I studied political philosophy in college at the London School of Economics. I have experience in trust banking. I have been published in the UB Post, Forbes Asia, and on Seeking Alpha. Frontier and emerging markets research and writing is my work. Sri Lanka and Mongolia are the primary focus of... More
This blog is about investing-related news from Mongolia. New posts appear in the comments at the bottom of this web page. This blog was once a weekly round-up of such news (hence, the name), but is now updated with germane news as it happens.
The rest of this space provides links to other resources pages on Mongolia, and provides my updated full disclosures on my Mongolia investments and relationships.
Disclosures: I am long Mongolia Growth Group (MNGGF.PK), Mongolian Mining Corporation (MOGLF.PK), and Voyager Resources (VOYRF.PK) as well as investments on the Mongolia Stock Exchange.
I have two active brokerage accounts open in Mongolia to invest in the Mongolia Stock Exchange. They are with BDSec and Eurasia Capital.
Additionally, I have a regular exchange of information (though no accounts) with the following brokerages in Mongolia: National Securities and ResCap. At last count there are 88 brokerages open in Mongolia (April 2012), up from 49 in July 2011. Brokerage accounts are in a transitional period with the regulations of Mongolian SCHCD, MSE, and FRC, all being changed for the better.
While investments on the Mongolia Stock Exchange is, for now, a topic beyond the scope of this news blog, in the spirit of full disclosure, I currently own the following companies traded on the Mongolia Stock Exchange: APU, Baganuur, Remicon, Sharyn Gol, Shivee Ovoo, Tavan Tolgoi (aka little TT).
I do not live in Mongolia. I have spent time there: September 10 to 23, 2011 February 7 to 25, 2012
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I would not like to show off but I have to share an experience about a MSE listed stock that is I think quite typical.
After investing on MSE listed stocks for already 9 months, last year I went for the first time to visit some companies. The list was a combination of my ideas, my broker’s ideas as well as his colleagues and some random factors.
We went to visit a company where my broker has booked a low profile (I did not want to raise expectations nor waste time of a senior executive) meeting with somebody in middle management. As we were waiting in a meeting room next to the CEO’s office for 15mn, the CEO asked what we were doing here and invited us in his office. A member of the board (as well as the holding company) joined in as he was around.
I explained I have been buying his stock for 9 months without really knowing what I was buying, just on the basis on the sector, critical for the Mongolian supply chain. He had a great laugh and the meeting turn very relax and friendly. He was wondering how I could have been so patient buying his stock while the free float is very very small, really!
The CEO explained their business and then offered us a tour of the facilities. Engineer by training (turned investment banker) I was able to appreciate the technical explanations. The facilities were impressive, the CEO was good, very good. Reacting as an investment banker, I thought he would do so well in a road show promoting his company for a placement. Both slick and knowledgeable, welcoming and answering questions.
Realizing I was a retired investment banker, he was also curious about ideas, a bit outside the box, I was bouncing. He offered that for my next trip to UB he would introduce me to the owner of the group.
As the annual results were not yet public, I did not even bother asking about numbers.
Also very transparent, he told us that ALL their production was sold to the holding company, exclusive distributor. At this point a normal investor would have just run away assuming that a good chunk of the margin would be captured by the private holding company, not the listed entity. As a perfectly paranoid control freak having done business in Indonesia that was crossing my mind.
I don’t know if they did or did not do that before and I DON’T CARE. What I understood is that with such an impressive executive in charge and such a facility, those guys were not kidding. I imagined that if the owner had the choice between 90% (for instance) of the current firm or 60% of a firm 10 times bigger he would easily go for the second alternative, and to achieve that, the business organization would have to converge toward normal standards, the past, whatever it was, being only the past, sunk costs.
So I went back home and bought more shares with the view that 5-10 years from now this would be a superb company while 2011 financials were not exactly stellar, rather poor.
A year after, the 2012 numbers ARE VERY GOOD with earnings growth being a large multiple of +100% and now its PER does not look unusual. So obviously all the profit margins from the listed company were not squeezed by the holding company! Common sense turning into reality. My reading seemed correct.
Another good year like that leveraging the boom and I am pretty much sure it will pop up on most radar screens, may be the company could raise equity to grow and… increase its float.
My point is that there are MANY MSE listed companies like this one, below radar screen, where investors could question, rightly or wrongly, corporate governance practices, unsophistication…
But what does matter is the TREND, not the absolute level where they are! Are they going in the right direction offering those patient enough to dig for information, MSE website or on the ground visits, with a bit of common sense, imagine how they can benefit if the GDP is multiplied by 2,3,5…who knows… great opportunities to pick potential winners.
Of course the most difficult part is …accumulating shares on MSE…which requires serious patience as average ticket size is very low (to the best of my knowledge there is NO Mongolian fund investing ONLY on MSE listed stocks), but there is no free lunch in that world so at this point it’s D.I.Y. with bold patience.
Investors have to view MSE listed stocks not as stocks expecting normal performance but like perpetual call options on the GDP of Mongolia for the next 5-10 years aiming for x10 or x20 the “premium” paid.
As of course Efficient Market Hypothesis does not apply for now, and picking THE winner is mission impossible, a good solution is to pile in as many options as possible so that the ones that pay x5, x10, x20, x100… will offset the ones going bankrupt.
By the way, for now those numbers are not coming from another planet. The case study is Silikat (SIL). Imagine that in 2010 you bought ONE share at MNT 458 (average) and did not do anything else, being diluted by the equity raising (and split post reval), then one year after, in MNT you are up x90. It’s real. Check the MSE website.
There are gems there but they don't always look very shiny.
That is an interesting point of view, MSE. I'll keep that in mind when I study the possibilities. Even the foreign companies during business in Mongolia have some good stories, too, so I can well imagine the native ones have plenty of good stories. http://bit.ly/Z63VgW
And I don't read nor speak Mongolian! So I imagine that for somebody who does, it's even easier to find gems on the MSE.
The good news, for now, is that they are small, overlooked, well below the radar screens of fund managers and as we know, thanks to the new Escrow Account system, a lot of foreign investors are grounded so it is still possible for patient guys to accumulate those (better have long list and grab what's falling).
Also those are not START-UP with all kind of IF, BUT, MAY BE, SUBJECT TO...they are existing companies with staff that operate as usual and are nicely adapting to the new situation, starting by posting their 2012 financials on MSE website much faster than before.
MSE you have the experience and resources to go looking for gems, it is interesting how you seem to be looking for small existing companies not necessarily involved in mining. Did you subscribe to the Chinggis bond, and are you buying MMC? I don't understand the machinations of your world but it seems to me that MMC is listed offshore and seems to have the nod in swallowing ETT along with any bond funded infrastructure. I was told recently by an extremely well connected person that the foreigners will soon be gone and it will be a small glitch in Mongolia's history. The Od couple seem to be untouchable as Mongolia's richest they move effortlessly through the politics to get what they want. The glass monstrosity next to the old Cultural Palace is a great example. It was former park land and was refused building permission until MCS made Enkhbayar a silent partner. Now it houses their Chinese partners interests Robert Kuok.
Chinggis Bond: no I did not and will not buy any bond issued by Mongolia (or anybody else) that is denominated in US$, or in any currency somebody is printing at will. I avoid US$ as much as possible.
I bought MNT denominated Mongolian government bonds end of 2011, including some 5 years. (also bought Just Agro LLC “meat bonds”). Honestly if Mongolia was issuing 10-15 years bonds denominated in MNT I would buy some because I have no doubt in the long term for MNT, whatever hiccups at GOM level in the short term.
HOWEVER, those returns are much smaller than what I expect buying MSE listed stocks. Those bonds are in the “safe part” of the portfolio together with IDR and MYR time deposits.
Mines, listed overseas or on MSE: When I started investing in Mongolia in 2011, I did not dare touching the mines for several reasons: • Their profitability is linked to the price of commodities so I want to bet on the price of commodities, up or down, there are easier and simpler ways to do this like options and futures. • I am not an expert in mining and don’t know everything that is around the valuation of mines. • However as those mines were easily accessible to foreigners (on the MSE they are the biggest market cap) it is a fair assumption that Mongolian related mines were not trading at a massive discount to their international peers, in short, not really a screaming bargain. • Then there is a political factor/risk. With so much $ underground, you can just expect anything unexpected to happen. Investment logic meddles with local politics. That was a big sword hanging over all the mines so damaging the odds, so why would I bother going into such a poor bet. (I have +20 years of derivatives and risk management i.e. my job was to evaluate odds!). In 2011, the political mood was rather soft so from a political risk premium for me it was as good as it could ever get. So I passed and did not touch the mines.
But I cannot resist to "falling knives". In oct-nov 2012 when I saw the prices of some of those, I could not resist and bought a bit of everything (because I don’t know how to pick a/the winner, if any!), MSE listed and overseas listed, MMC included (which is listed in Hong Kong). However that is smaller than my non MSE listed investments. It is a “technical punt”, i.e. once they recover nicely, I flip them out as I have no intention to hang on them for the long run as I am still no expert in mines valuations.
Profitable or not, mines will affect the rest of the economy, the local economy and my thinking is pretty much pro-Mongolian in that respect. Step 1: Build-up. While foreign equipment and foreign experts are both needed at this point, a good part (and growing) of the $ needed are going into the local economy and Mongolians pockets. Step 2: Production. Once mines are in production, between % of equity owned by GOM (or a Mongolian SWF), the taxes, the royalties, salaries (smaller % of foreign staff) it is more $ going into the local economy and Mongolians pockets. Foreign mines that have invested a lot in those projects will not give up …but they can go slow, …or use tactics to respond to GOM. So the build-up will go on, may be slowly, very slowly.
If foreigners have a feeling that rules are pretty clear, contracts are enforceable, then much more capital will flow into Mongolia and Mongolians WILL HAVE THE CHOICE to pick their partners, to decide how much they want to share, which projects are the priorities,….and so on, flooded with money IT WILL BE THEIR CHOICES, not imposed by a dire situation. If this SEED money to jump start the Mongolian growth engine is not coming with the same magnitude because of fears and perceptions foreigners have of Mongolia, then GOM and Mongolians will have limited choices, will probably have to do with those that are available, may be not the ones they wish, they may not be able to dictate their terms, nor launch all the projects they need at once… ….but I think in the end it will work, everything may be delayed by 2, 3, …years.
In short, in my opinion, Mongolia should prioritize foreigners bringing EQUITY for the next 2-3 years, THEN prioritize debts or loans for project finance, while sharing little equity retaining additional equity upside! Trying to finance everything now with debt only is I think suicidal. Many other countries, at a more advanced stages and facing less challenges, tried this before and suffered very badly.
So for me, with a 5-10 years timeframe, I am betting on the local companies, listed on MSE, that will benefit from the growth in the Mongolian GDP. Will it grow by x2, x3, x5, x10 …in 10-20 years? I don’t know and I don’t care! Common sense tells me that many of those companies will change dimensions and become much bigger, creating a lot of growth, opportunities and $ for people working for them as well as their shareholders, big and small, mostly Mongolians (foreigners on MSE represent a very tiny % once you take Firebird out of the equation, mostly in SHG-BAN-BEU anyway)!!
The common sense exercise is simply to imagine with the Mongolian GDP growing massively over 10-20 years how everything will be changing in UB and around, what will be needed, what sectors of the economy will benefit? No need to be an “expert” highly paid research analyst in an investment bank to do this. Anybody looking at how a city works can come to the same conclusions. Not rocket science.
For instance (in no special order): cement, concrete, limestone deposit, iron, oil, transportation, real estate, shopping mall, import-export / supply, construction and construction materials, water treatment, power, hotel, restaurant, jewelry/consumer goods/luxury items, telecom, brokerage, …and you have your shopping list!
Disclaimer: I have stocks in pretty much all those sectors (when I was able to find shares to buy)
The Singapore Government investment arms have a lot of big assets in Australia maybe they are looking around at Mongolia? Maybe Rio executives don't want to set foot in Mongolia after the SGS drama and are looking for neutral ground? When former PM Batbold was in Australia he had secret meetings with Rio in Melbourne. Elbegdorj went to Iran last year looking for interest in Mongolian Uranium, seems they are looking at other options.
I see 2 good reasons for GOM officials to spend some time in Singapore (and Malaysia as well) and learn a bunch of things.
1) While Singapore does not exactly need to raise debt, MAS has however been able to develop a S$ local bond market which is handy to have a reference yield curve and local corporations to raise S$ debt. Mongolia could learn quite a lot from a visit to MAS!!!! (I am absolutely sure the people I met at MAS last june would be more than willing to help).
2) SWF Mongolia NEEDS to setup a Sovereign Wealth Fund and the earlier the better. I have read article about Chile as an example. I have no problem with Chile but the last priority for Mongolia for the next 10 years is to buy USD, EUR, JPY denominated government debts! In my opinion, much better models for Mongolia would be: * Khazanah (Malaysia) * Temasek ...AT ITS BEGINNING!!
If Mongolians want to stay in control of their resources and their wealth, they'd better give themselves an instrument to support their local champions (tiny for now) like Temasek and Khazanah did! For now, MSE listed companies are tiny and they need additional equity to grow and capture business opportunities before foreigners setup shops! So from a Mongolian angle, it sounds a much better idea for local MSE listed entities to open their capital to a Mongolian SWF than to foreign private equity firms. If nationalism is important in Mongolia, that is a way to play it smart!
About Khazanah, Mongolia can learn something else. In the south of Malaysia there is something that on the face of it may look like a "white elephant" but could turn into a magic success in 10-20 years: Iskandar!!!! In short leveraging and cloning Singapore. That is Khazanah lead.
From a Singapore angle, GIC is shy of publicity (saved when mandatory because of disclosure) but is well run and I am sure that both GIC and Temasek (that bought some TRQ) would love investing in Mongolia but HOW and with WHO (i.e. that can EXECUTE!)? That's a kind of headache many big guys like that are struggling with about Mongolia.
For commodities rich countries, especially young ones, it's a MUST.
Even with $0 in its bank account but a government guarantee, it could unlock fast track many of the headaches GOM is facing.
They can BY LAW make the SWF beneficiary of all the pre-emption rights related to strategic mines, having a right of first refusal on just anything of that kind and any stake to be given to the government free of charge.
It is much easier through a fund than through a minister like for instance Indonesia has been doing with the MSOE, Ministry of State Owned Enterprises. As Mongolia is just at its beginning it's much easier to start like that now with a better structure.
Having the benefits of years doing business with groups in Jakarta, while those 2 countries are very different population and temperature wise, I notice they face/have faced similar challenges! Mongolia is facing now very similar challenges that Indonesia faced 20-25 years ago.
Successful businessmen in Indonesia are those that did not wait for the government to decide and build the infrastructure for them. They did it and when comparing Indonesia 1996 and 2013 vintages, the results are pretty clear.
I heard the shareholders' meeting was last Friday and it probably was a big disappointment among those who went there when the dividend to be paid this year was announced.
Not "exactly" MNT 1368 per share like last year I assume :)
Just reading on the next phase of financing of OT, do you guys not find it a little odd that there is not one US bank involved ? Maybe just showing my North American based bias.
Great comments on SWF. I would be personally shocked if they are not considering some type of financial vehicle, especially if this "reform" movement is for real and in the best interests of the people of Mongolia. I'm still skeptical because we're still talking about politicians , and I'm jaded. I believe it's an exception to find one that actually puts the interest of its constituents ahead of their own.
First on the SWF, I honestly would be very kind (unusual for people that know me) and patient with Mongolian politicians.
During my first to trip UB in june 2011, at a conference diner I was sitting next to somebody from the SPC and as soon I saw his business card, I offered him my sincere condolences and deepest sympathy because he was setup to fail!
As he almost felt from his chair I explained that years before I had a diner with his twin, somebody very senior at the Ministry of State Owned Enterprises in Jakarta (in 2007) and I almost cried when he described his job going from trying to get a good price for selling some state owned assets, listing some of those, picking non-corrupted executives to run those companies, prepare Requests For Proposals for investment banks, decode their (creative) replies,…, and many other things you just don’t want to hear about. While not knowing exactly how much he was paid, with such a crazy To-Do-List I thought his job was suicidal.
So in june 2011, my guess was that the SPC person had an even more challenging job. Realizing I was retired and had “some kind” of knowledge of finance, he asked me if he could ask me for help once in a while which I accepted (knowing this would be for free). However I never heard from him.
Several other persons in different organizations in UB took my offer and that has lead to some (low profile) results. But to be fair between officially hired and paid consultants from big organizations (with their own agenda) and a retired investment banker doing that for free to avoid boredom, on the face of it, the first ones look better. It’s easier to support the decision to rely on somebody paid with big title, visible credentials (and his owned agenda and bias) therefore ticking the boxes, i.e. if it’s a failure, it’s an “honest mistake”, the usual line of defence for the management of investment banks.
Also as nobody ever faced such challenges, there is no map, guidelines, references,…a lot of room for error. HOWEVER that is no excuse for not trying and instead go into hiding diluting decisions among people who have even less clues. No need to have 20 people around a table to make a decision when only 4 have the critical mass of knowledge. Mongolian politicians have to accept that whatever they do, they will be criticized in the short term…for the medium/long term good of the country. So if they move fast, ++ will be visible earlier and they will be rewarded. But it’s tough, very tough.
So for SWF, Mongolian politicians have to check and analyse BY THEMSELVES what has been done elsewhere and MAKE THE DECISIONS for the good of THEIR country and THEIR CITIZENS, not to please box-tickers with their own bias and agendas. For me a simple list of SWFs (among those I know a bit and my opinion) to analyse is: The best models (for the next 10-20 years): • Khazanah (Malaysia), • Temasek (Singapore) at its beginning, • Safe (China). Good models (i.e. probably not covering the local strategic angle but operating nicely on "need to know basis" which I think is CRITICAL!): • GIC (Singapore), • KIA (Kuwait), • ADIA (Abu Dhabi), Not so good (wrong priorities in my opinion): • Norway, • Chile, • CIC (China). Don’t know enough about the others. (I don’t hold a passport from any of those countries )
So if GOM is really serious about protecting national interests of Mongolia and Mongolians, a SWF is a must.
By the way, while Dr. Mahathir is often seen as a controversial (and very provocative) person, I honestly believed he did well for his country, even if that in 1998 complicated a bit my job. Mongolia should have a look at not only Khazanah but also the local pension funds like EPF…!
North American banks: Having worked for quite a number of investment banks, US or US type, and having still good connections, I think Mongolia is below their radar screen, plain and simple!
The $ wallet of onshore fees to be shared does not justify to have a team on the ground. I don’t know banks that have COUNTRY bankers to cover Mongolia. It’s “covered” generally by either Resources and Energy bankers, i.e. Sector bankers flying out of Hong Kong or Australia.
In 2011, there was a bit of movement from some starting business plans for Mongolia, then what happened in 2012 all along was enough to cool them down. When international investment banks face seriously accountability and profitability questions, how can they go to their board and shareholders with a business plan to build presence in Mongolia, starting by fixed costs, trying to find qualified people…that may change shop few months after,….? • Potential fee wallet / challenges and uncertainty? Who is the senior MD that would put his job on the line now for this?
May be GOM missed something there. More predictable low hanging fruits elsewhere! No point being a front runner in that exercise. I think they are just watching each other and then be ready to tag along if something really develops in a SUSTAINABLE manner.
Saved BD Sec, just look at foreign controlled brokers on MSE. Are they really expanding? I think it’s more about cost cutting! Even the front runners among private equity firms have second thoughts.
That being said, ML-BOA and JPM were in the Chinggis Bond sovereign issuance as well as ML-BOA for the TDB bond. But that was done flying sector and DCM bankers case by case. It will be interesting to see who will dare COMMITTING for Chinggis Bond II.
So like it or not, Mongolian politicians are responsible for damaging a momentum that was just building up.
The US attitude at the World Bank is interesting. In theory it’s about environmental issues. While no expert in geopolitics, but very cynical, I am not quite sure it is the best interests of USA if the Mongolian mines develop very fast. When considering the relative strategic situations of China, Russia and USA, are the USA the most likely to benefit from a fast development of Mongolia? Even #2? In term of supply of equipments or consumer goods, Japan, South Korea and European countries may appear more neutral and may have more to gain, so I am not sure the USA sees a lot of upside in a fast development of Mongolia. Then no point going the extra mile.
Mongolia is at a disadvantage for international trade starting with its landlocked position squeezed in between Siberia and China. The country has plenty of competitors elsewhere in landlocked Central Asia. All the more reason for them to build up a Sovereign Wealth Fund. Meanwhile there are plenty of other resource rich nations situated on the coasts with adequate or excellent ports available for easy trading activities with American shipping: Canada, Australia, Indonesia, Myanmar, Tanzania, Mozambique, South Africa, Angola, Namibia, Colombia, Chile, Peru, Brazil, Venezuela and maybe a few others. This is one of the reasons I follow the Mongolian story, wondering to myself how well they can thrive despite their landlocked position. Maybe one way is to develop a reputation for being a neutral diplomatic political broker like landlocked Switzerland. http://bit.ly/15RQIZ1
Another idea is to complete the establishment of Mongolian dry ports at the seaports of Tianjin and Vladivostok and some other ports. That idea is modeled after what Namibia's Port of Walvis Bay is developing for various inland African countries under United Nations auspices. http://bit.ly/112AltB These are a couple of pdf links with maps explaining how Mongolia's connections to the seaports are being arranged under United Nations auspices. http://bit.ly/XglNQj http://bit.ly/112AltF
http://bit.ly/10WTM30 Mongolia has over 70 registered ships and has been involved in some very dodgy activities including a raid off the coast of Ireland. http://www.mngship.org
http://bit.ly/14cyoLB " Econoff recently spoke with ERDENES' Executive Director D. Zorigt, who said that the company is modeled after Singapore's state-owned TEMASEK and will essentially be a wealth management company" Relevant to our recent discussions about SWF.
http://bit.ly/XLmNBR Jon 29/10/2012 "An article about trying to save the Children's Park in Ulaanbaatar, one of the last green space in the city's center, and by far the largest http://bit.ly/WUGzIX
All parts of the park have already been sold off and it is likely only a matter of time until it is developed. It would take a public groundswell of support against development of this park to stop it." DEF 30/10/2012 "The children's park was created by Tsendenbal's wife Anastasia Filatova who also created the Russian modeled College of Music and Dance.He was killed by a Russian Doctor allegedly by injection. http://bit.ly/Ru7KFD It is the Americans who have been speculating on this park area. Lee Cashell in particular has been spruiking it .UB is developing into separate small towns eg. Japan Town and this area has been actively promoted as the American area.It seems to reach down to the Hilton building which came to a construction halt in 2008."
Jon 30/10/2012 "the American property developer you mention has no land ownership in the Children's Park area; that's just factually incorrect from talking both to him and his competitors" "as I understand it, the Children's Park is owned predominantly by two different Mongolian conglomerates that respectively have different members of Mongolia's 10 richest people among their CEOs/chairs"
Am I mistaken or does the video show the Childrens Park Ferris wheel right in front of the building? l love the close up shot of the steel rods to show that they are using them and not chicken wire.
