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Wednesday, July 6, 2011

Mongolia Briefing is a magazine and daily news service about doing business in Mongolia. We cover topics relating to the Mongolian economy, the market in Mongolia, foreign direct investment and Mongolian law and tax. It is written in-house by the foreign investment professionals at Dezan Shira & Associates

Mongolia’s Tavan Tolgoi to be Listed Ahead of Parliamentary Elections

Jan. 30 – The government is looking to launch an initial public offering of Erdenes Tavan Tolgoi ahead of parliamentary elections in June, while experts have warned that the coal deposit will raise much less than expected if listed in a hurry.

“We are trying to go for the IPO before the elections,” a senior Mongolian government official said, adding that a ministerial reshuffle is likely to occur this week, after which a task force would be set up to look into the IPO process.

The world’s largest coking-coal deposit of Tavan Tolgoi, located in the South Gobi Desert near China’s northern border, is still in its developing stages. Last year, it produced its first million tons of coal from deposits at Tsankhi. According to estimations, Tavan Tolgoi can produce 15 million tons of coal each year at full production capacity.

“The company is focused on listing in London, which is a resource hub and also has close links with the Mongolian exchange,” one of the people familiar with the situation said. “What’s difficult is getting a primary listing in London, which is only possible for U.K.-domiciled firms, but can’t be done by the June time frame.”

Erdenes Tavan Tolgoi plans to list in London by issuing global depositary receipts, which are easier to get approval for, but tend to have lower liquidity than primary shares.

The government plans to sell as much as a 30 percent stake in Erdenes Tavan Tolgoi to international investors as well as another 10 percent to local companies. It also plans to give 10 percent to Mongolian citizens and the government would hold about 50 percent.

National shares of Erdenes Tavan Tolgoi have already been distributed to every Mongolian born before March 31, 2011, making Mongolia a nation of shareholders. Citizens of Mongolia own 20 percent of the company since then.

Mongolian politicians are attempting to acquire large sums of money in a short time, as the 2012 elections are looming. In order to meet promises made to voters, politicians are trying to release the IPO before the elections.

“Rushing the IPO of the eastern part of Tsankhi due to political reasons will take its total value down by US$5 – US$6 billion. On the other hand, if the IPO is postponed until next year, this value could be US$9 – US$10 billion,” Masa Igata, CEO of Frontier Securities said in an interview to the Mongolian daily Unuudur.

“This is the first time that one of our own strategic mines is going to be valued on the global market, and we should not be rushed on anything,” said B.Bold, member of the board of directors of the Mongolian Stock Exchange, in a recent interview with the Mongolian Mining Journal.

Goldman Sachs, Deutsche Bank, BNP Paribas and Macquarie Group are handling the Tavan Tolgoi IPO.

Mongolian coal is the cheapest coal supplied to China. In 2010, the average price of Mongolian coal was US$52.7 per ton, while Chinese domestic price was US$83-US$166 per ton.

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