 companies in Myanmar, has ranked First Myanmar Investment as the most transparent company and SPA Group as the third.
There are, however, signs of trouble for SPA. Amid the real estate investment boom following Myanmar's shift to civilian rule, demand was concentrated on properties offered by the group that supplied difficult-to-get, high-quality housing. In the past couple of years, the group has seen sales slowing partly because rivals have increased the supply of upscale properties.
Furthermore, a cloud is handing over Myanmar's economy. With the country continuing to suffer a trade deficit, the recent strength of the U.S. dollar has pushed down the value of the kyat. The currency recently weakened to 1,550 kyat against the dollar from last year's average of 1,350 kyat, which has pushed up the prices of imports. If companies cut production in response to higher costs for materials, that could have a negative impact on employment and, in turn, consumption.
Yoma Strategic suffered a 6.6% fall in sales for the year ending March 2018 to SG$178 million, the lowest level in four years. A decline in the real estate business has also weighed on the company's earnings. In the April-June quarter of this year, Yoma Strategic reported a net loss of SG$15.9 million because of a SG$11.3 million exchange loss on the weaker kyat. The company's stock price has sunk to SG$0.275 as of Sept. 13, the lowest level since 2012.
"The performances of SPA's banking business and health care business are not in bad shape because they are held up by economic growth, but the property business, which they have large exposure to, is becoming a burden," said Seiichiro Sato, an analyst at Daiwa Institute of Research. "Still, the property market in general can be regarded as overvalued, and a further correction is expected."
Melvyn sees the economy entering a new stage following the country's transition to civilian rule. The first stage took place in 2014, when Myanmar embarked on economic liberalization and the world viewed the country as a last frontier. "Every company from the world wanted to come to Myanmar, and as a result I thought that my job was like a tour guide," he recalled.
The second stage came in 2016-17, when those foreign companies became aware that they had too high expectations for the economy. Foreign investment decelerated, brought on by concerns over the economic policy of the government run by Aung San Suu Kyi's National League for Democracy.
In the current third stage, Melvyn is watching the government's moves on economic policy. The Ministry of Commerce in May eased regulations on foreign investment, allowing foreign companies to hold a 100% stake in a retailer or wholesaler.
"I believe the last two years since the Aung San Suu Kyi government came into power, they were very much focused on political reform as well as the peace process," he said. "But now, as we are two-and-a-half years away from the next elections, there is the recognition that the economy needs to be better and everyone needs to get a better livelihood to get the support from people."
Melvyn believes spending will return if economic conditions improve, and he takes a long-term perspective. "Myanmar will have 30, 40, 50 years of growth. Being the leading player in providing services to the locals, we are proving the brand and we are building economic growth. So, like, we are on the boat: When the tide rises, we want to be growing."