One of these apartments is being funded by Ausaid but as usual they are completely unaware and believe that they are implementing their zero tolerance policy towards fraud.
http://bit.ly/YADB8l "TDB is the first ever Mongolian bank to issue bonds and the only Mongolian repeat bond issuer." It seems that there is only one experience of repeat bond issuing in Mongolia. Will Chinggis Bond mach 2 be the next? Why would organizations like Bloomberg TV and others form partnerships with TDB when its ownership is hidden by the States Secrets Act and they don't even know who their real partners are? of course the major owner is reputed to be Enkhbayar and his family. This cable also provides the US view of the Zorig murder and the subsequent fiasco. http://bit.ly/16CxcRx
Further to the secret ownership of TDB and its partners. I forgot to include Goldman Sachs who took a 4.8% stake in the Bank. GS has quite an association with Mongolia, including the signing of the MCC/MCA compact with Henry Paulson the former CEO of GS. If the US embassy was so aware of what was happening at TT and the TDB why are they letting US firms like Peabody and GS fall into such seemingly risky ventures? Dr. Ganbat explains. "The primary advocate for Enkhbayar’s tainted international businesses, John L. Thornton, is the main perpetrator of the campaign to politicize and hype Enkhbayar’s case. http://buswk.co/11DSYQW A professor at Tsinghua University in Beijing, he is also a member of the International Advisory Council of the Chinese sovereign wealth fund China Investment Corporation. When he was serving as the President and Co-CEO of Goldman Sachs, Thornton visited Mongolia numerous times, and became quick friends with Enkhbayar. In 2008, Thornton and then-President Enkhbayar signed a Memorandum of Understanding to provide about million portable computers for national program “One child–One computer.” However, the number of computers sent to Mongolia never reached this number. Interestingly,Enkhbayar’s son chose a veteran Sachs employee as his bride. Officials of this bank, who never delivered their promised computers for Mongolia’s children, but produced a bride for Enkhbayar’s son, are not eligible to oppose Mongolia’s fight against corruption. There is a growing suspicion that, in fact, it was Enkhbayar’s daughter-in-law, not his daughter who produced and broadcasted materials, spoiling Mongolia’s reputation internationally. It is probable that Thornton is using this girl, who resigned her position at Sachs pledging to work for her family business, as Enkhbayar’s puppet. Thornton spread vicious rumors worldwide for his “good pal”, and provided mostly bogus information to influential figures in London, Washington D.C, and some international organizations. His partner Minton’s close ties with Enkhbayar date back to when he was serving as US Ambassador to Mongolia. Minton provided an incorrect forecast of the 2009 election results to his superiors, assuring that Enkhbayar would once again be elected President. After returning to the States, he established an NGO under the name The Korea Society. When Minton tried to include Mongolia in the activities of his organization, he faced strong opposition from a better established organization The Asia Society. When President Elbegdorj paid an official visit to the United States, The Asia Society honored him with an award, further fuelling Minton’s discontent." http://bit.ly/11E7zj2 ¶15. (SBU) As a success or as a lingering failure, the Compact will be a major landmark in bilateral diplomatic relations. Exaggerating a bit, one council member told us, "If the Compact does not come through, America will be finished here." That is hyperbole, but the stakes for the relationship are now very high. Both sides will have to display a firm commitment, and provide the time and personnel for the closest collaboration, to complete this joint endeavor on schedule.
Minton"
http://bit.ly/11DSXwm 'Paulson was portrayed by William Hurt in the 2011 HBO film Too Big to Fail and by James Cromwell in the 2009 BBC film The Last Days of Lehman Brothers. In the documentary film Inside Job, Paulson is cited as one of the persons responsible for the Economic Meltdown of 2008 and named in Time Magazine as one of the "25 People to Blame for the Financial Crisis"." 'It has been pointed out that Paulson's plan could potentially have some conflicts of interest, since Paulson was a former CEO of Goldman Sachs, a firm that might benefit largely from the plan. Economic columnists called for more scrutiny of his actions.[38] Questions remain about Paulson's interest, despite having no direct financial interest in Goldman, since he had sold his entire stake in the firm prior to becoming Treasury Secretary, pursuant to ethics law.[39] The Goldman Sachs benefit from the AIG bailout was recently estimated as US$12.9 billion and GS was the largest recipient of the public funds from AIG.[40] Creating the collateralized debt obligations (CDO's) forming the basis of the current crisis was an active part of Goldman Sach's business during Paulson's tenure as CEO.
Sounds like the Mongolian SWF already exists and has a name: Erdenes MGL LLC!
with stakes in EMC, BAN, SHV injected inside.
And that sounds like a good idea to me.
(But no point limiting Erdenes MGL LLC to mining only!!!)
For instance, once MIAT has been recapitalized, what about injecting it into Erdenes MGL LLC as well? (and at least, 51% of state owned banks too!)
Now as the ETT IPO is somewhere stuck in the twilight zone and Mongolian citizens were supposed (don’t know exactly what is the status at this point) to be given shares in ETT with the right to get cash, at a SET PRICE (that was not smart)…and are waiting …, I remember there was something else ABOUT GETTING SOME (none tradable) PREFERRED SHARES IN ERDENES MGL LLC as well, then may be it’s time to dust this a bit.
For instance, the state would own ordinary (voting) shares to manage those assets in the long run, while Mongolian citizens would get different shares, preferred shares non-voting, paying a little dividend (NOT FIXED) that would represent a small % of the annual earnings (to avoid creating an unsustainable pattern). As Mongolians have already something (ETT?) allocated to them in the MSCH&CD system, it’s easy to ADD a "something else", not listed not transferrable, but that will be those preferred shares.
Then what about making, BY LAW now, Erdenes MGL LLC the recipient of rights of first refusal, pre-emption rights, free grant of shares under SEFIL, and other things of that kind?
We have heard these promises from Governments before. Mongolia was once one big SWF with all citizens owning shares in all of the State owned companies. E MGL is set up for the GOM to control it's "strategic" interests. During the 2008 "election" the people were promised shares in "Bayan Mongol" a new entity to be created. MSE your concept is good but can GOM be trusted? MIAT is currently under investigation in a corruption scandal and the recapitalization is reportedly from Chinggis Bond 1. The poorest and most disadvantaged people in Mongolia can't claim any of these shares or reduced sum buy outs because they don't have a Mongolia ID card it is meaningless to them and just more lies. ETT will soon disappear there is no chance of an IPO in it's current shape. Can a SWF be a LLC?
on all those questions, there is one possible answer: The past is not always a good indication of the future.
I don't know many, if any, countries that developed started great without corruption,.... I have been investing in a bunch of MSE listed companies that, for now, are perceived very poorly in term of "corporate governance" (to use nice words) because I think they will see there is more FOR THEM to gain in moving towards something more usual (and recently saw amazing results from one along that line).
So there are mistakes, big mistakes being made, always. What I don't like about GOM now is: * the problem of taking decisions, * also this idea (may it is just my perception) that before politicians were all bad and corrupted, and now they are all good and honest (which may be costly in 2016). It's like in some countries where some politicians (when not in the government) always criticize the government and then when they are in charge just DO EXACTLY LIKE THE OTHERS. (check France: Sarkozy-Hollande for instance within 1 year of SAID-DONE).
For foreign investors that are NOT yet in Mongolia, all the negative we see out of UB are enough to tell them not too rush and bring their capital and expertise to Mongolia...and that Mongolians will pay a serious cost for it.
But if you are there already, among all the frustrations, it will be improving even if right now it spells pretty much like chaos (because the to-do-list is daunting and scary and nobody was prepared for this).
Btw, if this kind of entity is launched with all those stakes inside, then at some point, it will become more visible and de facto more difficult to do "weird stuff in the dark" especially if that SWF in the making is dealing with foreign banks in Mergers & Acquisitions, IPO....so that will upgrade the standards I think.
LLC or JSC: ? not really critical. Charter could be created as it suits the needs by the parliament with super majority.
also this idea (may it is just my perception) that before politicians were all bad and corrupted, and now they are all good and honest (which may be costly in 2016). http://bit.ly/15Xz5Hb Here is one living former Prime Minister that Mongolians should listen too. There are 11 former leaders who faced mysterious deaths. Listen to this survivor. The video shows photos of Mongolian genocide during the Stalin era, the corruption of Chuluunbat the former head of the Mongol Bank appointed by Enkhbayar. He lives a simple life he never had any "companies". There were quite a few good politicians from the old era not like those now following the three Buddhist evils of violence,ignorance and greed.
If the SWF is an LLC, then it would no longer be a SWF. The SWF should be structured like the The Government of Singapore Investment Corporation. It should be run by real businessmen, not politicians.
Temasek is a Ltd, i.e. LLC and many others of the same kind.
"Real businessmen": not sure because there would be short term bias and it will be a holding company, a portfolio for the long term of the country. Neither pure politicians.
Not sure that Singapore is a good example for Mongolia. Although both are sham democracies . Singapore is smart and has no natural resources Mongolia is the opposite.
the point, like on many things, is not to find the BEST, but avoid the WORST, and in my mind, those SWF that try to be transparent to the world are the worst to protect the national interest of a country and its citizens, and that's here that nationalism in Mongolia should move from words to tangible actions!!
Jon had some health issues crop up. Recovery has been slow and some possible secondary issues cropped up. I communicated with him a couple days ago and he sounds hopeful - had a couple days of feeling decent the last few weeks.
http://bit.ly/XnMhzE Another ridiculous and unaffordable project for Mongolia. Why not concentrate on getting running water and sanitation to the Ger districts where most of UB's citizens live. Love the photo of a Singapore Railway station. Imagine a subway in UB.
I respectfully disagree. A subway system is something that UB desperately needs. And people in the ger district should be encouraged to move to affordable low end apartments closer to the city. Developing infrastructure to bring water and sanitation to the ger district would be a nightmare.
The GOM just needs to make sure that the spending of the 1.5B USD for the subway is optimized, not for filling up the pockets of the political elites.
While, of course the $ are not supposed to go in some pockets, the fact is that there are so many things that need to be done, all now, in that country it is beyond imagination.
Even the most honest politician in the world as well as the most knowledgeable one would never be able to spend wisely without criticism those US$1.5bn, so I would forgive them for making mistakes as long as they ACT NOW.
What I do not forgive is the noise and chaos that deters foreign capital / FDI to flow in so that instead of trying crazy arbitrages to spend wisely US$1.5bn it would have US$10bn to spend leaving more room to errors (impossible to avoid at this stage) and able to undertake more projects of all kind dealing with ST-MT-LT needs.
Honestly HOW LONG do DP MPs expect it will take for those projects to be implemented (under a severely constrained environment) and Mongolian citizens to see with their own eyes the benefits?
In my opinion, if they don't act NOW, they'd better already write off the 2016 parliamentary elections because Mongolian citizens would seen by then only the negative, not the benefits coming after completion.
Is putting everything on debt smart. The startup costs of OT are on debt to THR, the new Airport in Terelj is debt to Japan, not to mention the rapidly disappearing Chinggis bond .Jargalsaikhan already stated that Mongolia's debt is now twice what it was to Russia. There is nothing moving at ETT and OT has only done a few tests. A subway could provide new shelter for UB's homeless in Winter. There have been lots of programs to fix infrastructure but what happens?
that's the problem GOM's recent actions, or inaction, will trigger: choices, difficult choices!!
That "ridiculous and unaffordable" project is I think a very good idea for the medium and long term of UB and Mongolia... but the short term reaction of people is "what's up for me now?"
After 7 trips to UB, it's pretty clear for me that the way it is growing you cannot fix what has to be fixed there so easily. You start digging for the pipes and then you have holes all over the place, traffic jam turns to standstill and game over...the consequences overweight the benefits. So this kind of projects are, I think, the sustainable solutions to problems of water, electricity,...in gers districts.
Several months ago, I read about the idea of having several new areas developed around UB from scratch (and have businesses as well as housing for workers around). I think it's a good idea. It's much easier, faster and cheaper to dig holes, create road when there is NOTHING than having to deal with existent roads, buildings,... Have a look at the "parking area" outside Department Store every 6 months for instance. It's going from bad to worst.
Then having some activities that do not have to be in the centre of UB moved outside will reduce traffic as well.
If that could be in place in 4-5 years then GOM and the city can on the other hand focus on other short term needs too knowing that few years from now there will be an end to the infrastructure nightmare.
This idea is no different from how many cities in France were built more than a century ago by and for big firms, like Michelin, Usinor,.... Big activity zones + housing for workers with all the facilities. That therefore limits traffic jam and make life easier for everybody.
In Jakarta, they have the concept of Mega-Blocks where in one housing area / compound, you find almost everything people need so that people don't have to wonder around for shopping increasing the pressure on a traffic already a nightmare. Basically try to have areas that are more or less self-sufficient to limit collateral damages.
That's the dilemma governments of very young country are facing dealing: * short term people priorities, * medium - long term infrastructure needs for the country * infrastructure needs for projects that will generate $ cashflows, pay for the rest, support the economy,...
Once political stunts have deterred some foreign capital to come in, then you have less capital available, therefore you cannot go for all those projects "at the same time" and have to make difficult choices leaving anyway a lot of people unhappy. That's why I think the middle and low class will a heavy price for happened over the last 6-9 months.
Furthermore, when you look at everything that has to be done in Mongolia it's like mutually exclusive projects, i.e. the "supply chain" cannot deliver all, i.e. not enough workers, power, concrete, cement, steel, windows, water, ...capital,.....to do it all at the same time ...
A real headache and no place to hide, decisions have to be made!
It's not so different from the short term requests vs. long term common good I pointed at above.
It reminds regular "discussions" I have with my 14 years old teenager son, always asking for more (thanks to peer pressure among others)...whatever it is, and of course I am often perceived as the bad cop, the NO-man. (no problem, I am used to it, bullet-proof. I will check the results in 10 years and now my 14 years old is not knowledgeable to make those decisions. He will have later...and may regret the kids years!)
“But be careful what you wish for'Cause you just might get it” (PCD, When I grow up)
It's getting better by the day because now he is seeing the benefits for himself of all the NO, as well as the YES (always very consistent) he got some years ago. He knows that when I say NO, while he would love hearing YES (and he is trying to negotiate anyway), I am right and that's comfort him because I am not blinking subject to winds, moods or ...political surveys. Sure if years ago, I had to be "elected" as a dad, I would have been "fired" easily. However I am pretty much sure that now I would win such "elections" easily. :)
Short term requests to please vs. long term common good with negative short term side effects....yes that's not easy!
That's the question of Moral Hazard by the book! Probably not always well covered.
Very good start! Just hope his colleagues at GOM can listen to him about how political volatility impact negatively FDI and how FDI is critical to Mongolia (at this point!!!).
http://bit.ly/WF9K1Y "The main Russian demand was for Mongolia's substantial, high-quality metallurgical and thermal coal deposit in the south Gobi site of Tavan Tolgoi. According to MoIT sources, the Russians proposed to the GOM a deal for Tavan Tolgoi: Seize the asset from its private holders; give it to a Russian-company chosen by the Russian government; and Russia would build Mongolia another north-south rail line or a power plant in return." Interesting cable, the GOM did sieze TT from it's private holders in 2007 exactly as directed by the Russians.Whats next?
http://bit.ly/Z91A1F "a Canadian company, has the right to sell shares in Canada on the Toronto Exchange or those privately held; CNNC has the right to buy these shares from any exchange or venue where they are legally tendered -- and in these circumstances Mongolian law and policy is irrelevant. At this point, CNNC is well on its way to owning the very uranium holdings that the Russians craved and that the Mongolian government wanted to make the heart of their ambitious nuclear infrastructure." Interesting background on the Khan Resources dispute and general Uranium policies
TRQ conference call tomorrow, 1:00 pm EST, should get lots of attention, specifically surrounding the recent talks with GOM. Indications might be cautiously optimistic, (full disclosure, I'm talking my book!!), with SQG announcing on Friday the resumption of operations at Ovoot Tolgoi. http://bit.ly/10cDFgT A little surprised that there wasn't a bigger pop in HK for SouthGobi, baby steps, and at least headed in the right direction. Question is how long does Rio hold on to this position, and are there any buyers ? Other than China. Peabody ? Little of no follow through for SGQ on TSX, somewhat disappointing.
OK so being shut down is a clear positive it gave them time to adapt to the new environment! Still no mention of the elephant in the room Justin Kapla and the money laundering/ Monnis mess.
http://bit.ly/106nH8p http://bit.ly/106nJgl You can tell more about a conference by where its held and who owns it rather than the agenda. I note they don't include Prince Andrew on their VIP guest list. He used to stay there when he was paid by Rio to go to Mongolia under the guise of his self appointed UKTI role to influence Mongolian Politicians.
http://bit.ly/11IdeVB Oh dear instead of Enkhbayar being groomed as the "Tony Blair of the Steppes" now we have the real thing. I wonder what meddling he is up to? The British got rid of Prince Andrew after a series of embarrassments then tried Prince Michael and nowTony Blair
Your area of expertise MSE what are J P Morgan doing in Mongolia, or what are they planning to do and why would they need Tony Blair? I prefer to stay at a backpackers you meet more interesting people other than "beeziness" men and hookers that hang around the posh hotels.
The bank seems to be taking an interest in Mongolia mostly indirectly through Hong Kong. Maybe they want more direct ties to Mongolia? http://bit.ly/Zpjnyg
I was at that conference and to be fair the JPM person explain DRs was excellent, but DRs are a classic for JPM and that was her usual show. (each bank has it own edge).
As far as I know, none of the JPM, GS, ML, MS, CS, UBS, CITI,DB are building now any presence in UB.
(if they were trying I would likely hear of this, I may be even asked to setup a shop for one of them)
While I am pretty sure they all say to GOM "they are very committed to Mongolia,..." it's only cheap talk but no $, saved few plane tickets, hotel nights....but no serious commitment of headcounts!! Better opportunities elsewhere.
In 2011, several were seriously thinking about that and preparing some business plans, but in 2012 once SEFIL and South Gobi-Chalco struck (+ the rest) they put all that on ice....and by the way who were promoting the Mongolian case did not get exactly rewarded!!
So whoever has again this great idea of talking to his boss about doing business in Mongolia better think twice.
I don't know even ONE head of investment banking in Asia-Pac for one of those big IBs that would dare now signing a business plan for Mongolia, committing to build presence on the ground, signing the checks and hiring.
Would their own lawyers be comfortable to go there ?
The volatile political environment as well as the anti-foreign sentiment has I think deterred them. They wait in Hong Kong, which is the base camp for investment bankers, ECM, DCM, M&A,....
So until further notice, and TANGIBLE HARD EVIDENCE (not nice words, but FACTS), those banks will conduct their activities from Hong Kong (or Australia for sector bankers) and there is any opportunity arising in UB, they will fly bankers.
May be GOM believes foreigners come and go, and will come back quickly, the fact is that there are real scars (almost visible to GOM) and the Mongolian political stunts have stabbed in their back some of the pro-Mongolian bankers.
I follow what you are saying, MSE. I have to wonder what Mr. Blair can do about that, if anything. I notice that only a couple of firms related to Mongolia exhibited at the metals show in Hong Kong. There were many more exhibitors related to Nevada, Canada and Africa. So maybe business interest in Mongolia is waning for now. http://bit.ly/Xbd7zX http://bit.ly/ZWJNLc
"So maybe business interest in Mongolia is waning for now" Correct.
That's Mines and Money Hong Kong.
These kind of conferences are generally quite popular because they are happening just at the time of the Hong Kong Rugby 7s so many investors come from around the world for the conferences on that week and...attending the Rugby 7s too (Fiji won again, with great class!).
I went there last year and there was quite a number of friends already investing in Mongolia or interested in that were attending too.
This year only one of those was there and I did not bother going.
Even one Mongolian friend from UB came just for the Rugby 7s, but did not bother going to the conference, just the time for breakfast and lunch to keep us updated on the latest from UB...and to be fair, the conversation moved very quickly to a more positive topic for the rest of the lunch: Rugby!
That's the sad reality.
T Blair: I think he has the knowledge and the credentials to DECODE and help GOM understand how foreign investors react, what GOM did wrong, what they can achieve and how.
If somebody like him cannot help them see the light, then I am very pessimistic for the rest.
I view the government as walking a tightrope, if I understand them correctly. They have to satisfy and support the business leaders and the workers, the industrial projects and the environment, the cities and the rural folk, the two giant neighbors, the political parties, the foreign investors and the native businesses and so on in order to be effective. So if a roving ambassador like Mr. Blair can appreciate the government's position, I think he can help facilitate a common understanding about how everyone can pitch in with the Mongolian economy.
For matters related to governments, banks and finance, this kind of persons could help governments to get a better understanding of what bankers (seen biased) may try to explain.
Now, for his with his own consultancy firm, he may be simply be trying to help GOM and RIO find some common ground and settle an agreement on OT, while what happened before may have created a situation of such distrust between both sides that it would be difficult to have a relevant and meaningful discussion.
Somebody somewhere independent could help bridge that gap. He has experience and knowledge, so I believe he can really help there!
I already heard his name long time ago as one of the person that could help settle this kind of matter, so I think it is very good news he is on the ground now.
There is a little bit of news of his visit so far. http://bit.ly/ZWOhl6 His lecture transcripts might show up in his blog in the next several days. http://bit.ly/XbfS4i
"I am ready to share..."...but are they ready to LISTEN and ACT accordingly, that is the question!
What he may be discussing with GOM about RIO and OT is unlikely to show up on his blog.
If positive, suddenly you would see something unlocking on OT and that would be it, "thanks to fruitful discussions between and OT...." not a word about TB.
Any specific information about business deals will not show up in his blog. But his lecture sounded like a generic topic so the transcripts might show up there. A reader will have to "read between the lines" if it happens to show up there in order to grasp what he was trying to say. I'll be watching for it.
He is a paid consultant these days. His unwillingness to say who he would be meeting and what they would be talking about is telling. Usually when Rio "paid all expenses " for Prince Andrew to lobby then President Enkhbayar and others in the GOM they didn't always announce it publicly. This just looks like a paid Rio lobbyist visiting Mongolia. Maybe Mongolia is the only country left that Tony hasn't saved, according to his website he is everywhere.
Step 2: Foreigners will be waiting and watching with a lot of attention the FIRST CASE where this law is applied.
Needless to say, if GOM really means business, it has to pick QUICKLY a very CLEAR and PUBLIC example to prove it does mean business and it is SUSTAINABLE!!
If at implementation of the first case, there was an hiccup, then it would be even worst!!
In theory good, because GOM should learn something out of that, with a lot of information coming to their door.
BUT they have to listen and decide BY THEMSELVES, not being influenced by one or the other.
For some of those SWFs, attending this kind of events and being visible is a way to be recognized and get an endorsement that their strategy is good ...and that their citizens should be delighted to have such a successful SWF, i.e. international PR for domestic purposes.
The SWFs that could be the best models (whoever that may be) for Mongolia MAY NOT EVEN BE THERE.
So I seriously encourage GOM and Mongolians to THINK BY THEMSELVES and for THEMSELVES, not fall into the usual copy-paste / box-ticking of so-called "best practices".
The government will probably check out the other examples of setting up a fund before deciding for themselves about what to do about it. http://bit.ly/10fPxgO
That's exactly what I had in mind, strategic funds to support local businesses like Malaysia and Singapore (Temasek at its beginning).
"However, the Chilean funds are not strategic funds, i.e., aimed at encouraging business development and diversification. Some emerging countries such as the Emirates, Singapore and Malaysia created strategic funds with the clear aim of contributing to business development and production diversification."
