Trouble ferments in Myanmar over brewery A legal dispute in Myanmar between one of southeast Asia's leading conglomerates and its military-linked local partner is emerging as a crucial test for investment in the country as it opens up after decades of dictatorship. Union of Myanmar Economic Holdings is battling Singapore-based Fraser and Neave, now owned by Thailand's richest man, over the future of their Myanmar Brewery joint venture. IN Personal & Household Goods As a deadline looms next month for oil companies - some with local partners - to submit bids in a big auction for oil exploration and production contracts, the brewery tussle highlights the legal uncertainties facing such ventures. "It's something investors have to watch out for," says a Yangon-based diplomat. People are looking closely at how this case turns out, given the precedent it will set for legal disputes involving foreign companies in Myanmar. The dispute between the Myanmar Brewery partners of almost 20 years surfaced after the takeover of Fraser and Neave this year by companies controlled by Thai billionaire Charoen Sirivadhanabhakdi, owner of Thai Beverage. Fraser and Neave said last month it had received an arbitration claim notice from Myanmar Economic Holdings. Details of the confidential arbitration remain sparse, with Myanmar Economic Holdings declining to comment and Fraser and Neave saying only that it will "vigorously resist" a claim that it says has no basis. But business people in Yangon say the case turns on an assertion by Myanmar Economic Holdings that it should have been given an option to buy Fraser and Neave's 55 per cent stake in Myanmar Brewery before Mr Charoen took control of the Singapore-listed company. The stakes are high: while Myanmar Brewery does not publish separate financial results, it is the country's largest taxpayer and has a formidable market position through sales of brands such as Myanmar Beer, Myanmar Double Strong and Andaman Gold. In an October 2012 offer document sent to Fraser and Neave shareholders, JPMorgan valued the company's stake in Myanmar Brewery at S$211m-S$667m (US$170m-US$537m). Myanmar Brewery is one of a wave of consumer goods companies expected to profit from economic growth in this under-developed nation of 60m people. Groups including Coca-Cola, Nissan and British American Tobacco have already launched or are planning investments, some with local partners and some going solo. Analysts say the brewery dispute, if not handled fairly, could deter foreign companies still considering whether to come to a country that is less than three years into a transition from almost five decades of direct military rule. If you ever get into a legal case, forget it. The best outcome you can hope for is that it never gets decided Diplomat Some observers say that whatever the legal merits of the case, it is a particular warning about the risks of doing business with institutions linked to the country's still-powerful military. Myanmar Economic Holdings and other commercial offshoots of the country's former junta employ many former officers and invest in industries ranging from fisheries to telecoms. But "these organisations are extremely opaque," says a Myanmar-based analyst. It's not like going into business with a normal company. The Myanmar Brewery case also highlights broader worries about launching joint ventures with local partners. These are compulsory in some industries, including for the shallow water oil concessions being offered in next month's auction. It is often "almost impossible" to say conclusively whether local companies are linked to individuals best avoided, says one consultant, in an environment where documentary records are often scarce and business has traditionally been done informally. "The advice from the lawyers here [to foreigners] is: "If you ever get into a legal case, forget it,"" says another diplomat. The best outcome you can hope for is that it never gets decided. While the country's government agreed this year to implement the international New York Convention that allows for arbitration of Myanmar disputes in other more developed legal centres such as Hong Kong and Singapore, this new regime has yet to be fully implemented or tested. Until it is, the contest for Myanmar Brewery is likely to be keenly watched in anticipation of similar conflicts to come. "It's part of being here - high risk, but higher return," says a Yangon-based lawyer. If you sleep with a powerful partner, it's a risk you have to take into account.