Max Departure Questions Dawei Viability

BMI View: Italian-Thai Development 's US$50bn development is again under increasing pressure as its main local partner, Max Myanmar , has announced its withdrawal. The project has, despite underlying potential, been in limbo since the Myanmar government decided to halt the 4,000MW power plant, and the announcement of the construction of two competing economic hubs elsewhere in the country.

Italian-Thai Development, Thailand's largest construction firm, continues to face headwinds surrounding the much debated Dawei Project; transforming 250 of scrubland in the Taninthary region into southeast Asia's largest industrial complex. In a country where a third of the 60mn population live on less than US$1 a day, Dawei (dubbed the new global gateway of Indo-China) is indeed striking in both its scale and ambition.

Italian-Thai was already struggling to find financial backing for the US$50bn project, planned to include a deep-sea port, steel mills, refineries, a petrochemical complex, and power plants, when the main local partner Max Myanmar recently announced its withdrawal. The news adds doubts as to the viability of the project, having already faced multiple setbacks following its launch in 2010.

Firstly, supplying a stable source of electricity remains a key issue since the Myanmar government suddenly halted the construction of the planned 4,000MW coal-fired power plant in January 2012, citing environmental concerns. Then, shortly after, the Myanmar Energy Minister announced that two other 'special economic zones' would be developed more quickly than Dawei: the Thilawa project near the commercial capital Yangon, and in Kyaukpy, where the China-Myanmar pipeline starts and a deep sea port is nearly finished.

Hence, with Max pulling out (currently owning 25%), several projects yet to generate income, and mounting expenses and administrative costs, we are likely to see increased pressure on Italian-Thai's result. In fact, during the past 12 months Italian-Thai's stock has lost 30%, compared with a 10% rise in the main Thai index.

Under Pressure
Thai-Development Share Price Movement vs Thai Index

However, the government of Thailand remains steadfast in its support. In May 2012, it approved a budget of THB33bn (US$1bn) for new infrastructure located in the west of the country that could then provide links with the broader area of Dawei. And the project certainly has potential, especially with regards to its location. As a maritime hub it could create an alternative gateway for nearby regions (i.e. Laos, Cambodia, Thailand, Vietnam, and South China) to transport their goods to the West in a shorter timeframe, and also bypassing the congested Malacca Straits completely.

This article is tagged to:
Sector: Infrastructure
Geography: Myanmar

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