Then later, the strategy may change and shift towards a GIC type.
http://bit.ly/YFizcO I read with amazement a keynote speech given by Ulaan on " Effective Sovereign Wealth Fund Management'. Of course his own personal wealth management has been well documented by " Dr. Ganbat", Ulaan as I stated before pocketed the $11 million USD given to GOM by George Bush during his 2005 visit. "Left with nothing to lose, Ulaan, quite contrary to the meaning of his name in English “Red”, was one of the first ones to go running to Enkhbayar unabashed. He embezzled a fortune from the state, and materials of his activities are kept with Enkhbayar. He bartered a copy of those documents to Baabar, who is now using them as a tool in his harassments and threats. Some of Ulaan’s acts were solo, while some were the result of a team effort with Enkhbayar. One of them is the incident of USD3 million debt of Darkhan Metallurgical Plant. This plant was completed with Japanese assistance, and was taken over by Mongolians in 1989. However, a company, Monimpex, was contracted, and additional investments were made because the Mongolian side still could not operate the plant. Soon Monimpex declared bankruptcy, and the Japanese investment of 10 years -- USD3 million -- has disappeared along with the company. When the Japanese demanded back their investment, then-Minister of Finance Ulaan signed and sent an official letter stating that there were no legal foundations for Mongolian government to pay the sum. The Japanese then appealed to Darkhan city court and lost. The matter was finally settled when a contract was signed between the parties to repay the USD3 million with the products from the plant in the course of 25 years. The certificate of this unreliable debt was bought by Ulaan for USD 200 thousand. He, the Minister of Finance, then allocated the USD3 million debt to Japan in the annual State Budget of 2005, earning himself a USD 2.8 million bounty. No wonder only two options await him today; joining Enkhbayar or serving jail time." To Valley Boy we have already discussed the fact that Mongolia already has a SWF Erdenes MGL and it is based on the Temasek model as previously posted.
I realized you posted that, dulleyefarmer. But it did not sound like a sovereign wealth fund to me at all. It sounded like a state sponsored enterprise or a state owned company according to the link to your comment. http://bit.ly/14cyoLB Some developing countries have those kinds of enterprises as part of their efforts to give some emphasis to certain parts of their economies. Here are a list of examples from Sri Lanka. http://bit.ly/14qHKna
This is getting confusing.It seems a SWF can be anything GOM wants it to be. GOM could never run anything as impressive as Temasek. Erdenes seems to be more of a collection agency that the State Property Committee was trying to water down.I certainly wouldn't trust GOM to run a chook raffle let alone a SWF. http://bit.ly/WfsQvh Temasek has claimed that it is not strictly a sovereign wealth fund, in the sense that it "has to sell assets to raise cash for new investments and doesn't require the government to give approvals". This claim, made by a Temasek spokesman in 2008, was subsequently disputed by the Singapore Ministry of Finance's governance and investment director, who asserted that a broad definition of the term "sovereign wealth fund" could include "all state-owned investment vehicles, regardless of their funding".[7] He noted, however, that the claim had been made in the context of a 2008 agreement between the United States Treasury, the Abu Dhabi Investment Authority, and GIC regarding the transparency and non-politicization of investments by sovereign wealth funds, and that Temasek already meets disclosure guidelines and provides more details than required by the agreement. 'In Jan 2008, The Economist reported that Morgan Stanley had estimated the fund's assets at US$159.2 billion'
'Temasek Holdings's total shareholder return is 17% compounded annually since inception in 1974.'
'It would be in everyone's interest if the company were structured and behaved like 'a normal private company'"
'¶3. (SBU) Econoff recently spoke with ERDENES' Executive Director D. Zorigt, who said that the company is modeled after Singapore's state-owned TEMASEK and will essentially be a wealth management company, overseeing the intake of mining profit dividends, advising the GOM on the selling of equity shares, and funneling income from sales into the state budget to be reapportioned by parliament, some of it back to ERDENES. (Note: ERDENES' roles and functions have yet to be determined. For example, at a recent meeting between Commoff and one of Zorigt's new staffers, the staffer related that Zorigt's initial plan was rejected by the State Property Committee (SPC). The staffer did not explain the SPC's reasons; however, she noted that they sent back suggestions, in which ERDENES would function more like a consulting firm for the GOM rather than as a wealth manager.) '
:) That is why I said Temasek ...at its beginning!
What it has been over the last 10 years is quite different from what it was earlier.
What Mongolia needs in term of SWF now is quite different of what it will need 20-30 years later too.
"GOM could never run anything as impressive as Temasek. Erdenes seems to be more of a collection agency that the State Property Committee was trying to water down.I certainly wouldn't trust GOM to run a chook raffle let alone a SWF"
I think all SWF started the same way as a collection of bits and pieces that took shape over years and Temasek was no different at inception.
Trust: This kind of things has to be run on a NEED TO KNOW BASIS and making it totally transparent to everybody is probably the worst thing a government can do! GIC is quite efficient but transparency is not how you can qualify it. GOM may not seem up and running for many things now, but they will learn, for this and the rest.
A sovereign wealth fund, at least in the traditional sense, is an accumulating pool of public funds separate from the public budget meant for investing in long- term projects or emergency funding to keep the government functioning. It's a stash of set- aside funds, so to speak, meant to be a funding mechanism for perpetuating a country's economy. http://bit.ly/YHjwRP A state owned enterprise, or some derivative term like that, is a firm structured to be funded by the government to achieve specific public and private goals to improve a sector of a country's economy. http://bit.ly/YHjz00 It is entirely possible for a country to set up a sovereign wealth fund for the express purpose of funding the country's portfolio of state owned enterprises. The enterprises, in turn, will be expected to keep the economy functioning during the rough times. Both the sovereign wealth funds and the state owned enterprises are also set up in order to defend a country's economy from being dominated by foreign multinational corporations. There are numerous countries with economies smaller than the multinational corporations who take the view that they are operating at a disadvantage to foreign financial interests. Economic nationalism can get out of hand in those scenarios. Such funds and enterprises, if they are managed well, can enable a country to become a better trading partner partly because they encourage confidence in dealing with the global trade pressures.
http://bit.ly/Z0ih3d "The Development Bank" would that be the Asia Development Bank or the TDB? I thought the MCC/MCA-M was building the "road to China" or small parts thereof? Can't wait to read their final report after September and the following audit. Looks like more debt to the overburdened Mongolian populace.
http://bit.ly/14ZFMKK So this is yet another Bank established by the MPP. Where is this money coming from? The DP established the Turin Bank to handle Government business. It seems there are so many Banks now in Mongolia all set up to handle their own interests. I can't help but notice your connection to Goldman Sachs a recent partner of TDB.
You still have a fresh face Pat but does GS? The limits of the Fiscal Stability Law must be growing fast as Mongolia's debt is now reported to be twice the old Russian debt of over $11 billion. That is nearly 20 times what the Chinggis bond raised and TDB is the only organization in Mongolia that issued bonds more than once. My source for the MIAT rumor is very credible, why would they buy now instead of leasing as they did previously? Lets see what happens. Keep watching the bond money in the Mongol Bank because it might evaporate soon.
http://bit.ly/12dh6u1 "MP S.Ganbaatar is to sue Rio Tinto in the International Criminal Court, the ICC in Hague, according to a press conference held today, Tuesday April 2nd."
http://bit.ly/ZAfpTP Everything falling into place for MMC? "Mongolia will fund 30 percent of the power station through its $1.5 billion Chinggis Bond fund. The rest will come from private investors and loans. Mongolia will own at least 34 percent of the plant, according to a March 30 statement." Another big bite into the Chinggis Bond Fund that will ultimately provide infrastructure for whoever takes over ETT and of course even more debt for the people of Mongolia.There isn't much of the $1.5 Billion USD left and the prospects of CB 2 aren't looking good.
As Mongolia's resident debt advisor for the US treasury you certainly have an interesting job. Do you have a comment on the previously posted rumor about MIAT planning to use the Chinggis bond money to buy two new Boeing planes? Most of the proceeds might be sitting in the Mongol Bank which now has Enkhbayar's son as Deputy, but large chunks of it have already been promised and surely it will soon disappear? Do you find it disturbing that GOM is accumulating so much debt, more than twice the old debt to Russia already and rapidly rising. So many projects are put on debt including the start up costs for OT which is debt to Turquoise Hill.
If Mongolia and Mongolians want to enjoy for the next decades and centuries a better quality of life and more comfort, then exporting commodities (first raw, then as more added value products) is essential. That's where Mongolia can get serious $.
The short term / medium term challenge is the infrastructure.
Does Mongolia want, for exports or imports (of construction materials, gas,....) to be totally dependent on China and/or Russia?
For my first trip to UB in june 2011, I was always wondering if the "taxis" would run out of gas before reaching my destination because of the gas supply issue with Russia. Once is ok, but not every time so some long term sustainable solutions have to be put in place while dealing with short term constraints.
About this infrastructure, part of it will provide Mongolians with better quality of life, part of it will provide with higher added value, a regular source of income so it has to be built now.
Mongolia needs capital (and expertise, because there are only 2.8 million people) so what does really matter is: What should be this mix of capital? * Is it Equity only (in which case, Mongolia may be giving away too much upside) :( * Is it Debt only (in which case, Mongolia may be at the mercy of markets turbulences like in 2009 and face serious funding problems, having to ask IMF) :(
Probably neither one nor the other!
More likely issuing more equity now, to acquire financial strengths and then more debt later in order to retain more upside... BUT the equity raising opportunities have been compromised: * ETT IPO ? * MIAT and MSE IPOs ??? * OT agreement still surrounded by question marks * and "SEFIL" + the rest making very very difficult for foreign mines to raise equity overseas!!
For instance, as you pointed out the case of MMC, do you think that at the current share price MMC could raise US$500million of equity that could be further leveraged by some debt in order to invest more into infrastructure, which will be useful for Mongolia at large? I don't think it would be easy. So that's equity that is not going to Mongolia creating a capital deficit.
And by the way, it is EXACTLY the same problem for small local companies that are listed on MSE (most are not mines!) that would love to raise some capital, placing shares on MSE, in order to develop their business ...before foreign firms move seriously. I have seen many over the last year, but there is no way they can do anything now on MSE because of the liquidity, and again it boils down to problems, often simple technical issues, I flagged earlier.
So what do they do? they apply for banks' loans or go to DBM and wait.
And even on the debt side, it is more complex than it looks.
Even if Chinggis Bond I was a great, unexpected, success, borrowing only US$ is not safe.
Mongolia has to develop its own MNT government bond market and I am sure Pat O'Connell is trying to help on this. Issuing MNT government bonds is a strategic need for Mongolia!!!
Anyway, my point is that debt per say is not a problem if used to create infrastructure or support investments that will bring positive returns to Mongolia, cash flows or alike.
If it is wasted in consumer items, then it create something unsustainable and dangerous.
What is important is for Mongolia to DIVESIFY its sources of capital, equity and debt, US$ and MNT, short term and long term, as well as diversifying the investors base too, country of origin and type in order to have a sustainable capital base and the bright future that is written on the wall.
Ok it's a new situation that people in Mongolia would have never expected 15-20 years ago, but that's the reality and it's promising, so GOM has to learn and adapt, thinking a bit outside the box.
That's why some of the political stunts over the last 12 months were not "great" because they badly affected those sources of capital limiting flexibility and independence for Mongolia.
Another great analysis MSE. You are the perfect person to be an advisor to GOM. You have great experience , passion and care about what is happening that is evidenced by your many thoughtful and incisive posts. You understand the real inquisitive legal system of Mongolia which is not dissimilar to the French system. I found it unusual for Pat to comment as Public Servants are usually gagged, I really hope that he can make a difference. " If it is wasted in consumer items, then it create something unsustainable and dangerous." Unfortunately I have no confidence in GOM using this money fairly and wisely. The ability to raise more money via bonds and IPO's seems to be in tatters. I really worry about applying the nomad mentality to developing and running a fair and successful modern society.The pattern of behavior is to form short term alliances and go on ransacking missions then divide up the spoils. There is a tomorrow and they have to plan for it.
My understanding is that MIAT will be financing most of the cost of the Boeing planes. I can't speak to Mongolia's old debt to the Soviets, but current government debt levels appear to be within the limitations of the Fiscal Stability Law. There are lots of publicly announced projects for the use of Chinggis bond proceeds, but it's important to watch where money is actually spent. The projects that actually get built will ultimately determine whether borrowing $1.5 billion in one shot was a good idea or not.
http://bit.ly/17esqK5 http://bit.ly/10cqcan Interesting to see the British via the Guardian having a go at the DP. Hot on the heels of Tony Blairs visit. I love his excuses. A former Governor of the Asia Development Bank with his hands in the till?
Bayartsogt was a big supporter of the creation of the IAAC as an American requirement for MCA-M/MCC funds to be available to Mongolia. This quote from the time seems to have come back to bite him. Member of Parliament S.Bayartsogt (Democratic Party) said” The main reason to establish such an office was to monitor police, the intelligence service and prosecutor’s offices because we do not trust them”. It seems that he can't be trusted now.
http://bit.ly/16y8leJ "The World Bank’s International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD) have been operating in Mongolia since 2006, and with Turquoise Hill since 2009. Both banks have approved huge loans to Oyu Tolgoi despite all the controversy over the mine’s inadequate Environmental and Social Impact Assessment". Bayartsogt was also the Governor of the EBRD European Bank of Research and Development that is approving huge loans for OT, maybe the Swiss bank account was helping this process move forward? Looks like the people affected by OT are uniting and will have a representative speak in London.
It is easy to argue the OT IA when your company is getting juicy contracts and you have money tucked away in your Swiss bank account.
Raash Onolt Comments (2)
Public reaction according to comments about the debate in http://on.fb.me/YbobvU is more than 90% for Mr Ganbaatar ,although he was ill prepared and did very poor job in debating with the person who signed the agreement. Mr Bayartsogt was well prepared, knowledgable and aggressive in presenting himself with displaying all the numbers, financial schemes. But I bet that ordinary mongolians did not understood it fully after watching 1.30 hour TV talk,.Mr Bayartsogt's claimed OT IA is best deal for Mongolia,almost a miracle which is not really convincing for any Mongolian. Probably miracle for Bayartsogt and those people who gets always large contract from OT. Bayartsogts Nomads, Bold's Bodi Intl, Monnis, Petrovise, even the president connected little unknown company got contracts from OT. We (my family's 5 adults) got feeling that Mr Bayartsogt is acting like representative of foreigners. He was attacking Mr Ganbaatar for being too ignorant on the OT IA, even called him naive for MP.
Anyway, thanks to Mr Ganbaatar, ordinary citizens got first knowledge about OT IA from lesson given by Mr Bayartsogt. need more details and procedures. They (MPs of both side, anti/pro MPs) should debate more often on OT, even OT representatives should do more work on openness/ deliver more information for public.
At the end we still did not got answer for question "Is OT mining good for us, I mean for ordinary mongolians?
23 Nov, 09:54 PM Reply Delete Comment Like 3
Jon Springer Comments (3346)
Thank you Raash Onolt. Fantastic summary. Would welcome some more opinions, but very much appreciate yours.
http://on.fb.me/XwaqZY Bayartsogt isn't the only Mongolian to have companies in the British Virgin Islands. Mogi has stated the positions of the MCS brothers, Bayartsogt is being targetted but as usual MCS doesn't get challenged even though OD is now Director of MMC.
I have several myself. It's much easier to manage portfolios. Instead of family joined accounts or else it's practical and convenient.
The BVI of the MCS brothers are perfectly disclosed to the WORLD in the PUBLIC ONLINE disclosure filing of HKEx. They don't hide anything. Any change in their positions is disclosed in full according to the rules set by SFC on april 1, 2003.
it's not because journalists are trying to SELL newspapers and make a buzz out of that story that just any BVI or Cayman Islands company they pull out of that list is related to a crime or even a tax fraud.
They are perfectly legitimate reasons to use those.
It remains to be seen the result of the release of so much information by ICIJ. It is obviously very popular using BVI and other places as a tax haven. I think the problem with Bayartsogt is that his purchase of a BVI company which he then used to open a secret Swiss Bank account is seen as not only dodgy but corrupt and hypocritical for a man in his position http://bit.ly/Zeagb0 "I shouldn't have opened that account. I should have included the company in my declarations," Bayartsogt Sangajav told the International Consortium of Investigative Journalists (ICIJ).
“A cache of 2.5 million secret offshore files obtained by ICIJ includes documentation that Bayartsogt acquired a British Virgins Islands company, Legend Plus Capital Limited, in May 2008. The company was then used to open a Swiss bank account in the name of the Legend Plus Capital Limited, with an official address in the BVI.”
In my case, there was at least 3 excellent legitimate and legal reasons to use BVI companies and by the way, none are tax related, as taxation of those investments with or without a BVI for Hong Kong residents is the same: 0%!
So please do put all users of BVI (or other companies) in the same bag, even if that's what ICIJ journalists seem to imply.
Using a BVI company does not preclude to comply in full with applicable laws or rules (if you are an investment banker, that has to be disclosed in detail to the compliance officer and be as transparent as if it was directly held...and it was).
So the problem of Bayartsogt, for what I have read, is that he should have disclosed this to the government, and here there is matter for an investigation.
There are many things in everyday life that are very useful and often necessary, but sometimes could be used for harmful purposes, how ever they should not be banned. In finance, BVI, Cayman Islands, Bermuda....companies are one of those tools!
For instance, in order to enable MORTGAGES to be widely distributed for longer duration, to make real estate more affordable to Mongolians, SECURITISATION will be needed. And that implies the using Cayman Islands companies for instance to move those mortgages from initial lenders (local banks) to investors with larger pockets, otherwise the Mongolian mortgage market will be totally constrained by the tiny size of local banks.
Same things for CREDIT CARDS or CAR LOANS.
The basic element behind those that create flexibility in a banking system are those "special purpose vehicles".
Of course, like many other things in your everyday life they can be misused.
MSE I will never argue your knowledge of the Banking system! I think the major question is where did this money really come from? As an MP he is protected by the State Secrets Act and like all other MP's has little to worry about unless you are one of the .5% of cases that get investigated by the IAAC.The IAAC won't investigate him as it is DP controlled but some of the 3 other investigative units might. Do you think that the mortgage trail is ending more in China these days and not the traditional lenders?
"where the money comes from": agreed, that's where tax payers could raise questions.
Like in many other matters, things have to be CONSISTENT. Most of the time, there is no need for MORE laws, but STRICTLY and CONSISTENTLY enforced. (something that many countries miss I think).
So State Secrets Act and anti-corruption laws or rules do have to be compatible and consistent. But here we have to be RELATIVELY patient with a young country. How were Western democracies 10-20-50 years ago? Probably not better for sure. And now ? hummmm Often the ones lecturing Mongolia about corruption may not be so perfect, ...may be just more sophisticated.
Just read the news out of France about the former minister in charge of budget, Mr. J. Cahuzac. ...and wait for the results of the investigations. Mongolian politicians may not feel so bad after all.
Mortgages / loans... The question is very simple. How much capital does Mongolia need in the next 5 years to address its short term, medium term, long term needs (for people, for infrastructure for people, for infrastructures that will support mining in order to get regular revenues) ?
I think I posted something on this earlier. Probably US$30-50bn all-in.
Can this be sourced as debt or equity from Mongolia, banks or investors? NO WAY, by few miles.
So raising capital, debt and equity, from foreign sources is absolutely critical.
Once GOM figures that out, then it has to DIVERSIFY
1) between capital (giving some upside while stable) and debt (keeping full upside but at the mercy of roll-over)
2) between different types and origin of investors in order to: * protect its sovereignty so that not to have to beg to IMF or else for $ * negotiate better terms having many options on the table.
Then ACT accordingly.
And to ACT in financial markets, you need to UNDERSTAND HOW THEY WORK, not assume over confident, foreigners will just run to Mongolia whatever the terms when GOM goes to the ATM machine asking for $.
So GOM has to understand all this and ACT accordingly, and be careful about any political PR stunt (for domestic purposes) because they always pop up on the international scene and may have very adverse impact.
it is exactly the OPPOSITE that GOM has done over the last 9 months just discouraging in words and actions foreign investors that could help GOM leverage the 3rd neighbour game and get more capital at better terms to jump start its growth engine...and THEN COLLECT, enjoying the spoils!!!
For a normal person, it's ok to be overconfident when you see this.
When you run a government with such a crazy to-do-list and that has raised expectations of its citizens, you just CANNOT base your assumptions on a one-off event, and the best case scenario especially when similar blunders were very costly in 2009.
Reading books or watching movies I did not have the feeling Chinggis Khan was like that. I think he was pretty much detail oriented, while that does not preclude from taking risks, as long as the return on risk (whatever is at stake) is worth it.
Also I had discussions with some politicians that were very seriously down to earth ...but unfortunately they are not getting a lot of attention because they do not promise this and that to be popular.
There may be an embedded bias (which came from the "foreign investor invasion" in 2011): "Whatever we do, those greedy people will still come in".
So anybody trying to factor in how the perception of foreigners could affect the ability of Mongolia to raise capital, and therefore trying to prevent excesses, could be deemed as WORKING FOR THE ENNEMY as a nationalist sentiment had been leveraged for and pre-june elections. (remember the OT saga along that line)
And it's not only about GOM but many other people or institutions in UB, local or foreigners!
Because I am retired, having no bias, in quite a number of situations I tried to help flagging issues (I.e. stripping problems down to pieces, + and -, proposing potential solutions as well as the logic so that people could judge and decide by THEMSELVES) that could impact Mongolia in short and medium term.... ....and in most of the cases, because it was not good news, not simple stuff, that was overlooked...and now consequences may be quite damaging.
for instance, one of the (if not THE) main issue affecting liquidity on MSE is the fact that post "upgrade" foreign institutions face serious headaches to open Escrow Accounts at the Clearing Banks to trade on MSE: Solution 1: Fly to UB to get all the required documents notarized (more or less free of charge) Solution 2: Get all those documents notarized in your financial centre, like Hong Kong, ...which may cost you more than the trip to UB. Result: quite a number of foreign investors are on stand-by, waiting for their next trip to UB (when? ....if news improve seriously and in a sustainable manner...so unlikely in the short term) to do this.
Many of those foreign investors WERE ALREADY INVESTING BEFORE JULY 2012 and have their stock portfolios at MSCH&CD are on stand by waiting, because of those Escrow Accounts headaches...especially as they have no incentive to buy....and guess what Mongolian retail investors are selling in an empty market ...and local brokers find it even more difficult to pay their staff and bills. (that impacts also the ability of GOM to sell MNT long dated bonds to foreign investors too)
Is it new? NO. It was already flagged in September 2012 and several times with serious noises in at least 2 Mongolian conferences in Hong Kong in oct-nov 2012. Any progress? Not that I am aware of. Is it complicated? No, it just requires for some people from Mongol Bank, FRC, MSE and Clearing Banks to sit together, analyse the problems, dust and upgrade their anti-money laundering rules to fix it. (there are several short term fixes) It could probably be done in one week!
In short you cannot blame inexperience but you can blame inexperienced people that are in charge when they are not listening, analysing and taking actions.
Great analysis as usual MSE. Mongolia does have good Notary services I remember being quoted $60 per page by the UK Embassy but local companies are very cheap and provide good service. Further to the ICIJ British Virgin Islands story.... http://bit.ly/12AxyIP 'ICIJ’s data analysis showed that the people setting up offshore entities lived most often in China, Hong Kong and Taiwan. Another important group of clients comes from Russia and former Soviet republics. This helps explain why the second-largest source of capital investment flowing into China is the tiny offshore tax haven of the British Virgin Islands. Similarly, a large source of investment flowing into Russia is from Cyprus, a country that also features heavily in the data – and whose financial stability was recently undermined by a crisis precipitated by Cypriot-based banks being bloated by Russian money.'
