Dear Shareholders,
We are writing this letter to state our position in regard to our joint venture in Yangon Can Manufacturing (“YCM”).
Loi Hein has bottled the Shark energy drink under the license of Osotspa Co. Ltd since 1996. In these 20 years, Loi Hein has gradually increased the market share of Shark energy drink in Myanmar under this bottling license granted by Osotspa. In 2019 Osotspa decided to retract the license and enter the Myanmar market by investing in their own production facility. When Osostpa opened their production facility in 2020, their management has decided to use steel cans produced by another supplier.
We have made our best efforts to persuade the management of Osotspa to continue using the steel cans produced by YCM. Although they have not rejected the proposal, they cite the high and uncompetitive pricing when negotiating directly with YCM. Furthermore, because of the Covid-19 pandemic the sales volume of energy drinks has drastically declined in 2020. Therefore, they currently have overstock supply of empty steel cans.
Loi Hein does not control or have influence over Osotspa’s decision to retract the Shark energy drink bottling license and enter the Myanmar market. We also do not control or have influence over their management’s decision to purchase steel cans from another supplier. We fully acknowledge that these circumstances have significantly impacted the business and financial condition of our joint venture. However, the material change to our joint venture’s business and financial condition are at no-fault of Loi Hein. Loi Hein has loyally purchased the steel cans from Yangon Can Manufacturing, and previously from Bangkok Can Manufacturing (“BCM”) for over twenty years.
Under the Partnership Act, we have a joint responsibility to share in the risk in the event of a significant change in the market demand or business environment when forming a joint venture or partnership. In light of our situation, our JV company should seek out new customers, markets, solutions, or opportunities to mitigate the loss from the change in business or market. The law requires that Partners in a Partnership be bound to carry on the business of the venture to the greatest common advantage. Further, a partner has authority, in an emergency, to do all such acts for the purpose of protecting the venture from loss as would be done by a person of ordinary prudence. Accordingly, Loi Hein has already acted in good faith by making a great effort to find new business opportunities in Myanmar using the steel cans produced by YCM. We have already arranged the machinery and facilities for new production, and we have prepared a new brand for market. However, due to the severe outbreak and lockdowns caused by the Covid-19 pandemic, we are unable to start until movement restriction are eased.
We strongly refute any claim that Loi Hein is liable for compensation because of the JV’s loss of business. Loi Hein, has at all time, acted in good faith towards the joint venture. Under Section 56 of the Myanmar Contract Act, a contract requiring an act to be performed, which after the contract is made, becomes impossible because of some unpreventable event, is void. Therefore, no partner should be liable for Compensation for loss through non-performance of an act known to be impossible. Accordingly, we note the clause in our Joint Venture agreement that address situations caused by “Force Majeure events” such as a “pandemic”.
We also note the clause in our agreement that addresses and accommodates for situations that cause a “material change to the either party’s management, ownership, control, or financial condition”. Furthermore, in our in-person talks with Toyo Seikan representatives over the years, it has always been represented and communicated that annual purchase volume of steel cans was based on market demand and business conditions, and can be adjusted each year by bilateral discussion.
In summary, I would like to state our continued support and commitment to the Yangon Can Manufacturing joint venture. In spirit of good partnership, I advise we continue to work together to find a solution to the difficult situation that our joint venture faces. From our side, we will continue to work diligently to ensure we can start a new drink product in 2021 using the steel can produced by YCM. Thank you for your attention.
Best Regards,
Loi Hein Company
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