Sunday, 17 January 2010

Mongolia to Establish “National Champions”


Mongolia is seeking to create three national holding companies. Prime Minister Batbold Sukhbaatar has made a number of important policy statements in his recent meetings in Ulaanbaatar with mining industry executives, representatives of the securities market as well as in his interview with the Wall Street Journal. The Mongolian government intends to establish three major state-owned holding companies (which we would call “national champions”) and raise significant amounts of capital by offering their shares in international and domestic stock markets.  Raising billion of dollars through IPOs would allow the mineral-rich nation to finance major mining, energy and infrastructure projects. These three envisioned national holding companies are:

·         Mongol Erdes (Mongolian Minerals) to consolidate mining assets;
·         Mongol Erchim (Mongolian Power) to combine power assets;
·         Mongol Ded Butets (Mongolian Infrastructure) to include various infrastructure projects.

Will Mongol Erdes become crown jewel of Mongolia Inc? Mongol Erdes, the national mining holding company might be established under already existing Erdenes MGL LLC, a 100% state-owned entity. On behalf of the government, Erdenes MGL perhaps through Mongol Erdes may to own stakes in other 14 strategic deposits, including a massive Tavan Talgoi coking coal mine.  Mongol Erdes may possibly emerge as Mongolia’s largest and most valuable company, catapulting into a must-own stock (like Gazprom in Russia) while its planned local listing would be a huge boost for the Mongolia Stock Exchange attracting strong interest both domestic and global investors. 

MSE may be partially sold to major stock exchanges. Prime Minister S. Batbold stated that the government would consider selling 20-30% stake in the Mongolia Stock Exchange (MSE) to one of the major exchanges operating in London, New York, Toronto, Tokyo, Hong Kong or Singapore in a bid to introduce advance operational knowhow and technologies and extensively revamp currently under-resourced domestic bourse.

The Mongolian people to own shares in strategic deposits. The Prime Minister said that the Mongolian people will have the opportunity to participate in growth and upside from development of strategic deposits once the mining company is listed on domestic stock exchange. We believe distribution of shares to Mongolian public (“people’s IPO”) is more effective solution which allows the Mongolians to benefit from mineral wealth in the long term compared earlier proposed inflation-triggering cash handouts.

It seems that public rate highly the Prime Minister’s vision and initiatives in developing the national economy, local capital markets and effectively managing resource wealth; however, it looks like Russian business ecosystem to me. If these initiatives are successfully implemented, these “national champions” would be the main engines of industrialization and economic growth in the coming decade and as public listed companies are poised become one of best investment opportunities in Mongolia.

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