Notary services in Mongolia: Yes, very efficient, friendly, available in many places.
The legal system in Mongolia is closer to Civil Law (French and alike) than Common Law (UK, US, HK...) which explains why the role of Notary Public is different in the 2 systems.
In Hong Kong, the BVI is the basic element of capitalism. When I dealt with large groups and tycoons, our counterparty was always a BVI, guaranteed by the listed entity. When you walk in the office of those groups, you would often see a wall full of names (hundreds!), the names of the BVI subsidiaries and affiliates...and there were not trying to hide them. They were also fully disclosed in the annual reports of the listed entities and would appear in the disclosure of ownership in the stock exchange filings.
Because the system in Hong Kong is Common Law, the Notary Public has a different function, while having the same name.
In substance, it's the Lawyer, or the Certified Public Accountant that certifies true copies in Hong Kong....for very cheap or even free of charge.
In short, this problem of Escrow Account could be solved within a week if Mongol Bank - FRC - MSE: * analyse HOW financial intermediaries overseas operate in a similar situations * analyse WHAT are the related anti-money laundering laws and HOW they are applied in finance in FATF countries (the ones impacting the Escrow Accounts are ineffective (missing one essential piece) while cumbersome (killing trees for nothing)) * evaluate how to comply with the substance under a Mongolian legal system while keeping the form to a minimum, * implement, * then see the MSE turnover increase!
It probably even boils down to simple problems of translation between what is written in Mongolian in the law and its translation in English.
Whatever is the word in Mongolian law or AML rules, it has been translated as "Notarization" while a decent translation, in substance, could well be too: " Certified true copy" or even "Legalization"....which the Mongolian consulate in Hong Kong could do for a very effective price....and the problem would be solved.
Somebody has just to take this issue SERIOUSLY and tackle it.
Waiting is not likely to bring any positive outcome, while local brokers may file for bankruptcy and sell themselves to foreigners for MNT1. If that is what the nationalist sentiment is supposed to achieve, there is clearly something I don't understand.
and by the way, on their side, local companies listed on MSE are really taking this seriously because as of today
198 companies have posted their 2012 financials on the MSE website!!
For information, in October 2012, less than 100 had posted their 2011 financials.
Now I just hope that GOM, Parliament, MSE, FRC and Mongol Bank will do their part of the work so that those local companies can really raise equity and gain muscles to take advantage of opportunities NOW before big foreign firms move in.
Interesting developments Mogi what do you think is going to happen? Sensational post from Joseph Harned! If Rio does put TRQ up for sale that is a huge statement and will make the upcoming election more interesting. Maybe MCS knew this and are cashing up.
I would not scoff at Nigeria. It is the largest oil producer in Africa that sends half of its oil exports to the USA. Nigeria also has very high FX reserves for such a poor country (>50B USD). China needs Nigeria's oil a lot more than they need Mongolia's coal and copper.
Correct. l was thinking more about Nigeria's scams and online reputation. China has been doing a lot of the heavy lifting in Africa as opposed to the European's who sat around a table one day and divided it up amongst themselves then left it in ruins.
The author should not have combined the two countries into one article. The developing countries are separate in their own ways and they have their own stories to tell. Many of their points of view are really interesting. It gets more interesting when they trade amongst themselves in order to generate stronger economies.
There are big visible items (like Securities Market Law) but there are always a lot of small details bugging everybody.
Just to pick another one (other than Escrow Accounts): Capital gain tax for foreign investors trading on MSE! * how to calculate? * how to pay? * is it practical and sustainable for Mongolia? (I don't think so. Just look at what other countries do in that respect, i.e. withholding taxes on dividends to provide a regular growing income stream to tax authorities)
Right now, quite a number of foreigners got this answer to the first 2 questions: ?????
Result: They (me too) buy (for those setup) but avoid selling and trading which de facto affects liquidity because of those unknown.
Next: Once Mongolia launches an IPO on MSE only or MSE + overseas exchange, people will suddenly realize this problem is likely to undermine the IPO and rushed decisions will be taken, likely needing fixes later once side effects are becoming apparent.
What about fixing that PRO-ACTIVELY once in a while?
“The changes that we have previously announced will result in the law regulating only the activities of foreign State Owned Enterprises (SOEs) and will exclude private companies and investors. However, we have since heard that the legislation may be scrapped completely”
That I think is VERY BAD (and please keep in mind I am a foreign investor)!!
A better approach could be to amend SEFIL as such: • Applicable to Foreign SOEs (and firm controlled at +1/3 by a foreign SOE) for any investment, • Applicable to 4-5 strategic sectors well defined for investment in equity above US$1bn, • Approval from GOM within 3 months.
Foreign investors DO NOT NEED DOORS WIDE OPENED and equal opportunities with Mongolian companies AT THIS POINT IN TIME. They need a STABLE CONSISTENT PREDICTABLE environment in which to operate. Not more at this point.
It’s not because somebody is coming with a big checkbook he should be authorized to do whatever he wants. Mongolia has a small population and a stretched supply chain. Some control is needed, for the sake of serious foreign investors themselves.
Among other side effects, dropping all the safeguards would be perfect to refuel some nationalist sentiment before the next elections and a remake of may 2012. Worldwide, I don’t know many countries that IN PRACTICE (not only in theory) are wide opened, especially countries rich in commodities.
http://bit.ly/Ybgn9M "One item that drew our attention was the performance of the Human Development Fund's (HDF) February revenue where 21.3 Billion MNT (15.2 Million USD) was collected. This represents a shortfall of 45.5% over planned revenues. The Ministry of Finance has explained that thisshortage is connected to the 13.5 Billion MNT (9.6 Million USD) shortfall in minerals royalties as well as the 4.2 Billion MNT (3 Million USD) shortfall in progressive minerals royalty revenue."
The excuses are starting to flow for the underfunding of the Human Development Fund. The Chalco pre payment of $250 million USD for ETT coal was supposed to be funding the HDF and also an OT pre payment of the same amount. A stated before a lot of Mongolians will never get anything form the HDF/ election promises because they don't have a Mongolian Identity card.The real cost of the HDF will be far less han the $6 billion mentioned and no time frame is mentioned. There are others who are offering half price or less buyouts of shares for cash payments and others are accepting a drip feed of pension payments, rent assistance or tuition and health insurance.GOM took the pre payments but blame royalty revenue for the underfunding. Bayartsogt's own private wealth distribution scheme has been well covered lately. http://bit.ly/10cqcan. http://bloom.bg/17pooPn "Bayartsogt’s Democratic Party and the opposition Mongolian People’s Revolutionary Party pledged during May general elections to distribute as much as $6 billion, or up to 1.5 million tugriks ($1,060) for every citizen, from the country’s mining wealth.
"To fulfill the election pledge, the government may use a $250 million pre-payment from Oyu Tolgoi to seed its distribution program,"
http://bit.ly/XsMDIe "Oyu Tolgoi, whose development costs and schedule have been the subject of debate in Mongolia, is the primary driver of the country’s $10 billion economy" I think debt and "aid" are the primary drivers of the Mongolian economy. OT may start producing something in the future but at the moment huge debt is being accumulated and advanced. There is nothing much being moved across the border with ETT and SGS grinding to a halt and ongoing uncertainty at OT.
http://bit.ly/ZnprIb Here is a very rare case of someone being charged for offering fraudulent scholarships.He must have upset someone higher up. A much larger scam operates freely in Australia, it is run by a former GIA agent and his wife who had a senior Australian Public servant as her boyfriend. They have been offering visa's ,jobs ,scholarships and study in Australia for years and in spite of being given evidence the Australian authorities do nothing. They maintain that the $63 million spent on MASP and similar scholarships is transparent and not corrupted.
RE TRQ: Ever since Mogi changed carriers, I don't get his newsletters, and I haven't been keeping up with y'all here, so you may well be aware of this already, but my contacts in Oz tell me RIO has definitively put TRQ up for sale, along with other assets it deems "marginal" or "troublesome". That does not sound like the "long distance runner with deep pockets" some of us had counted on!
Rio since the rearranging of the deck chairs had been taking the big stick to a few trouble spots with some posturing and threats that turned out to be nothing much .If TRQ is put up for sale this could be a real barbeque stopper as we say in Australia. They have made a real mess of their PR in Mongolia and putting B grade people there who didn't want to be there.
JOE's SOLUTION: VALE buys RIO's 51% stake at a concessionary price, and with a clean slate and some confidence-building measures from GOM unilaterally declares it to be a 49% stake, thereby finessing the silliness issue and getting the whole project off the dime with new eyes, new ears, new cred, and clean profile. What say You?
Joe, not getting them huh? I started using MailChimp and seems a lot of people stopped getting them. Do keep checking your spam folder, or give me a different email to check.
That is false. Rio is only putting non-OT TRQ holdings up for sale, like SouthGobi, Ivanhoe Australia. OT is NOT up for sale.
As the Americans say they might be "all hat and no cattle". SGS is a real mess they never dealt with the big problems such as the declared payments to Enkhbayar via Monnis and the Sarah Armstrong and Justin Kapla ongoing saga. The Rio strategy seems to be to gag the real stories "ring fence" and concentrate on OT and try not to make any more mistakes.
Maybe Rio knows it will be used negatively in the upcoming election and they want to clean up some of the mess before that time. l can't see how it will help Justin Kapla. Imagine if he was detained/ restricted in another country the US might have taken a very different path.
Disclaimer: I never worked for GS, I am not pro-GS, and in fact probably just the opposite. But I think it would be totally ridiculous for GOM to sue GS on that basis.
GOM would end up looking so bad, with people laughing all around.
I have been a member of those resources/conflicts-of... committees when a bank had to decide if: • It can allocate resources to execute a potential mandate, • There is any potential conflict of interest, • There is any reputation issue, • This potential mandate is worth it, • Some ring fencing could be put in place between teams working on conflicted projects (it DOES happen and THERE ARE solutions!), • And in short it is worth pitching for such the mandate.
US$250k for an advisory mandate from GS to GOM WAS POCKET MONEY, GS working AT LOSS.
GS likely pitched for this just because at that time (not last year for sure) being associated with the sovereign was something viewed positively that could trigger other businesses from other clients, in short getting sovereign league tables credit for PR. That was more or less “charitable work” for GS and they probably deeply regret this costly waste of time.
Honestly, I don’t think at this point in time any big investment bank would see GOM as a great potential $ fees opportunity generator and would therefore allocate a lot of time of very senior people!
$ opportunities are ON THE OTHER SIDE with RIO, Anglo American, BHP, ….. There are not for their businesses in Mongolia, but for their WORLDWIDE business, through full service banking, M&A, ECM, DCM, general corporate finance.
If GOM was suing GS, in Mongolia or elsewhere, for US$250k, it would simply isolate itself from those big banks that GOM does really need ANYWAY….while those banks don’t need GOM.
If GOM was going after GS for US$250k, there is a simple very likely outcome: GS could dump a US$250k check on the PM’s desk with a very short unpleasant comment… …and trust me ANY INVESTMENT BANK would hear of it! Then this story would come back during ANY committee of those banks when considering pitching for an investment bank mandate for GOM and a likely conclusion could be: “Not worth the trouble for now”.
GOM would be US$250k richer … but the cost of this would a very high multiple of it.
If GOM really believes GS was in the middle of a conflict of interests and did not take adequate solutions to avoid damages to any party, then GOM has much more effective private solutions to “settle” this.
Now on GOM’ side, it raises several questions: • It’s not rocket science for anybody, especially institutions, dealing with investment banks to understand what I just underlined, so I expect that GOM did not take for face value all the advices from GS but thought about them, asked for explanations, justifications,…before following, if relevant, those advices. The advisor does not decide. The client does and therefore the client has to analyze the logic behind the advices and exercise personal judgment because in the end it suffers the consequences and enjoys the benefits. • Is it a good return for the Mongolian population at large if GOM goes after GS for a US$250k fee because of an alleged conflict of interest? That would be a costly exercise, in time and money, and I thought GOM had much more important / relevant priorities for Mongolians, but I am not Mongolian so may be I miss something.
Another collateral damage of what has been happening, or not happening over the last years!
Mongolian banking sector is way too small to cope with a fraction of the needs triggered by the evolution of Mongolia now. The equity of the banks is tiny so over-reliance on domestic lending over-exposed their tiny capital base to shocks, like those GOM generated over the last 9 months.
Like it or not, Mongolia is totally DEPENDANT on DIVERSIFIED (types and origins) sources of foreign capital, equity and debt, to jump start its growth engine. See previous posts.
Denial is no solution. Serious tangible actions are long overdue.
http://bit.ly/YGmPua Further to the Rio PR disaster in Mongolia. It is very insulting for Mongolian people to see the cosy arrangement of Monnis Tower ie. OT and Rio offices, The use of Chuulunbaatar the head of Monnis as Enkhbayar/Friedland intermediary and recipient of over $30 million in "private placements" just from South Gobi some declared and others not. If they want to improve their PR a good first step would be to find a new office and disassociate themselves from certain people.
http://mwne.ws/15cwcUZ Forgot to mention Chuulunbaatar being appointed to the board of Prophecy coal. The days of the one stop corruption shop are over.
DP taking a few hits recently http://bit.ly/11hnHS1 http://bit.ly/XGYOkQ D. Bathuyag former Chairman of the Mineral Resources Authority a key player in the South Gobi mess has had his jail sentence reduced by 2.6 years. http://bit.ly/11hnI8j Are they serious? This is the guy who recently sold his seat to MAK for $500,000 so that the Boss could install his son into the Ikh Hural. He also cleaned out the Savings Bank of $1.4 million USD and blew it at a Seoul Casino. http://bit.ly/XGYOkW http://bit.ly/11hnH4c
Right: Of course GOM has to keep an eye on OT LLC numbers.
Wrong: DP lead GOM took over in august-sept and OT was item #1 in the list so de facto an in depth audit of OT was to be done at once in sept-oct!!!!
It's not because GOM had not to contribute in cash to OT that it was a free lunch and that there was no need to pay attention for the new comers.
GOM should know WEEKLY or MONTHLY what was happening at OT!! If Mongolian board members did not inform GOM REAL TIME, may be it's something to settle between Mongolians to start with! Joined and several responsibilities!!!
At this point in time, this kind of comment is not exactly positive for the credibility of GOM.
Better silence until SUSTAINABLE ACTION AND AGREEMENT WITH RIO are in INKED and in PLACE to have crystal clear announcement...for the sake of all, Mongolia to start with. (If Mongolia wants to have decent regular sustainable access to international, it'd better prove it understands how those work)
We already saw the effects of unintended consequences from speeches and comments from GOM over the last few months.
Ch . Ulaan is one of the dirtiest of the current crop of Mongolian politicians as previously posted. For him to be Minister of Finance is a disgrace to the Mongolian people.
Its the first stage of Foreign Investment laws. They want to have GOM control of Foreign investments over $1 billion tg. amongst other things.They are also trying to get rid of the current PM .
I prefer the third link and the last talking about ETT re starting is interesting. No details about the deal? If it is under the same terms then it is costing the people of Mongolia to truck coal across the border to Chalco who then are on selling a large part of it to Japan and Korea.
"The Mining Minister stated that international investors agreed to stop spreading and feeding negative news and messages through its’ associated PR companies and media channels".
Am I dreaming or what?
What about real, tangible, sustainable actions from GOM to start with?
This is why Jon's blog has a role to play in posting information and "germane" news as Jon calls it.It is ridiculous for the Mining Minister to speak on behalf of international investors. People like you MSE are sophisticated and very experienced and are stating facts as you see them.GOM is trying to control the media but in 2013 that is increasingly difficult. Mentioning getting oil from Korea in the same article as the TT re start is interesting perhaps this is a factor as some of the coal was being on sold to Korea? As for Ch. Ulaan , I think the IAAC will deal with him soon but he is right that a lot of the bad decisions and deals were made by the previous cabinet. I think a lot of international investors and their PR companies and consultants actually talked up Mongolia. A good example would be Peter Epstein and his role as a paid consultant for South Gobi. It is only recently that poor communication and decision making is taking its toll. Mongolia is no longer a closed and isolated place if they are trading on open markets they will experience the reactions from negative news. I note that GOM recently hired its own American PR company lets see what they can do.
Mr. Epstein reported recently that he is largely out of coal stocks at least for the time being. http://seekingalpha.co... Maybe the new developments in coal bed methane extraction will encourage a revival in the coal sector. http://seekingalpha.co...
http://seekingalpha.co... " Please note that Peter Epstein is a paid consultant for SouthGobi.SouthGobi has chosen not to meet with me, both this past September 2011 and during my current 18 day trip here in February 2012."
Then afterwards, TRQ activity on NYSE was: -1.60% with a volume of 1,426,367, the lowest of the last 5 days!
The impact is Z.E.R.O.!
Obviously whatever positive declaration GOM makes, President included, has limited or zero impact for international investors. They are probably simply waiting for REAL, TANGIBLE, SUSTAINABLE ACTIONS OVER TIME to see if all this is real or just political noise.
The last 9 months give them good reasons to have doubts, including some very recent comments like this one.
Ratings may be one thing and people in finance don't take that for face value, but CREDIBILITY is much more important for a country like Mongolia is dire need for capital and it's not WORDS that can fix that in the short term.
I agree completely. I am currently in Singapore on ice breaker meetings to raise funds for a project in Mongolia and it is absolutely dismal here. Investors are heavily discounting the upside due to political risk and operational risk.
The mining projects must come first in Mongolia, because those are the only projects that investors are willing to take risk in as the rewards are potentially exponential. Mining is the backbone and cornerstone of Mongolia's growth story. Without real actions that the GOM is completely committed to OT and will not attempt another renegotiation, most investors will not commit to mining projects either.
There are plenty of mining, oil & gas projects in Indonesia and Africa. Investors do not need Mongolia. China does not need Mongolia either.
But hey, where there is chaos, there is opportunity. :)
Foreign investors can decode the OT / Chalco saga in a very simple way and ask themselves a very simple question:
If China and/or RIO and/or Russia cannot manage smoothly their project in Mongolia and are banging their head on the wall, what are the odds for me smaller guy to expect something fair?
"But hey, where there is chaos, there is opportunity. :) "
Agreed, that makes my day, i.e. I can still find very attractive prices on some MSE listed stocks for now, because I am already setup, patient with plenty of time and there is limited competition as most foreign investors are deterred from coming in many many ways.
BUT THAT DOES NOT HELP MONGOLIA I the short term / medium term :)
I have a feeling that Mongolia and Mongolians needs more capital to flow in that whatever YOU and I can provide.
If GOM and Mongolia want to have good deals, CHOICES, CONTROL ITS FUTURE instead of having it imposed (2009?), they need to fix this ASAP ...especially as weather is getting better and foreigners may be thinking about coming for conferences. If NOTHING VERY SERIOUS is done then those investors will look elsewhere.
By the way, a group of financial investors from Hong Kong was 9 months ago considering a trip to Mongolia in may-june to understand financial markets (as I did a bit of lobbying and offered to help with introductions here and there).
In January, after reading the flow of "news" and "stories" from UB they dropped Mongolia and went for the plan B: JAKARTA !!!
No comment.
http://on.wsj.com/ZLz9Ei For instance in Indonesia, where there are clearly a lot of resources !!!!
Mongolia has plenty of competition for selling its mining ores, that is for sure. Myanmar, for instance, is just really beginning to offer to world markets its supply of base metals and industrial minerals. And Myanmar isn't landlocked, either. http://bit.ly/ZFr0VP http://bit.ly/ZLAwCM http://seekingalpha.co...
Jakarta's location is fortuitous, too. Just imagine being situated between the markets of China, India and Australia. Mongolia needs to take more steps to attract foreign investors only for the sake of being located a bit out of the way of most of the Asian commercial traffic. http://bit.ly/14Mw8fQ http://bit.ly/11z7hHt
"You've got to know when to hold 'em Know when to fold 'em Know when to walk away Know when to run You never count your money When you're sittin' at the table There'll be time enough for countin' When the dealin's done" Apologies to Kenny Rodgers.
“The amendment passed on Friday will exempt privately-owned foreign companies from the approval of parliament, but they will still need approval from both the minister of economic development and the department minister for the industry in which the company operates. The approval process will be triggered by any transaction involving 33 percent or more of a strategic entity, according to the original law. But the amendments also tightened the restrictions on foreign state-owned entities (SOEs), removing a 100-billion tugrik ($71 million) threshold triggering government intervention. That means all foreign SOEs will need the approval of Mongolia's cabinet in order to buy into a Mongolian firm, regardless of the size of the stake. For purchases of stakes of more than 49 percent, the approval of parliament will also be required.”
Honestly I think it is GOOD and it is ENOUGH!!! Absolutely no need to do more!!!
I (and I am not Mongolian) don’t think FOREIGNERS SHOULD HAVE EQUAL OPPORTUNITIES in strategic sectors!
It’s normal that GOM has to give a blessing above 33% on strategic stakes even for non SOEs.
Now the most important: GOM has to support its words with actions and prove ASAP with some real examples / templates that this process is: STRAIGHT, FAIR, SMOOTH, PREDICTABLE.
Then the perceptions of: * unknown, * uncertainty * volatility that prevail now among foreigners may decrease substantially.
So I suggest that MED looks at its pile of projects waiting for approval, picks the most relevant and implement this.
http://bit.ly/11iavO1 MPP is continuing to attack the PM. "MPP claims that it needs to verify some data of dismissed state staff, whether the Central Bank bought gold with Chinggis bond assets and if the Prime Minister`s relative won a tender in Tavantolgoi unfairly in order to add more reasons behind their demand for the Prime Minister`s resignation." They are trying to make him the scapegoat for the drop in Foreign investment. If they bought gold with some of the Chinggis bond money the timing couldn't have been worse with the recent plunge in the gold price. "Most of the proceeds from the Chinggis Bond are still in MongolBank and have not been spent." I wonder hpw much was spent on gold? This quote from Pat O'Connell, Mongolia's resident debt advisor. Mongolia's PM is a powerful position and when PM Enkhbayar made most of his money.MPP is trying to get rid of Altanhuyag. Nearly all Mongolia's politicians have "won tenders" with their thinly veiled companies eg. Nomads.Bodi and Monnis. It is an essential part of doing business in Mongolia.
Thehttp://english.news... "Chairman of the DP caucus was asked about the rejection on a suggestion made by the opposition MPP caucus to establish a working group due to a report that the Central Bank of Mongolia might be buying gold with the assets of the Chinggis bond.
D.Erdenebat explained the rejection by saying “The Central Bank is not subject to the Government according to law. It belongs to the structure of Parliament. Any hearings from Parliament are open. "
Why a brutal reversal on both ETT (delivering again coal to Chalco) and OT? http://buswk.co/ZjMxUC
May be because of the Fiscal Stability Law!!! If there is no export from ETT and OT, then the budget deficit may be impacted and the governor spells out that: • The budget deficit is capped 2% of GDP, • The borrowing limit is capped at 50% of the GDP.
So may be a limit of tolerance had been reached on the standstills at ETT and OT and de facto, * Budget Deficit has to decreased AND * GDP to grow!!!
May be in the future, GOM should think about encouraging other foreigners to develop businesses (income generators) in Mongolia to limit its dependence on those 2 !!
If they raise funds in JPY and CNY, then Japanese and Chinese commercial banks will be keen to lend to support Japanese and Chinese contractors, especially if the country risk is covered by the Japanese and Chinese government through the Exim-banks. It's as simple as that, and also because if it was pulling too hard on the US$ string now...it may BREAK!
