DFDL Myanmar Alert: Non-Banking Financial Institutions Require CBM Approval to Issue Subordinated Debt

CBM Approval Required
On 15 December 2023, the Central Bank of Myanmar (“CBM”) issued a directive to all licensed non-banking financial institutions (“NBFIs”) regarding the issuance of subordinated debts by NBFIs (“Directive”).
Although not specifically defined in this Directive, a subordinated debt is typically an unsecured debt that ranks below other senior secured debts with respect to claims on the assets of a borrower. NBFIs intending to issue subordinated debts must apply to and obtain prior approval from the CBM. The Directive comes into force on and from the date of its issuance.


Application Package
The Directive lists the information that an NBFI must submit to CBM as part of its application. Some of the key information includes the following:
(a) comprehensive terms and conditions regarding the debt issuance,
(b) finalized debt information summary and draft agreement,
(c) incorporation documents of the company intending to invest in the subordinated debts along with any additional documents requested by the CBM if necessary, and
(d) if applicable, a disclosure regarding the issue of the subordinated debt to another financial institution.

Mandatory Terms and Conditions of Subordinated Debt
The Directive also lists the terms and conditions regarding the issue of subordinated debts. Some of those terms and conditions include the following:
(a) transaction must involve legal entities established in accordance with relevant domestic and foreign company laws,
(b) the subordinated debts should not be issued directly or indirectly to the public,
(c) the subordinated debts should be issued to entities that are affiliated to the NBFIs,
(d) the value of the subordinated debts must not exceed 50% of the equity of the NBFI, and
(e) the subordinated debts should be issued within one (1) year after CBM issues the approval letter.