On top, as all those central banks are printing, it makes sense to diversify borrowing to benefit from general competitive devaluations between USD, JPY, CNY, EUR, GBP.
US$1.5bn ? It may still be in the account at Mongol Bank for now but there is already a long list of commitments for this, and the needs in term of capital for Mongolia are a LARGE multiple of this, say X15 or X20 !
Now they'd better move fast to restore investors (of all kind) confidence to get their growth engine up and running.
Moreover for railways, you need loans a bit longer than 5 years because you don't really get your return on capital so fast.
In borrowing this way, GOM is seeking funds from DIFFERENT LENDERS which is ALWAYS a good idea. You JUST DON'T WANT TO BE AT THE MERCY of one market and one type of investors, and whatever event (else) affecting that market. So for me it's wise.
http://bloom.bg/ZPShSx This is getting beyond a joke. Now after the MCA/MCC is about to wind up its compact with Mongolia.The failure of their center piece project the road from UB to Zamin Uud is now replaced by a new toll road to be finished in 2015.This has no chance of happening on time or on budget.
In short, his message is: "get down to earth quickly, get ETT up and running (i.e. PRODUCING (even if it's below cost for now) asap and stop disturbing RIO on OT because you are in serious needs for the revenues it generates, directly and indirectly, otherwise you will fail big time to meet the requirements of YOUR OWN Financial Stability Law".
In that respect, a member of GOM that jeopardizes OT's business and delays production is de facto responsible for breaching that law. Is my understanding correct ?
If OT does start producing anything then GOM will have to start repaying its 34% of the $6 billion USD start up costs which it has as debt to Turquoise Hill. What is the arrangement for paying back this debt and when will there be any tangible benefits to the Mongolian people? Any revenue generated will go to the already massive debt repayments. The article is basically a summary of what we have been talking about recently but good to see an Australian comment.
Also on ETT, the decision to stop exporting coal to Chalco was also suicidal, especially when fighting with RIO on OT's budget therefore delaying production and $ inflow.
Then during all that time, other foreign private equity investors were just waiting, not sending $ to their Mongolian operations delaying production of just everything as well as taxes and royalties.
The general attitude was wait-and-see! If things could not be normalized between RIO and GOM why would smaller guys expect to be able to conduct their business normally there. Very simple.
It is also suicidal to move coal to Chalco for less than it costs to produce and transport. Enebish and others who were involved in this poor deal have ruined the chance for Mongolia to get off to a good start with ETT. Chalco knows it can bribe to get a good deal for them and as usual Mongolian officials sell out their own people for 20 pieces of silver. "RIO and OT can borrow relatively cheaply and GOM will benefit from this!!" EBRD and ADB. Recently resigned Bayartsogt was governor of both these banks that have approved massive loans already for OT. This seems to be suiting Rio but not the people of Mongolia as their start up costs remain as debt to Turquiose Hill who will no doubt charge them higher interest than the deal arranged by Bayartsogt?
No it's not to do that for few months or a year at that point in time as Mongolia needs the cash flows. The benefits are much more than the negatives for Mongolia at large.
Anyway, you think what you want. I am telling you as I see it without bias. If Mongolians have problems with some of their politicians, they should not elect them but send them to court. I heard so many time Mongolians were proud of their democratic system. Then put it at good use.
Actions related to business with foreigners impact the cash flows Mongolia at large and Mongolians badly need NOW.
Mogi has already mentioned this regarding the resumption of coal exports from ETT. This seems to be 2X crazy first it is costing money for ETT to deliver then they are paying a higher interest rate than first agreed for the money already advanced. Not sustainable and falling into the hands of MMC. "Mongolia’s largest state-owned coal company, agreed to pay a higher interest rate on $186 million due to Aluminum Corp. of China Ltd. as part of an accord to resume coal deliveries." Mogi also says Friedland's stake in Turquoise is now only around 8%
RIO is not there to make the live of GOM and Mongolians miserable. It has nothing to win there.
ONCE there is a clear agreement between GOM and RIO and Mongolian MPs stop fighting for something they don’t even know, then the CREDIT of OT, TRQ and Mongolia improves big time! The political premium decreases.
Part 1: RIO and OT can borrow relatively cheaply and GOM will benefit from this!! OT gets funding for the second phase, in very good conditions because the POLITICAL RISK is perceived lower. Once RIO has insurance GOM is not there to backstab them, then it can go FULL STEAM AHEAD produce as much and as fast as possible FOR THE SAKE OF ALL, to catch up with time wasted, but also to prove to Mongolia it is a reliable partner it can count on. Even if cash flows from production are not coming TODAY to GOM, the fact problems are settled (TANGIBLE ACTIONS NEEDED) and everybody is acting in good faith, means Mongolia can easily get short term funding in good conditions to plug short term holes. If GOM settles nicely with RIO with REAL AND TANGIBLE ACTIONS then Chinggis Bond II will be a walk in the park!
Part 2 If GOM can settle peaceful with RIO on OT (tangible actions needed), it is a TEMPLATE for all other foreign investors and FDI will flow in even faster than in 2011.
If GOM keeps on the guerilla with RIO, even a US$1.5bn debt is UNSUSTAINABLE in this environment.
If GOM settles with RIO and really works SERIOUSLY as a team player, the current debt is something RIDICULOUSLY LOW compared to what Mongolia and Mongolian will be showered with! Your country is VERY RICH and all MONGOLIANS can benefit very seriously from this (even if it’s never fair an equal, it will be a lot) so fighting for a higher % of the $ pie while reducing the total $ amount was not smart at all. That is why I was so upset about what happened over the last 12 months because what GOM and MPs were doing was not in the best interest of my friends, Mongolians in UB, while pretending to do so!!! Even US$10bn debt over 15 years, or more, invested wisely in infrastructure should be NO PROBLEM to repay while enjoying a much higher quality of life. On top, foreigners will inject EQUITY taking a lot of the risks on their own making the debt burden for Mongolia even lower.
Remember, I am investing on MSE listed stocks, i.e. local companies (most are not mines!), since 2011, and keep on buying so if Mongolia had not this kind of potential, I would not bother wasting my time and money.
I am still wondering if those going after RIO on OT thought about this more than 5 mn. That was plain suicidal.
So don't worry about the debt. Worry about your government having some common sense and getting down to earth.
Thank you for sharing your wise words, MSE Investor. Currently we are waiting for assurances that we can show to foreign investors that the GOM will not interfere with OT, non SOE foreign investments, and overall mining projects. Before then, foreign investors are heavily discounting the political risk and operational risks in Mongolia; most do not even care about Mongolia anymore. I'm afraid even after Mongolia is on the right path, it will take quite some time to rebuild the confidence of foreign investors.
It takes a while to build but it goes fast, so at this point it will boil down to REALLY TANGIBLE ACTIONS... ...while 2 years ago Mongolia had a good "credit", had much more flexibility, not much to do and had just to enjoy FDI that was helping Mongolia to modernize and Mongolians to enjoy a better life.
May be Mongolians should go visit Qatar and check how all this happened over the last 30-40 years.
The good credit is evaporating fast. Not long ago UB was called Ulaanqatar and Minegolia, maybe it should be called Whinegolia and Ulaanbarter as they might be reduced to a barter system soon.
Unions have had demonstrations in UB about the lack of jobs for Mongolians at OT as well. They have a stated aim of employing 90% Mongolians but the number now is nothing like that with over 7000 Chinese during the construction phase. OT's aim is very different to he reality. Another PR mess. If they are sending coal to Chalco as a charity and below cost then they have to try and make savings.They don't want union troublemakers and they don't care about creating good jobs and conditions for Mongolian workers.
As long as GOM does not SERIOUSLY encourage with TANGIBLE ACTIONS foreign money to flow in asap, Mongolians, and not only Mongolian workers, will be very unhappy.
"Planned resumption of field activities and confirmation of licenses standing: Despite recent speculation driven by an ongoing Mongolian court case, Kincora has had confirmation from the Mineral Resources Authority of Mongolia (“MRAM”) that all its licenses remain in good order. A staged systematic exploration programme is planned with field season activities expected to recommence within the next month."
Elsewhere or even in Mongolia 2 years ago, that would have been enough.
it may be a good idea to have CLEAR CONFIRMATION of this from MRAM or the PM himself !
GOM and related institutions have to understand that if they intend to raise capital, debt, equity ...or syndicated loans, from foreign investors, through local market or foreign markets, it'd better pay attention on how to handle PRICE SENSITIVE INFORMATION because that seriously impacts the COUNTRY RISK PREMIUM!!
http://bit.ly/18p0qUP "The offer fell apart after Japan and South Korea called the bidding process unfair and Mongolia’s National Security Council, which reviews large foreign investment projects, rejected the plan." The offer fell apart because corrupt officials such as Enebish signed off on a stupid deal with Chalco. This deal now has a higher interest payment on the money advanced from Chalco and it still cost the people of Mongolia more than they get paid for delivering coal to Chalco.
It sounds like a public- private partnership or state- sponsored enterprise or joint effort. http://bit.ly/YvJUhU http://bit.ly/10s3Lfq Maybe this project, the rail line being constructed between the coal mines and the Chinese border, will show what can be a workable arrangement between government and industry to help build the rest of the rail network in Mongolia. http://bit.ly/10s3Lfs http://bit.ly/YvJRm4 http://bit.ly/YvJRm2
It's about time. Hopefully soon they will install some automated coal loading machines that will load coal directly into the containers on rail. Manually loading coal onto trucks to be transported to China is the most difficult part of the coal logistics business.
http://bit.ly/16ogKWN Japan was supposed to be getting ETT coal via Chalco as part of the $250 million advance to GOM. Japan has tried for centuries to get a foothold in China and Mongolia, as Mongolia's most recent invader following their creation of Manchukuo and their archeological attempts to create a link between Mongolian people and Japanese I would be wary of their motives. They are trying to get Mongolia indebted to them for the supposed new Airport at Terelj and their "generous" low interest long term loan which will service the casino and link to Japan Town on the Zaisan side of the Tuul River.
Here are a couple of primary sources with links about Japanese economic and social efforts in Mongolia. http://bit.ly/10mgKSM http://bit.ly/10ToAz8 Since Japan is relatively poor in raw materials, they probably will be interested in remaining a good customer for Mongolian natural resources, woolen articles and some other items.
I understand your concern, dulleyefarmer, that the battle was mainly fought against Mongolia. But I say "that was against Stalin" instead of "that was against Marshal Choibalsan" mostly because the Japanese were ultimately aiming to control the main railroad junction near Chita, which the Japanese had controlled for a short time when they interfered in the Russian Civil War just after World War One. By controlling that railroad junction they could prevent Stalin's troops from moving eastward along the Trans- Siberian Railway to Khabarovsk and Vladivostok and southeastward through Manchukuo to Port Arthur and the Korean Peninsula along the Chinese Eastern Railway. They were afraid that Stalin was making the Soviet Union strong enough by 1939 to overturn the results of the Russo- Japanese War of 1904-1905 which happened in their favor. So I think the Japanese aggressors of 1939 were actually thinking of heading north into Siberia from the area of the Mongolian- Manchukuo border incidents and not further west into Mongolia. http://bit.ly/12ssKT4 http://bit.ly/YTFjrW At any rate, there should not be any worry about a recurrence of that situation in these times. The geopolitical situation of 2013 in Northeast Asia is way different than that of 1939.
I'm thinking along the lines that probably the more Japanese investments in Siberia take shape, the greater the likelihood that trade between Mongolia and Japan will increase by way of Siberia. http://bit.ly/11Nd6VB http://bit.ly/188wStx http://bit.ly/188wStz
http://bit.ly/166WHN6 As predicted months ago the Presidential election should be an easy victory for Elbegdorj. Interesting choices by MPRP and MPP a woman and a popular wrestler as opposed to some very dirty potential candidates who have all but conceded this election to the DP.
http://bit.ly/ZYJIFf A loan for OT with no details made public by a Government that is about to lose office in September. This also follows the US refusal to support it supposedly on environmental grounds.
http://bit.ly/YWFanL Glad to see that the Asia Foundation is not heading/ organizing and speaking for the electoral observer team for the forthcoming presidential election. Lets hope Dame Audrey can do a better job than William Infante did in 2008 and that she has the resources to attend more than the <10%? of stations that were attended last time.
I hope that some of the observer team will be brave enough to mention what really happens. The 2008 election saw not just a blackout of the "press' except for MNB but the shutdown of the internet. Tanks were deployed and people shot dead in the streets. Who ordered the response?Hundreds of people many innocent and political rivals were imprisoned in Gandshudag.
It was never a good idea to have TAF, an organization founded by the CIA in 1951 as the committee for free Asia as electoral observers.There doesn't seem to be much political grooming going on yet? Will the observer team monitor the appalling standard of political advertising and monetary promises?
http://bit.ly/14rvdNo "EFIC's decision to lend money to Rio comes despite Australia's Productivity Commission urging the organisation to ''substantially reorientate'' its focus toward small exporters, rather than big companies that can easily source money elsewhere at low interest rates." Why are Australian taxpayers paying for this? 34% of these set up loans are liabilities for the GOM and will have to be repayed at a higher interest rate as debt to Turquiose Hill. Australia has already wasted over $63 million dollars in Mongolia since 1995.
http://bit.ly/12KcYlf Regarding the attempt to sue Bayartsogt, this has no chance as stated before the IAAC is DP controlled. He has resigned his position and will get a slap on the wrist then return later. “Eight NGOs delivered the request to the Anti-Corruption Authority today, May 7th.” Which organizations delivered this request? Are they Mongolian as the article is written by a Mongolian? These are all god points but l don’t think he will be giving any answers. Over 42,000 public officials are required to gve their income statements to the IAAC most of them are lies a.The most famous one was Enkhbayar who claimed that he only wned one apartment in Ub and a saddle given to hm by George Bush! http://bit.ly/16GyCwf I love a good spy story unfortunately l think K.Sairaan is in deep trouble. It’s very interesting to see his connection to the former PM Bayar. Another former advisor to Bayar and former Ambassador to Australia Jambaldorj has just been given a plum job as Mongolia’s permanent representative at ASEAN. I wonder what we are to make of this. Will Bayar make his anticipated comeback at the next election cycle?
http://bit.ly/12F3U28 "According to the Presidential Election law no online or physical press should insult or release slanderous comments related to candidates during the period of the Presidential Election. " This is missing the point of a media crackdown as some leaders are already protected under Mongolian law. The biggest problem is the standard of advertising by the political parties and the seemingly unregulated advertising lndustry.Enkhbayar had his TV9 and various newspapers along with key editorial placements.
The election circus is starting. Former PM Bayar who lives in Canada and former General Secretary of the MPP U. Khurelsukh who is now "studying" in Australia are coming back to Mongolia to help out Bat Erdene in the election campaign. Khurelsukh as previously posted famously cleaned out the Mongolian savings Bank of $1.4 million USD and with 2 others blew it at a Seoul casino. He escaped conviction but a female Bank employee was sentenced to 6 years jail.Enkhbayar's wife flew to Korea to get the proof so that Enkhbayar could use it against him. After the MPP's poor performance in the last general election he resigned hen sold his seat to the Boss of MAK company Nyamtaisha who plans to install his son in the Ikh Hural. The seat was reportedly sold for $500,000 and Khurelsukh at the time said he needed to go to Korea to help his sick wife. If he is studying on an Australian Government Scholarship or Leadership program then some serious questions need to be asked. These programs have recently provided a tax payer funded education for the General Secretary of the MPRP.There are many examples of the MASP corruption going back to 1995 and involving over $63 million. T
Mongolia Weekly Update 366 comments
This blog is about investing-related news from Mongolia. New posts appear in the comments at the bottom of this web page. This blog was once a weekly round-up of such news (hence, the name), but is now updated with germane news as it happens.
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Free Overviews Of Mongolia:
2013 Mongolia Investment Climate Statement by the U.S. Embassy in Mongolia (excellent discussion of risks of investing in Mongolia)
Eurasia Capital Outlook 2011 (dated January 11, 2011)
ResCap Mongolia 101 (dated January 24, 2011)
The Mongolian Real Estate Report Executive Summary 2012 (dated October 21, 2011; full report is $1,200, but this is free)
Mongolia Growth Group External Reports Page (links to the current reports from the World Bank of Mongolia, National Statistics Office Of Mongolia, and more)
Capitalist Exploits Mongolia Report (interview series that can be downloaded, from fall 2011)
2009 Mineral Yearbook on Mongolia by U.S. Geological Survey
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Mongolia Weekly Update Recommends:
Mongolian Economy (free)
De Facto (free, video interviews with non-Mongolians are in English after introductory minute)
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John Polomny (free to follow on Seeking Alpha)
Bill Fleckenstein ($120/year, daily commentary and questions answered)
Futures Asia (free, a great source of information on Vietnam investing; see this note on the Vietnam ETF VNM for example)
Emerging Frontiers Blog by Leopard Capital
Disclosures: I am long Mongolia Growth Group (MNGGF.PK), Mongolian Mining Corporation (MOGLF.PK), and Voyager Resources (VOYRF.PK) as well as investments on the Mongolia Stock Exchange.
I have two active brokerage accounts open in Mongolia to invest in the Mongolia Stock Exchange. They are with BDSec and Eurasia Capital.
Additionally, I have a regular exchange of information (though no accounts) with the following brokerages in Mongolia: National Securities and ResCap. At last count there are 88 brokerages open in Mongolia (April 2012), up from 49 in July 2011. Brokerage accounts are in a transitional period with the regulations of Mongolian SCHCD, MSE, and FRC, all being changed for the better.
While investments on the Mongolia Stock Exchange is, for now, a topic beyond the scope of this news blog, in the spirit of full disclosure, I currently own the following companies traded on the Mongolia Stock Exchange: APU, Baganuur, Remicon, Sharyn Gol, Shivee Ovoo, Tavan Tolgoi (aka little TT).
I do not live in Mongolia. I have spent time there:
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After investing on MSE listed stocks for already 9 months, last year I went for the first time to visit some companies. The list was a combination of my ideas, my broker’s ideas as well as his colleagues and some random factors.
We went to visit a company where my broker has booked a low profile (I did not want to raise expectations nor waste time of a senior executive) meeting with somebody in middle management.
As we were waiting in a meeting room next to the CEO’s office for 15mn, the CEO asked what we were doing here and invited us in his office. A member of the board (as well as the holding company) joined in as he was around.
I explained I have been buying his stock for 9 months without really knowing what I was buying, just on the basis on the sector, critical for the Mongolian supply chain.
He had a great laugh and the meeting turn very relax and friendly. He was wondering how I could have been so patient buying his stock while the free float is very very small, really!
The CEO explained their business and then offered us a tour of the facilities. Engineer by training (turned investment banker) I was able to appreciate the technical explanations. The facilities were impressive, the CEO was good, very good.
Reacting as an investment banker, I thought he would do so well in a road show promoting his company for a placement. Both slick and knowledgeable, welcoming and answering questions.
Realizing I was a retired investment banker, he was also curious about ideas, a bit outside the box, I was bouncing. He offered that for my next trip to UB he would introduce me to the owner of the group.
As the annual results were not yet public, I did not even bother asking about numbers.
Also very transparent, he told us that ALL their production was sold to the holding company, exclusive distributor.
At this point a normal investor would have just run away assuming that a good chunk of the margin would be captured by the private holding company, not the listed entity. As a perfectly paranoid control freak having done business in Indonesia that was crossing my mind.
I don’t know if they did or did not do that before and I DON’T CARE.
What I understood is that with such an impressive executive in charge and such a facility, those guys were not kidding.
I imagined that if the owner had the choice between 90% (for instance) of the current firm or 60% of a firm 10 times bigger he would easily go for the second alternative, and to achieve that, the business organization would have to converge toward normal standards, the past, whatever it was, being only the past, sunk costs.
So I went back home and bought more shares with the view that 5-10 years from now this would be a superb company while 2011 financials were not exactly stellar, rather poor.
A year after,
the 2012 numbers ARE VERY GOOD with earnings growth being a large multiple of +100% and now its PER does not look unusual. So obviously all the profit margins from the listed company were not squeezed by the holding company!
Common sense turning into reality. My reading seemed correct.
Another good year like that leveraging the boom and I am pretty much sure it will pop up on most radar screens, may be the company could raise equity to grow and… increase its float.
My point is that there are MANY MSE listed companies like this one, below radar screen, where investors could question, rightly or wrongly, corporate governance practices, unsophistication…
But what does matter is the TREND, not the absolute level where they are! Are they going in the right direction offering those patient enough to dig for information, MSE website or on the ground visits, with a bit of common sense, imagine how they can benefit if the GDP is multiplied by 2,3,5…who knows… great opportunities to pick potential winners.
Of course the most difficult part is …accumulating shares on MSE…which requires serious patience as average ticket size is very low (to the best of my knowledge there is NO Mongolian fund investing ONLY on MSE listed stocks), but there is no free lunch in that world so at this point it’s D.I.Y. with bold patience.
Investors have to view MSE listed stocks not as stocks expecting normal performance but like perpetual call options on the GDP of Mongolia for the next 5-10 years aiming for x10 or x20 the “premium” paid.
As of course Efficient Market Hypothesis does not apply for now, and picking THE winner is mission impossible, a good solution is to pile in as many options as possible so that the ones that pay x5, x10, x20, x100… will offset the ones going bankrupt.
By the way, for now those numbers are not coming from another planet.
The case study is Silikat (SIL). Imagine that in 2010 you bought ONE share at MNT 458 (average) and did not do anything else, being diluted by the equity raising (and split post reval), then one year after, in MNT you are up x90.
It’s real. Check the MSE website.
There are gems there but they don't always look very shiny.
Even the foreign companies during business in Mongolia have some good stories, too, so I can well imagine the native ones have plenty of good stories.
http://bit.ly/Z63VgW
So I imagine that for somebody who does, it's even easier to find gems on the MSE.
The good news, for now, is that they are small, overlooked, well below the radar screens of fund managers and as we know, thanks to the new Escrow Account system, a lot of foreign investors are grounded so it is still possible for patient guys to accumulate those (better have long list and grab what's falling).
Also those are not START-UP with all kind of IF, BUT, MAY BE, SUBJECT TO...they are existing companies with staff that operate as usual and are nicely adapting to the new situation, starting by posting their 2012 financials on MSE website much faster than before.
Did you subscribe to the Chinggis bond, and are you buying MMC?
I don't understand the machinations of your world but it seems to me that MMC is listed offshore and seems to have the nod in swallowing ETT along with any bond funded infrastructure.
I was told recently by an extremely well connected person that the foreigners will soon be gone and it will be a small glitch in Mongolia's history.
The Od couple seem to be untouchable as Mongolia's richest they move effortlessly through the politics to get what they want. The glass monstrosity next to the old Cultural Palace is a great example. It was former park land and was refused building permission until MCS made Enkhbayar a silent partner. Now it houses their Chinese partners interests Robert Kuok.
Chinggis Bond: no I did not and will not buy any bond issued by Mongolia (or anybody else) that is denominated in US$, or in any currency somebody is printing at will. I avoid US$ as much as possible.
I bought MNT denominated Mongolian government bonds end of 2011, including some 5 years. (also bought Just Agro LLC “meat bonds”). Honestly if Mongolia was issuing 10-15 years bonds denominated in MNT I would buy some because I have no doubt in the long term for MNT, whatever hiccups at GOM level in the short term.
HOWEVER, those returns are much smaller than what I expect buying MSE listed stocks. Those bonds are in the “safe part” of the portfolio together with IDR and MYR time deposits.
Mines, listed overseas or on MSE:
When I started investing in Mongolia in 2011, I did not dare touching the mines for several reasons:
• Their profitability is linked to the price of commodities so I want to bet on the price of commodities, up or down, there are easier and simpler ways to do this like options and futures.
• I am not an expert in mining and don’t know everything that is around the valuation of mines.
• However as those mines were easily accessible to foreigners (on the MSE they are the biggest market cap) it is a fair assumption that Mongolian related mines were not trading at a massive discount to their international peers, in short, not really a screaming bargain.
• Then there is a political factor/risk. With so much $ underground, you can just expect anything unexpected to happen. Investment logic meddles with local politics. That was a big sword hanging over all the mines so damaging the odds, so why would I bother going into such a poor bet. (I have +20 years of derivatives and risk management i.e. my job was to evaluate odds!). In 2011, the political mood was rather soft so from a political risk premium for me it was as good as it could ever get.
So I passed and did not touch the mines.
But I cannot resist to "falling knives". In oct-nov 2012 when I saw the prices of some of those, I could not resist and bought a bit of everything (because I don’t know how to pick a/the winner, if any!), MSE listed and overseas listed, MMC included (which is listed in Hong Kong). However that is smaller than my non MSE listed investments. It is a “technical punt”, i.e. once they recover nicely, I flip them out as I have no intention to hang on them for the long run as I am still no expert in mines valuations.
Profitable or not, mines will affect the rest of the economy, the local economy and my thinking is pretty much pro-Mongolian in that respect.
Step 1: Build-up. While foreign equipment and foreign experts are both needed at this point, a good part (and growing) of the $ needed are going into the local economy and Mongolians pockets.
Step 2: Production. Once mines are in production, between % of equity owned by GOM (or a Mongolian SWF), the taxes, the royalties, salaries (smaller % of foreign staff) it is more $ going into the local economy and Mongolians pockets.
Foreign mines that have invested a lot in those projects will not give up …but they can go slow, …or use tactics to respond to GOM. So the build-up will go on, may be slowly, very slowly.
If foreigners have a feeling that rules are pretty clear, contracts are enforceable, then much more capital will flow into Mongolia and Mongolians WILL HAVE THE CHOICE to pick their partners, to decide how much they want to share, which projects are the priorities,….and so on, flooded with money IT WILL BE THEIR CHOICES, not imposed by a dire situation.
If this SEED money to jump start the Mongolian growth engine is not coming with the same magnitude because of fears and perceptions foreigners have of Mongolia, then GOM and Mongolians will have limited choices, will probably have to do with those that are available, may be not the ones they wish, they may not be able to dictate their terms, nor launch all the projects they need at once…
….but I think in the end it will work, everything may be delayed by 2, 3, …years.
In short, in my opinion, Mongolia should prioritize foreigners bringing EQUITY for the next 2-3 years, THEN prioritize debts or loans for project finance, while sharing little equity retaining additional equity upside!
Trying to finance everything now with debt only is I think suicidal.
Many other countries, at a more advanced stages and facing less challenges, tried this before and suffered very badly.
So for me, with a 5-10 years timeframe, I am betting on the local companies, listed on MSE, that will benefit from the growth in the Mongolian GDP. Will it grow by x2, x3, x5, x10 …in 10-20 years? I don’t know and I don’t care!
Common sense tells me that many of those companies will change dimensions and become much bigger, creating a lot of growth, opportunities and $ for people working for them as well as their shareholders, big and small, mostly Mongolians (foreigners on MSE represent a very tiny % once you take Firebird out of the equation, mostly in SHG-BAN-BEU anyway)!!
The common sense exercise is simply to imagine with the Mongolian GDP growing massively over 10-20 years how everything will be changing in UB and around, what will be needed, what sectors of the economy will benefit?
No need to be an “expert” highly paid research analyst in an investment bank to do this. Anybody looking at how a city works can come to the same conclusions. Not rocket science.
For instance (in no special order): cement, concrete, limestone deposit, iron, oil, transportation, real estate, shopping mall, import-export / supply, construction and construction materials, water treatment, power, hotel, restaurant, jewelry/consumer goods/luxury items, telecom, brokerage, …and you have your shopping list!
Disclaimer: I have stocks in pretty much all those sectors (when I was able to find shares to buy)
http://reut.rs/152BA8A
Anyone aware of what conference the GOM senior mining official is attending in singapore ?
The chess game continues.
When former PM Batbold was in Australia he had secret meetings with Rio in Melbourne.
Elbegdorj went to Iran last year looking for interest in Mongolian Uranium, seems they are looking at other options.
I see 2 good reasons for GOM officials to spend some time in Singapore (and Malaysia as well) and learn a bunch of things.
1) While Singapore does not exactly need to raise debt, MAS has however been able to develop a S$ local bond market which is handy to have a reference yield curve and local corporations to raise S$ debt.
Mongolia could learn quite a lot from a visit to MAS!!!!
(I am absolutely sure the people I met at MAS last june would be more than willing to help).
2) SWF
Mongolia NEEDS to setup a Sovereign Wealth Fund and the earlier the better. I have read article about Chile as an example. I have no problem with Chile but the last priority for Mongolia for the next 10 years is to buy USD, EUR, JPY denominated government debts!
In my opinion, much better models for Mongolia would be:
* Khazanah (Malaysia)
* Temasek ...AT ITS BEGINNING!!
If Mongolians want to stay in control of their resources and their wealth, they'd better give themselves an instrument to support their local champions (tiny for now) like Temasek and Khazanah did!
For now, MSE listed companies are tiny and they need additional equity to grow and capture business opportunities before foreigners setup shops!
So from a Mongolian angle, it sounds a much better idea for local MSE listed entities to open their capital to a Mongolian SWF than to foreign private equity firms.
If nationalism is important in Mongolia, that is a way to play it smart!
About Khazanah, Mongolia can learn something else.
In the south of Malaysia there is something that on the face of it may look like a "white elephant" but could turn into a magic success in 10-20 years: Iskandar!!!!
In short leveraging and cloning Singapore.
That is Khazanah lead.
From a Singapore angle, GIC is shy of publicity (saved when mandatory because of disclosure) but is well run and I am sure that both GIC and Temasek (that bought some TRQ) would love investing in Mongolia but HOW and with WHO (i.e. that can EXECUTE!)?
That's a kind of headache many big guys like that are struggling with about Mongolia.
GOM-RIO meetings in Singapore? fair point.
http://bit.ly/16wprML
For commodities rich countries, especially young ones, it's a MUST.
Even with $0 in its bank account but a government guarantee,
it could unlock fast track many of the headaches GOM is facing.
They can BY LAW make the SWF beneficiary of all the pre-emption rights related to strategic mines, having a right of first refusal on just anything of that kind and any stake to be given to the government free of charge.
It is much easier through a fund than through a minister like for instance Indonesia has been doing with the MSOE, Ministry of State Owned Enterprises.
As Mongolia is just at its beginning it's much easier to start like that now with a better structure.
Having the benefits of years doing business with groups in Jakarta, while those 2 countries are very different population and temperature wise, I notice they face/have faced similar challenges!
Mongolia is facing now very similar challenges that Indonesia faced 20-25 years ago.
Successful businessmen in Indonesia are those that did not wait for the government to decide and build the infrastructure for them.
They did it and when comparing Indonesia 1996 and 2013 vintages, the results are pretty clear.
I just hope GOM will pay attention to the fact that next week there is the Mines And Money 2013 conference in Hong Kong.
And as it is the week of the Hong Kong rugby 7s,
needless to say it's likely to be very well attended with serious money in town!
PR wise, it may be important for Mongolia not to make headlines for the wrong reasons and push investors looking in other directions :)
My 2 cents :)
TTL 2012 financials!
I think people from RIO attending the OT meeting may find them ..."interesting".
Not "exactly" MNT 1368 per share like last year I assume :)
Mongolian owned and Mongolian managed.
Today TTL was down 13.78% while the MSE TOP 20 Index was 1.06%.
Great comments on SWF. I would be personally shocked if they are not considering some type of financial vehicle, especially if this "reform" movement is for real and in the best interests of the people of Mongolia. I'm still skeptical because we're still talking about politicians , and I'm jaded. I believe it's an exception to find one that actually puts the interest of its constituents ahead of their own.
KF
http://bit.ly/YyjKd7
http://bit.ly/ZUS972
http://preview.tinyurl...
Maybe that is an issue for the Business Council and the Chamber of Commerce to tackle sometime.
http://bit.ly/YyjHxY
http://www.amcham.mn
During my first to trip UB in june 2011, at a conference diner I was sitting next to somebody from the SPC and as soon I saw his business card, I offered him my sincere condolences and deepest sympathy because he was setup to fail!
As he almost felt from his chair I explained that years before I had a diner with his twin, somebody very senior at the Ministry of State Owned Enterprises in Jakarta (in 2007) and I almost cried when he described his job going from trying to get a good price for selling some state owned assets, listing some of those, picking non-corrupted executives to run those companies, prepare Requests For Proposals for investment banks, decode their (creative) replies,…, and many other things you just don’t want to hear about. While not knowing exactly how much he was paid, with such a crazy To-Do-List I thought his job was suicidal.
So in june 2011, my guess was that the SPC person had an even more challenging job. Realizing I was retired and had “some kind” of knowledge of finance, he asked me if he could ask me for help once in a while which I accepted (knowing this would be for free). However I never heard from him.
Several other persons in different organizations in UB took my offer and that has lead to some (low profile) results. But to be fair between officially hired and paid consultants from big organizations (with their own agenda) and a retired investment banker doing that for free to avoid boredom, on the face of it, the first ones look better. It’s easier to support the decision to rely on somebody paid with big title, visible credentials (and his owned agenda and bias) therefore ticking the boxes, i.e. if it’s a failure, it’s an “honest mistake”, the usual line of defence for the management of investment banks.
Also as nobody ever faced such challenges, there is no map, guidelines, references,…a lot of room for error.
HOWEVER that is no excuse for not trying and instead go into hiding diluting decisions among people who have even less clues. No need to have 20 people around a table to make a decision when only 4 have the critical mass of knowledge. Mongolian politicians have to accept that whatever they do, they will be criticized in the short term…for the medium/long term good of the country. So if they move fast, ++ will be visible earlier and they will be rewarded. But it’s tough, very tough.
So for SWF, Mongolian politicians have to check and analyse BY THEMSELVES what has been done elsewhere and MAKE THE DECISIONS for the good of THEIR country and THEIR CITIZENS, not to please box-tickers with their own bias and agendas.
For me a simple list of SWFs (among those I know a bit and my opinion) to analyse is:
The best models (for the next 10-20 years):
• Khazanah (Malaysia),
• Temasek (Singapore) at its beginning,
• Safe (China).
Good models (i.e. probably not covering the local strategic angle but operating nicely on "need to know basis" which I think is CRITICAL!):
• GIC (Singapore),
• KIA (Kuwait),
• ADIA (Abu Dhabi),
Not so good (wrong priorities in my opinion):
• Norway,
• Chile,
• CIC (China).
Don’t know enough about the others.
(I don’t hold a passport from any of those countries )
So if GOM is really serious about protecting national interests of Mongolia and Mongolians, a SWF is a must.
By the way, while Dr. Mahathir is often seen as a controversial (and very provocative) person, I honestly believed he did well for his country, even if that in 1998 complicated a bit my job.
Mongolia should have a look at not only Khazanah but also the local pension funds like EPF…!
Having worked for quite a number of investment banks, US or US type, and having still good connections, I think Mongolia is below their radar screen, plain and simple!
The $ wallet of onshore fees to be shared does not justify to have a team on the ground.
I don’t know banks that have COUNTRY bankers to cover Mongolia. It’s “covered” generally by either Resources and Energy bankers, i.e. Sector bankers flying out of Hong Kong or Australia.
In 2011, there was a bit of movement from some starting business plans for Mongolia, then what happened in 2012 all along was enough to cool them down. When international investment banks face seriously accountability and profitability questions, how can they go to their board and shareholders with a business plan to build presence in Mongolia, starting by fixed costs, trying to find qualified people…that may change shop few months after,….?
• Potential fee wallet / challenges and uncertainty?
Who is the senior MD that would put his job on the line now for this?
May be GOM missed something there. More predictable low hanging fruits elsewhere!
No point being a front runner in that exercise. I think they are just watching each other and then be ready to tag along if something really develops in a SUSTAINABLE manner.
Saved BD Sec, just look at foreign controlled brokers on MSE. Are they really expanding? I think it’s more about cost cutting!
Even the front runners among private equity firms have second thoughts.
That being said, ML-BOA and JPM were in the Chinggis Bond sovereign issuance as well as ML-BOA for the TDB bond. But that was done flying sector and DCM bankers case by case.
It will be interesting to see who will dare COMMITTING for Chinggis Bond II.
So like it or not, Mongolian politicians are responsible for damaging a momentum that was just building up.
The US attitude at the World Bank is interesting.
In theory it’s about environmental issues.
While no expert in geopolitics, but very cynical, I am not quite sure it is the best interests of USA if the Mongolian mines develop very fast.
When considering the relative strategic situations of China, Russia and USA, are the USA the most likely to benefit from a fast development of Mongolia? Even #2?
In term of supply of equipments or consumer goods, Japan, South Korea and European countries may appear more neutral and may have more to gain, so I am not sure the USA sees a lot of upside in a fast development of Mongolia. Then no point going the extra mile.
Meanwhile there are plenty of other resource rich nations situated on the coasts with adequate or excellent ports available for easy trading activities with American shipping: Canada, Australia, Indonesia, Myanmar, Tanzania, Mozambique, South Africa, Angola, Namibia, Colombia, Chile, Peru, Brazil, Venezuela and maybe a few others.
This is one of the reasons I follow the Mongolian story, wondering to myself how well they can thrive despite their landlocked position. Maybe one way is to develop a reputation for being a neutral diplomatic political broker like landlocked Switzerland.
http://bit.ly/15RQIZ1
http://bit.ly/112AltB
These are a couple of pdf links with maps explaining how Mongolia's connections to the seaports are being arranged under United Nations auspices.
http://bit.ly/XglNQj
http://bit.ly/112AltF
Mongolia has over 70 registered ships and has been involved in some very dodgy activities including a raid off the coast of Ireland.
http://www.mngship.org
The first link has changed. Same story different site about Mongolia's flags of convenience and dodgy activities
Mongolian/US ship boarding agreement
" Econoff recently spoke with ERDENES' Executive Director D.
Zorigt, who said that the company is modeled after Singapore's
state-owned TEMASEK and will essentially be a wealth management
company"
Relevant to our recent discussions about SWF.
http://bit.ly/ZYxijg
Jon 29/10/2012
"An article about trying to save the Children's Park in Ulaanbaatar, one of the last green space in the city's center, and by far the largest http://bit.ly/WUGzIX
All parts of the park have already been sold off and it is likely only a matter of time until it is developed. It would take a public groundswell of support against development of this park to stop it."
DEF 30/10/2012
"The children's park was created by Tsendenbal's wife Anastasia Filatova who also created the Russian modeled College of Music and Dance.He was killed by a Russian Doctor allegedly by injection.
http://bit.ly/Ru7KFD
It is the Americans who have been speculating on this park area. Lee Cashell in particular has been spruiking it .UB is developing into separate small towns eg. Japan Town and this area has been actively promoted as the American area.It seems to reach down to the Hilton building which came to a construction halt in 2008."
Jon 30/10/2012
"the American property developer you mention has no land ownership in the Children's Park area; that's just factually incorrect from talking both to him and his competitors"
"as I understand it, the Children's Park is owned predominantly by two different Mongolian conglomerates that respectively have different members of Mongolia's 10 richest people among their CEOs/chairs"
Am I mistaken or does the video show the Childrens Park Ferris wheel right in front of the building? l love the close up shot of the steel rods to show that they are using them and not chicken wire.
This promo claims that BHP is opening an office in Mongolia. They bailed out in 2009.
http://bit.ly/ZVuOjz
"TDB is the first ever Mongolian bank to issue bonds and the only Mongolian repeat bond issuer."
It seems that there is only one experience of repeat bond issuing in Mongolia. Will Chinggis Bond mach 2 be the next?
Why would organizations like Bloomberg TV and others form partnerships with TDB when its ownership is hidden by the States Secrets Act and they don't even know who their real partners are? of course the major owner is reputed to be Enkhbayar and his family. This cable also provides the US view of the Zorig murder and the subsequent fiasco.
http://bit.ly/16CxcRx
Analysis of TDB .
If the US embassy was so aware of what was happening at TT and the TDB why are they letting US firms like Peabody and GS fall into such seemingly risky ventures?
Dr. Ganbat explains.
"The primary advocate for Enkhbayar’s tainted international businesses, John L. Thornton, is the main perpetrator of the campaign to politicize and hype Enkhbayar’s case.
http://buswk.co/11DSYQW
A professor at Tsinghua University in Beijing, he is also a member of the International Advisory Council of the Chinese sovereign wealth fund China Investment Corporation. When he was serving as the President and Co-CEO of Goldman Sachs, Thornton visited Mongolia numerous times, and became quick friends with Enkhbayar. In 2008, Thornton and then-President Enkhbayar signed a Memorandum of Understanding to provide about million portable computers for national program “One child–One computer.” However, the number of computers sent to Mongolia never reached this number. Interestingly,Enkhbayar’s son chose a veteran Sachs employee as his bride.
Officials of this bank, who never delivered their promised computers for Mongolia’s children, but produced a bride for Enkhbayar’s son, are not eligible to oppose Mongolia’s fight against corruption. There is a growing suspicion that, in fact, it was Enkhbayar’s daughter-in-law, not his daughter who produced and broadcasted materials, spoiling Mongolia’s reputation internationally. It is probable that Thornton is using this girl, who resigned her position at Sachs pledging to work for her family business, as Enkhbayar’s puppet. Thornton spread vicious rumors worldwide for his “good pal”, and provided mostly bogus information to influential figures in London, Washington D.C, and some international organizations. His partner Minton’s close ties with Enkhbayar date back to when he was serving as US Ambassador to Mongolia. Minton provided an incorrect forecast of the 2009 election results to his superiors, assuring that Enkhbayar would once again be elected President. After returning to the States, he established an NGO under the name The Korea Society. When Minton tried to include Mongolia in the activities of his organization, he faced strong opposition from a better established organization The Asia Society. When President Elbegdorj paid an official visit to the United States, The Asia Society honored him with an award, further fuelling Minton’s discontent."
http://bit.ly/11E7zj2
¶15. (SBU) As a success or as a lingering failure, the Compact will
be a major landmark in bilateral diplomatic relations. Exaggerating
a bit, one council member told us, "If the Compact does not come
through, America will be finished here." That is hyperbole, but the
stakes for the relationship are now very high. Both sides will have
to display a firm commitment, and provide the time and personnel for
the closest collaboration, to complete this joint endeavor on
schedule.
Minton"
http://bit.ly/11DSXwm
'Paulson was portrayed by William Hurt in the 2011 HBO film Too Big to Fail and by James Cromwell in the 2009 BBC film The Last Days of Lehman Brothers.
In the documentary film Inside Job, Paulson is cited as one of the persons responsible for the Economic Meltdown of 2008 and named in Time Magazine as one of the "25 People to Blame for the Financial Crisis"."
'It has been pointed out that Paulson's plan could potentially have some conflicts of interest, since Paulson was a former CEO of Goldman Sachs, a firm that might benefit largely from the plan. Economic columnists called for more scrutiny of his actions.[38] Questions remain about Paulson's interest, despite having no direct financial interest in Goldman, since he had sold his entire stake in the firm prior to becoming Treasury Secretary, pursuant to ethics law.[39] The Goldman Sachs benefit from the AIG bailout was recently estimated as US$12.9 billion and GS was the largest recipient of the public funds from AIG.[40] Creating the collateralized debt obligations (CDO's) forming the basis of the current crisis was an active part of Goldman Sach's business during Paulson's tenure as CEO.
http://bit.ly/ZTG6VB
Sounds like the Mongolian SWF already exists and has a name:
Erdenes MGL LLC!
with stakes in EMC, BAN, SHV injected inside.
And that sounds like a good idea to me.
(But no point limiting Erdenes MGL LLC to mining only!!!)
For instance, once MIAT has been recapitalized, what about injecting it into Erdenes MGL LLC as well?
(and at least, 51% of state owned banks too!)
Now as the ETT IPO is somewhere stuck in the twilight zone and Mongolian citizens were supposed (don’t know exactly what is the status at this point) to be given shares in ETT with the right to get cash, at a SET PRICE (that was not smart)…and are waiting …, I remember there was something else ABOUT GETTING SOME (none tradable) PREFERRED SHARES IN ERDENES MGL LLC as well, then may be it’s time to dust this a bit.
For instance, the state would own ordinary (voting) shares to manage those assets in the long run,
while Mongolian citizens would get different shares, preferred shares non-voting, paying a little dividend (NOT FIXED) that would represent a small % of the annual earnings (to avoid creating an unsustainable pattern).
As Mongolians have already something (ETT?) allocated to them in the MSCH&CD system, it’s easy to ADD a "something else", not listed not transferrable, but that will be those preferred shares.
Then what about making, BY LAW now, Erdenes MGL LLC the recipient of rights of first refusal, pre-emption rights, free grant of shares under SEFIL, and other things of that kind?
MSE your concept is good but can GOM be trusted? MIAT is currently under investigation in a corruption scandal and the recapitalization is reportedly from Chinggis Bond 1.
The poorest and most disadvantaged people in Mongolia can't claim any of these shares or reduced sum buy outs because they don't have a Mongolia ID card it is meaningless to them and just more lies. ETT will soon disappear there is no chance of an IPO in it's current shape.
Can a SWF be a LLC?
The past is not always a good indication of the future.
I don't know many, if any, countries that developed started great without corruption,.... I have been investing in a bunch of MSE listed companies that, for now, are perceived very poorly in term of "corporate governance" (to use nice words) because I think they will see there is more FOR THEM to gain in moving towards something more usual (and recently saw amazing results from one along that line).
So there are mistakes, big mistakes being made, always.
What I don't like about GOM now is:
* the problem of taking decisions,
* also this idea (may it is just my perception) that before politicians were all bad and corrupted, and now they are all good and honest (which may be costly in 2016).
It's like in some countries where some politicians (when not in the government) always criticize the government and then when they are in charge just DO EXACTLY LIKE THE OTHERS.
(check France: Sarkozy-Hollande for instance within 1 year of SAID-DONE).
For foreign investors that are NOT yet in Mongolia, all the negative we see out of UB are enough to tell them not too rush and bring their capital and expertise to Mongolia...and that Mongolians will pay a serious cost for it.
But if you are there already, among all the frustrations, it will be improving even if right now it spells pretty much like chaos (because the to-do-list is daunting and scary and nobody was prepared for this).
Btw, if this kind of entity is launched with all those stakes inside, then at some point, it will become more visible and de facto more difficult to do "weird stuff in the dark" especially if that SWF in the making is dealing with foreign banks in Mergers & Acquisitions, IPO....so that will upgrade the standards I think.
LLC or JSC: ? not really critical. Charter could be created as it suits the needs by the parliament with super majority.
http://bit.ly/15Xz5Hb
Here is one living former Prime Minister that Mongolians should listen too. There are 11 former leaders who faced mysterious deaths. Listen to this survivor. The video shows photos of Mongolian genocide during the Stalin era, the corruption of Chuluunbat the former head of the Mongol Bank appointed by Enkhbayar. He lives a simple life he never had any "companies". There were quite a few good politicians from the old era not like those now following the three Buddhist evils of violence,ignorance and greed.
"Real businessmen": not sure because there would be short term bias and it will be a holding company, a portfolio for the long term of the country. Neither pure politicians.
and in my mind, those SWF that try to be transparent to the world are the worst to protect the national interest of a country and its citizens, and that's here that nationalism in Mongolia should move from words to tangible actions!!
http://bit.ly/142u4P3
http://bit.ly/YBnJCr
That underlines the challenges Mongolia is facing and for which there are limited or no road maps.
Jon had some health issues crop up. Recovery has been slow and some possible secondary issues cropped up. I communicated with him a couple days ago and he sounds hopeful - had a couple days of feeling decent the last few weeks.
HardToLove
Another ridiculous and unaffordable project for Mongolia. Why not concentrate on getting running water and sanitation to the Ger districts where most of UB's citizens live.
Love the photo of a Singapore Railway station. Imagine a subway in UB.
The GOM just needs to make sure that the spending of the 1.5B USD for the subway is optimized, not for filling up the pockets of the political elites.
While, of course the $ are not supposed to go in some pockets, the fact is that there are so many things that need to be done, all now, in that country it is beyond imagination.
Even the most honest politician in the world as well as the most knowledgeable one would never be able to spend wisely without criticism those US$1.5bn,
so I would forgive them for making mistakes as long as they ACT NOW.
What I do not forgive is the noise and chaos that deters foreign capital / FDI to flow in
so that instead of trying crazy arbitrages to spend wisely US$1.5bn
it would have US$10bn to spend
leaving more room to errors (impossible to avoid at this stage) and able to undertake more projects of all kind dealing with ST-MT-LT needs.
Honestly HOW LONG do DP MPs expect it will take for those projects to be implemented (under a severely constrained environment)
and Mongolian citizens to see with their own eyes the benefits?
In my opinion, if they don't act NOW,
they'd better already write off the 2016 parliamentary elections because Mongolian citizens would seen by then only the negative, not the benefits coming after completion.
A subway could provide new shelter for UB's homeless in Winter. There have been lots of programs to fix infrastructure but what happens?
that's the problem GOM's recent actions, or inaction, will trigger: choices, difficult choices!!
That "ridiculous and unaffordable" project is I think a very good idea for the medium and long term of UB and Mongolia...
but the short term reaction of people is "what's up for me now?"
After 7 trips to UB, it's pretty clear for me that the way it is growing you cannot fix what has to be fixed there so easily.
You start digging for the pipes and then you have holes all over the place, traffic jam turns to standstill and game over...the consequences overweight the benefits.
So this kind of projects are, I think, the sustainable solutions to problems of water, electricity,...in gers districts.
Several months ago, I read about the idea of having several new areas developed around UB from scratch (and have businesses as well as housing for workers around).
I think it's a good idea.
It's much easier, faster and cheaper to dig holes, create road when there is NOTHING than having to deal with existent roads, buildings,...
Have a look at the "parking area" outside Department Store every 6 months for instance. It's going from bad to worst.
Then having some activities that do not have to be in the centre of UB moved outside will reduce traffic as well.
If that could be in place in 4-5 years then GOM and the city can on the other hand focus on other short term needs too knowing that few years from now there will be an end to the infrastructure nightmare.
This idea is no different from how many cities in France were built more than a century ago by and for big firms, like Michelin, Usinor,....
Big activity zones + housing for workers with all the facilities.
That therefore limits traffic jam and make life easier for everybody.
In Jakarta, they have the concept of Mega-Blocks where in one housing area / compound, you find almost everything people need so that people don't have to wonder around for shopping increasing the pressure on a traffic already a nightmare.
Basically try to have areas that are more or less self-sufficient to limit collateral damages.
That's the dilemma governments of very young country are facing dealing:
* short term people priorities,
* medium - long term infrastructure needs for the country
* infrastructure needs for projects that will generate $ cashflows, pay for the rest, support the economy,...
Once political stunts have deterred some foreign capital to come in, then you have less capital available, therefore you cannot go for all those projects "at the same time" and have to make difficult choices leaving anyway a lot of people unhappy.
That's why I think the middle and low class will a heavy price for happened over the last 6-9 months.
Furthermore, when you look at everything that has to be done in Mongolia it's like mutually exclusive projects, i.e. the "supply chain" cannot deliver all, i.e. not enough workers, power, concrete, cement, steel, windows, water, ...capital,.....to do it all at the same time ...
A real headache and no place to hide, decisions have to be made!
http://bit.ly/13a2Bvz
That is part B, the reply:
http://bit.ly/XowmRp
It's not so different from the short term requests vs. long term common good I pointed at above.
It reminds regular "discussions" I have with my 14 years old teenager son, always asking for more (thanks to peer pressure among others)...whatever it is,
and of course I am often perceived as the bad cop, the NO-man.
(no problem, I am used to it, bullet-proof. I will check the results in 10 years and now my 14 years old is not knowledgeable to make those decisions. He will have later...and may regret the kids years!)
“But be careful what you wish for'Cause you just might get it”
(PCD, When I grow up)
It's getting better by the day because now he is seeing the benefits for himself of all the NO, as well as the YES (always very consistent) he got some years ago.
He knows that when I say NO, while he would love hearing YES (and he is trying to negotiate anyway), I am right and that's comfort him because I am not blinking subject to winds, moods or ...political surveys.
Sure if years ago, I had to be "elected" as a dad, I would have been "fired" easily.
However I am pretty much sure that now I would win such "elections" easily. :)
Short term requests to please vs. long term common good with negative short term side effects....yes that's not easy!
That's the question of Moral Hazard by the book!
Probably not always well covered.
Very good start!
Just hope his colleagues at GOM can listen to him about how political volatility impact negatively FDI and how FDI is critical to Mongolia (at this point!!!).
"The main Russian demand was for Mongolia's
substantial, high-quality metallurgical and thermal coal deposit in
the south Gobi site of Tavan Tolgoi. According to MoIT sources, the
Russians proposed to the GOM a deal for Tavan Tolgoi: Seize the
asset from its private holders; give it to a Russian-company chosen
by the Russian government; and Russia would build Mongolia another
north-south rail line or a power plant in return."
Interesting cable, the GOM did sieze TT from it's private holders in 2007 exactly as directed by the Russians.Whats next?
"a Canadian company, has the right to sell shares in Canada on the
Toronto Exchange or those privately held; CNNC has the right to buy
these shares from any exchange or venue where they are legally
tendered -- and in these circumstances Mongolian law and policy is
irrelevant. At this point, CNNC is well on its way to owning the
very uranium holdings that the Russians craved and that the
Mongolian government wanted to make the heart of their ambitious
nuclear infrastructure."
Interesting background on the Khan Resources dispute and general Uranium policies
http://bit.ly/10zoyAl
http://bit.ly/10cDFgT
A little surprised that there wasn't a bigger pop in HK for SouthGobi, baby steps, and at least headed in the right direction. Question is how long does Rio hold on to this position, and are there any buyers ? Other than China. Peabody ?
Little of no follow through for SGQ on TSX, somewhat disappointing.
Still no mention of the elephant in the room Justin Kapla and the money laundering/ Monnis mess.
http://bit.ly/13rogQb
I'm trying to get back to normal but don't feel it. I have a lot of catching up to do as I've been off my usual for about six weeks, I think.
Thanks for the well wishes and the informative & insightful posts.
Just don't over-do it and cause a relapse.
Slow and easy does it my friend!
HardToLove
http://bit.ly/16fImdL
More bad press for MIAT
http://bit.ly/106nJgl
You can tell more about a conference by where its held and who owns it rather than the agenda.
I note they don't include Prince Andrew on their VIP guest list. He used to stay there when he was paid by Rio to go to Mongolia under the guise of his self appointed UKTI role to influence Mongolian Politicians.
Oh dear instead of Enkhbayar being groomed as the "Tony Blair of the Steppes" now we have the real thing. I wonder what meddling he is up to? The British got rid of Prince Andrew after a series of embarrassments then tried Prince Michael and nowTony Blair
http://bit.ly/XaiqyF
That could be another reason for him to hang around :)
I prefer to stay at a backpackers you meet more interesting people other than "beeziness" men and hookers that hang around the posh hotels.
http://bit.ly/Zpjnyg
I was at that conference and to be fair the JPM person explain DRs was excellent, but DRs are a classic for JPM and that was her usual show. (each bank has it own edge).
As far as I know,
none of the JPM, GS, ML, MS, CS, UBS, CITI,DB
are building now any presence in UB.
(if they were trying I would likely hear of this,
I may be even asked to setup a shop for one of them)
While I am pretty sure they all say to GOM "they are very committed to Mongolia,..." it's only cheap talk but no $, saved few plane tickets, hotel nights....but no serious commitment of headcounts!!
Better opportunities elsewhere.
In 2011, several were seriously thinking about that and preparing some business plans,
but in 2012 once SEFIL and South Gobi-Chalco struck (+ the rest) they put all that on ice....and by the way who were promoting the Mongolian case did not get exactly rewarded!!
So whoever has again this great idea of talking to his boss about doing business in Mongolia better think twice.
I don't know even ONE head of investment banking in Asia-Pac for one of those big IBs that would dare now signing a business plan for Mongolia, committing to build presence on the ground, signing the checks and hiring.
Would their own lawyers be comfortable to go there ?
The volatile political environment as well as the anti-foreign sentiment has I think deterred them.
They wait in Hong Kong, which is the base camp for investment bankers, ECM, DCM, M&A,....
So until further notice, and TANGIBLE HARD EVIDENCE
(not nice words, but FACTS),
those banks will conduct their activities from Hong Kong
(or Australia for sector bankers)
and there is any opportunity arising in UB, they will fly bankers.
May be GOM believes foreigners come and go, and will come back quickly, the fact is that there are real scars (almost visible to GOM) and the Mongolian political stunts have stabbed in their back some of the pro-Mongolian bankers.
Read by yourself about the change of focus.
http://bit.ly/YHrGXi
I notice that only a couple of firms related to Mongolia exhibited at the metals show in Hong Kong. There were many more exhibitors related to Nevada, Canada and Africa. So maybe business interest in Mongolia is waning for now.
http://bit.ly/Xbd7zX
http://bit.ly/ZWJNLc
Correct.
That's Mines and Money Hong Kong.
These kind of conferences are generally quite popular because they are happening just at the time of the Hong Kong Rugby 7s so many investors come from around the world for the conferences on that week and...attending the Rugby 7s too (Fiji won again, with great class!).
I went there last year and there was quite a number of friends already investing in Mongolia or interested in that were attending too.
This year only one of those was there and I did not bother going.
Even one Mongolian friend from UB came just for the Rugby 7s, but did not bother going to the conference, just the time for breakfast and lunch to keep us updated on the latest from UB...and to be fair, the conversation moved very quickly to a more positive topic for the rest of the lunch: Rugby!
That's the sad reality.
T Blair: I think he has the knowledge and the credentials to DECODE and help GOM understand how foreign investors react, what GOM did wrong, what they can achieve and how.
If somebody like him cannot help them see the light,
then I am very pessimistic for the rest.
For matters related to governments, banks and finance, this kind of persons could help governments to get a better understanding of what bankers (seen biased) may try to explain.
Now, for his with his own consultancy firm, he may be simply be trying to help GOM and RIO find some common ground and settle an agreement on OT, while what happened before may have created a situation of such distrust between both sides that it would be difficult to have a relevant and meaningful discussion.
Somebody somewhere independent could help bridge that gap.
He has experience and knowledge,
so I believe he can really help there!
I already heard his name long time ago as one of the person that could help settle this kind of matter,
so I think it is very good news he is on the ground now.
http://bit.ly/ZWOhl6
His lecture transcripts might show up in his blog in the next several days.
http://bit.ly/XbfS4i
What he may be discussing with GOM about RIO and OT is unlikely to show up on his blog.
If positive, suddenly you would see something unlocking on OT and that would be it, "thanks to fruitful discussions between and OT...." not a word about TB.
This just looks like a paid Rio lobbyist visiting Mongolia. Maybe Mongolia is the only country left that Tony hasn't saved, according to his website he is everywhere.
Step 1: Law to be approved by the parliament.
Step 2: Foreigners will be waiting and watching with a lot of attention the FIRST CASE where this law is applied.
Needless to say, if GOM really means business,
it has to pick QUICKLY a very CLEAR and PUBLIC example to prove it does mean business and it is SUSTAINABLE!!
If at implementation of the first case, there was an hiccup,
then it would be even worst!!
So we just have to wait. :)
http://bit.ly/10Px7r5
Jon, I'm glad to hear you are back in the saddle!
http://bit.ly/YFizcO
In theory good, because GOM should learn something out of that, with a lot of information coming to their door.
BUT they have to listen and decide BY THEMSELVES, not being influenced by one or the other.
For some of those SWFs,
attending this kind of events and being visible
is a way to be recognized and get an endorsement that their strategy is good
...and that their citizens should be delighted to have such a successful SWF,
i.e. international PR for domestic purposes.
The SWFs that could be the best models (whoever that may be) for Mongolia MAY NOT EVEN BE THERE.
So I seriously encourage GOM and Mongolians to THINK BY THEMSELVES and for THEMSELVES,
not fall into the usual copy-paste / box-ticking of so-called "best practices".
http://bit.ly/10fPxgO
That's exactly what I had in mind, strategic funds to support local businesses like Malaysia and Singapore (Temasek at its beginning).
"However, the Chilean funds are not strategic funds, i.e., aimed at encouraging business development and diversification. Some emerging countries such as the Emirates, Singapore and Malaysia created strategic funds with the clear aim of contributing to business development and production diversification."
Then later, the strategy may change and shift towards a GIC type.
I read with amazement a keynote speech given by Ulaan on " Effective Sovereign Wealth Fund Management'. Of course his own personal wealth management has been well documented by " Dr. Ganbat", Ulaan as I stated before pocketed the $11 million USD given to GOM by George Bush during his 2005 visit.
"Left with nothing to lose, Ulaan, quite contrary to the meaning of his name in English “Red”, was one of the first ones to go running to Enkhbayar unabashed. He embezzled a fortune from the state, and materials of his activities are kept with Enkhbayar. He bartered a copy of those documents to Baabar, who is now using them as a tool in his harassments and threats. Some of Ulaan’s acts were solo, while some were the result of a team effort with Enkhbayar. One of them is the incident of USD3 million debt of Darkhan Metallurgical Plant. This plant was completed with Japanese assistance, and was taken over by Mongolians in 1989. However, a company, Monimpex, was contracted, and additional investments were made because the Mongolian side still could not operate the plant. Soon Monimpex declared bankruptcy, and the Japanese investment of 10 years -- USD3 million -- has disappeared along with the company. When the Japanese demanded back their investment, then-Minister of Finance Ulaan signed and sent an official letter stating that there were no legal foundations for Mongolian government to pay the sum. The Japanese then appealed to Darkhan city court and lost. The matter was finally settled when a contract was signed between the parties to repay the USD3 million with the products from the plant in the course of 25 years. The certificate of this unreliable debt was bought by Ulaan for USD 200 thousand. He, the Minister of Finance, then allocated the USD3 million debt to Japan in the annual State Budget of 2005, earning himself a USD 2.8 million bounty. No wonder only two options await him today; joining Enkhbayar or serving jail time."
To Valley Boy we have already discussed the fact that Mongolia already has a SWF Erdenes MGL and it is based on the Temasek model as previously posted.
http://bit.ly/14cyoLB
Some developing countries have those kinds of enterprises as part of their efforts to give some emphasis to certain parts of their economies. Here are a list of examples from Sri Lanka.
http://bit.ly/14qHKna
http://bit.ly/WfsQvh
Temasek has claimed that it is not strictly a sovereign wealth fund, in the sense that it "has to sell assets to raise cash for new investments and doesn't require the government to give approvals". This claim, made by a Temasek spokesman in 2008, was subsequently disputed by the Singapore Ministry of Finance's governance and investment director, who asserted that a broad definition of the term "sovereign wealth fund" could include "all state-owned investment vehicles, regardless of their funding".[7] He noted, however, that the claim had been made in the context of a 2008 agreement between the United States Treasury, the Abu Dhabi Investment Authority, and GIC regarding the transparency and non-politicization of investments by sovereign wealth funds, and that Temasek already meets disclosure guidelines and provides more details than required by the agreement.
'In Jan 2008, The Economist reported that Morgan Stanley had estimated the fund's assets at US$159.2 billion'
'Temasek Holdings's total shareholder return is 17% compounded annually since inception in 1974.'
http://bit.ly/14cyoLB
'It would be in everyone's interest if the company were
structured and behaved like 'a normal private company'"
'¶3. (SBU) Econoff recently spoke with ERDENES' Executive Director D.
Zorigt, who said that the company is modeled after Singapore's
state-owned TEMASEK and will essentially be a wealth management
company, overseeing the intake of mining profit dividends, advising
the GOM on the selling of equity shares, and funneling income from
sales into the state budget to be reapportioned by parliament, some
of it back to ERDENES. (Note: ERDENES' roles and functions have yet
to be determined. For example, at a recent meeting between Commoff
and one of Zorigt's new staffers, the staffer related that Zorigt's
initial plan was rejected by the State Property Committee (SPC).
The staffer did not explain the SPC's reasons; however, she noted
that they sent back suggestions, in which ERDENES would function
more like a consulting firm for the GOM rather than as a wealth
manager.) '
What it has been over the last 10 years is quite different from what it was earlier.
What Mongolia needs in term of SWF now is quite different of what it will need 20-30 years later too.
"GOM could never run anything as impressive as Temasek. Erdenes seems to be more of a collection agency that the State Property Committee was trying to water down.I certainly wouldn't trust GOM to run a chook raffle let alone a SWF"
I think all SWF started the same way as a collection of bits and pieces that took shape over years and Temasek was no different at inception.
Trust:
This kind of things has to be run on a NEED TO KNOW BASIS and making it totally transparent to everybody is probably the worst thing a government can do!
GIC is quite efficient but transparency is not how you can qualify it.
GOM may not seem up and running for many things now, but they will learn, for this and the rest.
http://bit.ly/YHjwRP
A state owned enterprise, or some derivative term like that, is a firm structured to be funded by the government to achieve specific public and private goals to improve a sector of a country's economy.
http://bit.ly/YHjz00
It is entirely possible for a country to set up a sovereign wealth fund for the express purpose of funding the country's portfolio of state owned enterprises. The enterprises, in turn, will be expected to keep the economy functioning during the rough times.
Both the sovereign wealth funds and the state owned enterprises are also set up in order to defend a country's economy from being dominated by foreign multinational corporations. There are numerous countries with economies smaller than the multinational corporations who take the view that they are operating at a disadvantage to foreign financial interests. Economic nationalism can get out of hand in those scenarios. Such funds and enterprises, if they are managed well, can enable a country to become a better trading partner partly because they encourage confidence in dealing with the global trade pressures.
"The Development Bank" would that be the Asia Development Bank or the TDB?
I thought the MCC/MCA-M was building the "road to China" or small parts thereof? Can't wait to read their final report after September and the following audit.
Looks like more debt to the overburdened Mongolian populace.
So this is yet another Bank established by the MPP. Where is this money coming from? The DP established the Turin Bank to handle Government business. It seems there are so many Banks now in Mongolia all set up to handle their own interests. I can't help but notice your connection to Goldman Sachs a recent partner of TDB.
The limits of the Fiscal Stability Law must be growing fast as Mongolia's debt is now reported to be twice the old Russian debt of over $11 billion. That is nearly 20 times what the Chinggis bond raised and TDB is the only organization in Mongolia that issued bonds more than once. My source for the MIAT rumor is very credible, why would they buy now instead of leasing as they did previously? Lets see what happens. Keep watching the bond money in the Mongol Bank because it might evaporate soon.
"MP S.Ganbaatar is to sue Rio Tinto in the International Criminal Court, the ICC in Hague, according to a press conference held today, Tuesday April 2nd."
can this happen. any recourse for RIO?
Everything falling into place for MMC?
"Mongolia will fund 30 percent of the power station through its $1.5 billion Chinggis Bond fund. The rest will come from private investors and loans. Mongolia will own at least 34 percent of the plant, according to a March 30 statement."
Another big bite into the Chinggis Bond Fund that will ultimately provide infrastructure for whoever takes over ETT and of course even more debt for the people of Mongolia.There isn't much of the $1.5 Billion USD left and the prospects of CB 2 aren't looking good.
Most of the proceeds might be sitting in the Mongol Bank which now has Enkhbayar's son as Deputy, but large chunks of it have already been promised and surely it will soon disappear?
Do you find it disturbing that GOM is accumulating so much debt, more than twice the old debt to Russia already and rapidly rising. So many projects are put on debt including the start up costs for OT which is debt to Turquoise Hill.
If Mongolia and Mongolians want to enjoy for the next decades and centuries a better quality of life and more comfort,
then exporting commodities (first raw, then as more added value products) is essential. That's where Mongolia can get serious $.
The short term / medium term challenge is the infrastructure.
Does Mongolia want, for exports or imports (of construction materials, gas,....) to be totally dependent on China and/or Russia?
For my first trip to UB in june 2011, I was always wondering if the "taxis" would run out of gas before reaching my destination because of the gas supply issue with Russia.
Once is ok, but not every time so some long term sustainable solutions have to be put in place while dealing with short term constraints.
About this infrastructure,
part of it will provide Mongolians with better quality of life,
part of it will provide with higher added value, a regular source of income so it has to be built now.
Mongolia needs capital (and expertise, because there are only 2.8 million people) so what does really matter is:
What should be this mix of capital?
* Is it Equity only
(in which case, Mongolia may be giving away too much upside)
:(
* Is it Debt only
(in which case, Mongolia may be at the mercy of markets turbulences like in 2009 and face serious funding problems, having to ask IMF)
:(
Probably neither one nor the other!
More likely issuing more equity now, to acquire financial strengths and then more debt later in order to retain more upside...
BUT the equity raising opportunities have been compromised:
* ETT IPO ?
* MIAT and MSE IPOs ???
* OT agreement still surrounded by question marks
* and "SEFIL" + the rest making very very difficult for foreign mines to raise equity overseas!!
For instance, as you pointed out the case of MMC,
do you think that at the current share price MMC could raise US$500million of equity that could be further leveraged by some debt in order to invest more into infrastructure, which will be useful for Mongolia at large?
I don't think it would be easy. So that's equity that is not going to Mongolia creating a capital deficit.
And by the way,
it is EXACTLY the same problem for small local companies that are listed on MSE (most are not mines!) that would love to raise some capital, placing shares on MSE, in order to develop their business ...before foreign firms move seriously.
I have seen many over the last year, but there is no way they can do anything now on MSE because of the liquidity, and again it boils down to problems, often simple technical issues, I flagged earlier.
So what do they do? they apply for banks' loans or go to DBM and wait.
And even on the debt side, it is more complex than it looks.
Even if Chinggis Bond I was a great, unexpected, success, borrowing only US$ is not safe.
Mongolia has to develop its own MNT government bond market and I am sure Pat O'Connell is trying to help on this.
Issuing MNT government bonds is a strategic need for Mongolia!!!
Anyway, my point is that debt per say is not a problem if used to create infrastructure or support investments that will bring positive returns to Mongolia, cash flows or alike.
If it is wasted in consumer items, then it create something unsustainable and dangerous.
What is important is for Mongolia to DIVESIFY its sources of capital, equity and debt, US$ and MNT, short term and long term, as well as diversifying the investors base too, country of origin and type in order to have a sustainable capital base and the bright future that is written on the wall.
Ok it's a new situation that people in Mongolia would have never expected 15-20 years ago,
but that's the reality and it's promising,
so GOM has to learn and adapt, thinking a bit outside the box.
That's why some of the political stunts over the last 12 months were not "great"
because they badly affected those sources of capital limiting flexibility and independence for Mongolia.
I found it unusual for Pat to comment as Public Servants are usually gagged, I really hope that he can make a difference.
" If it is wasted in consumer items, then it create something unsustainable and dangerous." Unfortunately I have no confidence in GOM using this money fairly and wisely.
The ability to raise more money via bonds and IPO's seems to be in tatters. I really worry about applying the nomad mentality to developing and running a fair and successful modern society.The pattern of behavior is to form short term alliances and go on ransacking missions then divide up the spoils. There is a tomorrow and they have to plan for it.
http://bit.ly/10cqcan
Interesting to see the British via the Guardian having a go at the DP. Hot on the heels of Tony Blairs visit. I love his excuses. A former Governor of the Asia Development Bank with his hands in the till?
Why would such a relatively small amount from such an obscure place like Mongolia be top of the list?
Member of Parliament S.Bayartsogt (Democratic Party) said” The main reason to establish such an office was to monitor police, the intelligence service and prosecutor’s offices because we do not trust them”.
It seems that he can't be trusted now.
"The World Bank’s International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD) have been operating in Mongolia since 2006, and with Turquoise Hill since 2009. Both banks have approved huge loans to Oyu Tolgoi despite all the controversy over the mine’s inadequate Environmental and Social Impact Assessment".
Bayartsogt was also the Governor of the EBRD European Bank of Research and Development that is approving huge loans for OT, maybe the Swiss bank account was helping this process move forward?
Looks like the people affected by OT are uniting and will have a representative speak in London.
Raash Onolt Comments (2)
Public reaction according to comments about the debate in
http://on.fb.me/YbobvU
is more than 90% for Mr Ganbaatar ,although he was ill prepared and did very poor job in debating with the person who signed the agreement.
Mr Bayartsogt was well prepared, knowledgable and aggressive in presenting himself with displaying all the numbers, financial schemes. But I bet that ordinary mongolians did not understood it fully after watching 1.30 hour TV talk,.Mr Bayartsogt's claimed OT IA is best deal for Mongolia,almost a miracle which is not really convincing for any Mongolian. Probably miracle for Bayartsogt and those people who gets always large contract from OT. Bayartsogts Nomads, Bold's Bodi Intl, Monnis, Petrovise, even the president connected little unknown company got contracts from OT.
We (my family's 5 adults) got feeling that Mr Bayartsogt is acting like representative of foreigners. He was attacking Mr Ganbaatar for being too ignorant on the OT IA, even called him naive for MP.
Anyway, thanks to Mr Ganbaatar, ordinary citizens got first knowledge about OT IA from lesson given by Mr Bayartsogt. need more details and procedures.
They (MPs of both side, anti/pro MPs) should debate more often on OT, even OT representatives should do more work on openness/ deliver more information for public.
At the end we still did not got answer for question "Is OT mining good for us, I mean for ordinary mongolians?
23 Nov, 09:54 PM Reply Delete Comment Like 3
Jon Springer Comments (3346)
Thank you Raash Onolt. Fantastic summary. Would welcome some more opinions, but very much appreciate yours.
Bayartsogt isn't the only Mongolian to have companies in the British Virgin Islands. Mogi has stated the positions of the MCS brothers, Bayartsogt is being targetted but as usual MCS doesn't get challenged even though OD is now Director of MMC.
I have several myself. It's much easier to manage portfolios.
Instead of family joined accounts or else it's practical and convenient.
The BVI of the MCS brothers are perfectly disclosed to the WORLD in the PUBLIC ONLINE disclosure filing of HKEx.
They don't hide anything. Any change in their positions is disclosed in full according to the rules set by SFC on april 1, 2003.
it's not because journalists are trying to SELL newspapers and make a buzz out of that story that just any BVI or Cayman Islands company they pull out of that list is related to a crime or even a tax fraud.
They are perfectly legitimate reasons to use those.
http://bit.ly/Zeagb0
"I shouldn't have opened that account. I should have included the company in my declarations," Bayartsogt Sangajav told the International Consortium of Investigative Journalists (ICIJ).
http://bit.ly/17esqK5
“A cache of 2.5 million secret offshore files obtained by ICIJ includes documentation that Bayartsogt acquired a British Virgins Islands company, Legend Plus Capital Limited, in May 2008. The company was then used to open a Swiss bank account in the name of the Legend Plus Capital Limited, with an official address in the BVI.”
So please do put all users of BVI (or other companies) in the same bag, even if that's what ICIJ journalists seem to imply.
Using a BVI company does not preclude to comply in full with applicable laws or rules (if you are an investment banker, that has to be disclosed in detail to the compliance officer and be as transparent as if it was directly held...and it was).
So the problem of Bayartsogt, for what I have read, is that he should have disclosed this to the government,
and here there is matter for an investigation.
There are many things in everyday life that are very useful and often necessary,
but sometimes could be used for harmful purposes, how ever they should not be banned.
In finance, BVI, Cayman Islands, Bermuda....companies are one of those tools!
For instance, in order to enable MORTGAGES to be widely distributed for longer duration, to make real estate more affordable to Mongolians, SECURITISATION will be needed.
And that implies the using Cayman Islands companies for instance to move those mortgages from initial lenders (local banks) to investors with larger pockets, otherwise the Mongolian mortgage market will be totally constrained by the tiny size of local banks.
Same things for CREDIT CARDS or CAR LOANS.
The basic element behind those that create flexibility in a banking system are those "special purpose vehicles".
Of course, like many other things in your everyday life they can be misused.
Do you think that the mortgage trail is ending more in China these days and not the traditional lenders?
agreed, that's where tax payers could raise questions.
Like in many other matters, things have to be CONSISTENT. Most of the time, there is no need for MORE laws, but STRICTLY and CONSISTENTLY enforced.
(something that many countries miss I think).
So State Secrets Act and anti-corruption laws or rules do have to be compatible and consistent.
But here we have to be RELATIVELY patient with a young country.
How were Western democracies 10-20-50 years ago?
Probably not better for sure.
And now ? hummmm
Often the ones lecturing Mongolia about corruption may not be so perfect, ...may be just more sophisticated.
Just read the news out of France about the former minister in charge of budget, Mr. J. Cahuzac. ...and wait for the results of the investigations.
Mongolian politicians may not feel so bad after all.
Mortgages / loans...
The question is very simple.
How much capital does Mongolia need in the next 5 years to address its short term, medium term, long term needs (for people, for infrastructure for people, for infrastructures that will support mining in order to get regular revenues) ?
I think I posted something on this earlier.
Probably US$30-50bn all-in.
Can this be sourced as debt or equity from Mongolia, banks or investors? NO WAY, by few miles.
So raising capital, debt and equity, from foreign sources is absolutely critical.
Once GOM figures that out, then it has to DIVERSIFY
1) between capital (giving some upside while stable) and debt (keeping full upside but at the mercy of roll-over)
2) between different types and origin of investors
in order to:
* protect its sovereignty so that not to have to beg to IMF or else for $
* negotiate better terms having many options on the table.
Then ACT accordingly.
And to ACT in financial markets, you need to UNDERSTAND HOW THEY WORK, not assume over confident, foreigners will just run to Mongolia whatever the terms when GOM goes to the ATM machine asking for $.
So GOM has to understand all this and ACT accordingly, and be careful about any political PR stunt (for domestic purposes) because they always pop up on the international scene and may have very adverse impact.
it is exactly the OPPOSITE that GOM has done over the last 9 months just discouraging in words and actions foreign investors that could help GOM leverage the 3rd neighbour game and get more capital at better terms to jump start its growth engine...and THEN COLLECT, enjoying the spoils!!!
it's ok to be overconfident when you see this.
When you run a government with such a crazy to-do-list and that has raised expectations of its citizens,
you just CANNOT base your assumptions on a one-off event, and the best case scenario
especially when similar blunders were very costly in 2009.
Reading books or watching movies I did not have the feeling Chinggis Khan was like that.
I think he was pretty much detail oriented, while that does not preclude from taking risks, as long as the return on risk (whatever is at stake) is worth it.
Also I had discussions with some politicians that were very seriously down to earth ...but unfortunately they are not getting a lot of attention because they do not promise this and that to be popular.
There may be an embedded bias (which came from the "foreign investor invasion" in 2011):
"Whatever we do, those greedy people will still come in".
So anybody trying to factor in how the perception of foreigners could affect the ability of Mongolia to raise capital, and therefore trying to prevent excesses, could be deemed as WORKING FOR THE ENNEMY as a nationalist sentiment had been leveraged for and pre-june elections.
(remember the OT saga along that line)
And it's not only about GOM
but many other people or institutions in UB, local or foreigners!
Because I am retired, having no bias, in quite a number of situations I tried to help flagging issues (I.e. stripping problems down to pieces, + and -, proposing potential solutions as well as the logic so that people could judge and decide by THEMSELVES) that could impact Mongolia in short and medium term....
....and in most of the cases, because it was not good news, not simple stuff, that was overlooked...and now consequences may be quite damaging.
for instance, one of the (if not THE) main issue affecting liquidity on MSE is the fact that post "upgrade" foreign institutions face serious headaches to open Escrow Accounts at the Clearing Banks to trade on MSE:
Solution 1: Fly to UB to get all the required documents notarized (more or less free of charge)
Solution 2: Get all those documents notarized in your financial centre, like Hong Kong, ...which may cost you more than the trip to UB.
Result: quite a number of foreign investors are on stand-by, waiting for their next trip to UB (when? ....if news improve seriously and in a sustainable manner...so unlikely in the short term) to do this.
Many of those foreign investors WERE ALREADY INVESTING BEFORE JULY 2012 and have their stock portfolios at MSCH&CD are on stand by waiting, because of those Escrow Accounts headaches...especially as they have no incentive to buy....and guess what Mongolian retail investors are selling in an empty market ...and local brokers find it even more difficult to pay their staff and bills.
(that impacts also the ability of GOM to sell MNT long dated bonds to foreign investors too)
Is it new? NO.
It was already flagged in September 2012 and several times with serious noises in at least 2 Mongolian conferences in Hong Kong in oct-nov 2012.
Any progress? Not that I am aware of.
Is it complicated? No, it just requires for some people from Mongol Bank, FRC, MSE and Clearing Banks to sit together, analyse the problems, dust and upgrade their anti-money laundering rules to fix it. (there are several short term fixes)
It could probably be done in one week!
In short you cannot blame inexperience
but you can blame inexperienced people that are in charge when they are not listening, analysing and taking actions.
Further to the ICIJ British Virgin Islands story.... http://bit.ly/12AxyIP
'ICIJ’s data analysis showed that the people setting up offshore entities lived most often in China, Hong Kong and Taiwan. Another important group of clients comes from Russia and former Soviet republics. This helps explain why the second-largest source of capital investment flowing into China is the tiny offshore tax haven of the British Virgin Islands. Similarly, a large source of investment flowing into Russia is from Cyprus, a country that also features heavily in the data – and whose financial stability was recently undermined by a crisis precipitated by Cypriot-based banks being bloated by Russian money.'
Yes, very efficient, friendly, available in many places.
The legal system in Mongolia is closer to Civil Law (French and alike) than Common Law (UK, US, HK...) which explains why the role of Notary Public is different in the 2 systems.
In Hong Kong, the BVI is the basic element of capitalism.
When I dealt with large groups and tycoons, our counterparty was always a BVI, guaranteed by the listed entity.
When you walk in the office of those groups, you would often see a wall full of names (hundreds!), the names of the BVI subsidiaries and affiliates...and there were not trying to hide them. They were also fully disclosed in the annual reports of the listed entities and would appear in the disclosure of ownership in the stock exchange filings.
sorry I did not finish on Notary Public.
Because the system in Hong Kong is Common Law, the Notary Public has a different function, while having the same name.
In substance, it's the Lawyer, or the Certified Public Accountant that certifies true copies in Hong Kong....for very cheap or even free of charge.
In short, this problem of Escrow Account could be solved within a week if Mongol Bank - FRC - MSE:
* analyse HOW financial intermediaries overseas operate in a similar situations
* analyse WHAT are the related anti-money laundering laws and HOW they are applied in finance in FATF countries (the ones impacting the Escrow Accounts are ineffective (missing one essential piece) while cumbersome (killing trees for nothing))
* evaluate how to comply with the substance under a Mongolian legal system while keeping the form to a minimum,
* implement,
* then see the MSE turnover increase!
It probably even boils down to simple problems of translation between what is written in Mongolian in the law and its translation in English.
Whatever is the word in Mongolian law or AML rules, it has been translated as "Notarization"
while a decent translation, in substance, could well be too:
" Certified true copy" or even
"Legalization"....which the Mongolian consulate in Hong Kong could do for a very effective price....and the problem would be solved.
Somebody has just to take this issue SERIOUSLY and tackle it.
Waiting is not likely to bring any positive outcome, while local brokers may file for bankruptcy and sell themselves to foreigners for MNT1.
If that is what the nationalist sentiment is supposed to achieve, there is clearly something I don't understand.
198 companies have posted their 2012 financials on the MSE website!!
For information, in October 2012, less than 100 had posted their 2011 financials.
Now I just hope that GOM, Parliament, MSE, FRC and Mongol Bank will do their part of the work so that those local companies can really raise equity and gain muscles to take advantage of opportunities NOW before big foreign firms move in.
Sensational post from Joseph Harned! If Rio does put TRQ up for sale that is a huge statement and will make the upcoming election more interesting. Maybe MCS knew this and are cashing up.
http://seekingalpha.co...
http://bit.ly/XgUpoE
http://bit.ly/Ze4uAi
Disclaimer 1: I own most of those stocks.
Disclaimer 2: I am not a client of BD Sec.
http://bit.ly/Ze56FW
Yes sure. What about ACTIONS!
There are big visible items (like Securities Market Law) but there are always a lot of small details bugging everybody.
Just to pick another one (other than Escrow Accounts):
Capital gain tax for foreign investors trading on MSE!
* how to calculate?
* how to pay?
* is it practical and sustainable for Mongolia? (I don't think so. Just look at what other countries do in that respect, i.e. withholding taxes on dividends to provide a regular growing income stream to tax authorities)
Right now, quite a number of foreigners got this answer to the first 2 questions: ?????
Result: They (me too) buy (for those setup) but avoid selling and trading which de facto affects liquidity because of those unknown.
Next:
Once Mongolia launches an IPO on MSE only or MSE + overseas exchange, people will suddenly realize this problem is likely to undermine the IPO and rushed decisions will be taken, likely needing fixes later once side effects are becoming apparent.
What about fixing that PRO-ACTIVELY once in a while?
Legal – SEFIL To See Parliament Or To Be Replaced?
http://bit.ly/16JrZ9r Two
“The changes that we have previously announced will result in the law regulating only the activities of foreign State Owned Enterprises (SOEs) and will exclude private companies and investors. However, we have since heard that the legislation may be scrapped completely”
That I think is VERY BAD (and please keep in mind I am a foreign investor)!!
A better approach could be to amend SEFIL as such:
• Applicable to Foreign SOEs (and firm controlled at +1/3 by a foreign SOE) for any investment,
• Applicable to 4-5 strategic sectors well defined for investment in equity above US$1bn,
• Approval from GOM within 3 months.
Foreign investors DO NOT NEED DOORS WIDE OPENED and equal opportunities with Mongolian companies AT THIS POINT IN TIME.
They need a STABLE CONSISTENT PREDICTABLE environment in which to operate. Not more at this point.
It’s not because somebody is coming with a big checkbook he should be authorized to do whatever he wants. Mongolia has a small population and a stretched supply chain. Some control is needed, for the sake of serious foreign investors themselves.
Among other side effects, dropping all the safeguards would be perfect to refuel some nationalist sentiment before the next elections and a remake of may 2012.
Worldwide, I don’t know many countries that IN PRACTICE (not only in theory) are wide opened, especially countries rich in commodities.
At least THERE IS ONE at GOM that understands PERFECTLY WELL the situation!!!
Too bad he is MPRP, from what I understand, and therefore his voice, his TECHNICAL knowledge and his experience may not be fully valued within GOM.
But there is hope!
That may be interesting to watch!
"One item that drew our attention was the performance of the Human Development Fund's (HDF) February revenue where 21.3 Billion MNT (15.2 Million USD) was collected. This represents a shortfall of 45.5% over planned revenues. The Ministry of Finance has explained that thisshortage is connected to the 13.5 Billion MNT (9.6 Million USD) shortfall in minerals royalties as well as the 4.2 Billion MNT (3 Million USD) shortfall in progressive minerals royalty revenue."
The excuses are starting to flow for the underfunding of the Human Development Fund. The Chalco pre payment of $250 million USD for ETT coal was supposed to be funding the HDF and also an OT pre payment of the same amount. A stated before a lot of Mongolians will never get anything form the HDF/ election promises because they don't have a Mongolian Identity card.The real cost of the HDF will be far less han the $6 billion mentioned and no time frame is mentioned. There are others who are offering half price or less buyouts of shares for cash payments and others are accepting a drip feed of pension payments, rent assistance or tuition and health insurance.GOM took the pre payments but blame royalty revenue for the underfunding.
Bayartsogt's own private wealth distribution scheme has been well covered lately.
http://bit.ly/10cqcan.
http://bloom.bg/17pooPn
"Bayartsogt’s Democratic Party and the opposition Mongolian People’s Revolutionary Party pledged during May general elections to distribute as much as $6 billion, or up to 1.5 million tugriks ($1,060) for every citizen, from the country’s mining wealth.
"To fulfill the election pledge, the government may use a $250 million pre-payment from Oyu Tolgoi to seed its distribution program,"
http://bit.ly/Ybgp1o
"Oyu Tolgoi, whose development costs and schedule have been the subject of debate in Mongolia, is the primary driver of the country’s $10 billion economy"
I think debt and "aid" are the primary drivers of the Mongolian economy. OT may start producing something in the future but at the moment huge debt is being accumulated and advanced. There is nothing much being moved across the border with ETT and SGS grinding to a halt and ongoing uncertainty at OT.
http://bit.ly/ZnprIb
Here is a very rare case of someone being charged for offering fraudulent scholarships.He must have upset someone higher up.
A much larger scam operates freely in Australia, it is run by a former GIA agent and his wife who had a senior Australian Public servant as her boyfriend. They have been offering visa's ,jobs ,scholarships and study in Australia for years and in spite of being given evidence the Australian authorities do nothing. They maintain that the $63 million spent on MASP and similar scholarships is transparent and not corrupted.
Btw, I am long TRQ as well as TRQ Call Options.
Ever since Mogi changed carriers, I don't get his newsletters, and I haven't been keeping up with y'all here, so you may well be aware of this already, but my contacts in Oz tell me RIO has definitively put TRQ up for sale, along with other assets it deems "marginal" or "troublesome". That does not sound like the "long distance runner with deep pockets" some of us had counted on!
VALE buys RIO's 51% stake at a concessionary price, and with a clean slate and some confidence-building measures from GOM unilaterally declares it to be a 49% stake, thereby finessing the silliness issue and getting the whole project off the dime with new eyes, new ears, new cred, and clean profile. What say You?
then why bother selling Ivanhoe Australia
or a gold mine in Kazakhstan (TRQ owned) in feb. 2013?
Sounds more like ring-fencing TRQ.
That is false. Rio is only putting non-OT TRQ holdings up for sale, like SouthGobi, Ivanhoe Australia. OT is NOT up for sale.
Is RIO also involved there ?
Goldman Sachs conflict of interest?
On the topic of GS and conflict of interest,
http://bit.ly/115MkSY
Disclaimer: I never worked for GS, I am not pro-GS, and in fact probably just the opposite.
But I think it would be totally ridiculous for GOM to sue GS on that basis.
GOM would end up looking so bad, with people laughing all around.
I have been a member of those resources/conflicts-of... committees when a bank had to decide if:
• It can allocate resources to execute a potential mandate,
• There is any potential conflict of interest,
• There is any reputation issue,
• This potential mandate is worth it,
• Some ring fencing could be put in place between teams working on conflicted projects (it DOES happen and THERE ARE solutions!),
• And in short it is worth pitching for such the mandate.
US$250k for an advisory mandate from GS to GOM WAS POCKET MONEY, GS working AT LOSS.
GS likely pitched for this just because at that time (not last year for sure) being associated with the sovereign was something viewed positively that could trigger other businesses from other clients, in short getting sovereign league tables credit for PR.
That was more or less “charitable work” for GS and they probably deeply regret this costly waste of time.
Honestly, I don’t think at this point in time any big investment bank would see GOM as a great potential $ fees opportunity generator and would therefore allocate a lot of time of very senior people!
$ opportunities are ON THE OTHER SIDE with RIO, Anglo American, BHP, …..
There are not for their businesses in Mongolia, but for their WORLDWIDE business, through full service banking, M&A, ECM, DCM, general corporate finance.
If GOM was suing GS, in Mongolia or elsewhere, for US$250k, it would simply isolate itself from those big banks that GOM does really need ANYWAY….while those banks don’t need GOM.
If GOM was going after GS for US$250k, there is a simple very likely outcome:
GS could dump a US$250k check on the PM’s desk with a very short unpleasant comment…
…and trust me ANY INVESTMENT BANK would hear of it!
Then this story would come back during ANY committee of those banks when considering pitching for an investment bank mandate for GOM and a likely conclusion could be: “Not worth the trouble for now”.
GOM would be US$250k richer … but the cost of this would a very high multiple of it.
If GOM really believes GS was in the middle of a conflict of interests and did not take adequate solutions to avoid damages to any party, then GOM has much more effective private solutions to “settle” this.
Now on GOM’ side, it raises several questions:
• It’s not rocket science for anybody, especially institutions, dealing with investment banks to understand what I just underlined, so I expect that GOM did not take for face value all the advices from GS but thought about them, asked for explanations, justifications,…before following, if relevant, those advices. The advisor does not decide. The client does and therefore the client has to analyze the logic behind the advices and exercise personal judgment because in the end it suffers the consequences and enjoys the benefits.
• Is it a good return for the Mongolian population at large if GOM goes after GS for a US$250k fee because of an alleged conflict of interest? That would be a costly exercise, in time and money, and I thought GOM had much more important / relevant priorities for Mongolians, but I am not Mongolian so may be I miss something.
Another collateral damage of what has been happening, or not happening over the last years!
Mongolian banking sector is way too small to cope with a fraction of the needs triggered by the evolution of Mongolia now. The equity of the banks is tiny so over-reliance on domestic lending over-exposed their tiny capital base to shocks, like those GOM generated over the last 9 months.
Like it or not, Mongolia is totally DEPENDANT on DIVERSIFIED (types and origins) sources of foreign capital, equity and debt, to jump start its growth engine. See previous posts.
Denial is no solution.
Serious tangible actions are long overdue.
Further to the Rio PR disaster in Mongolia. It is very insulting for Mongolian people to see the cosy arrangement of Monnis Tower ie. OT and Rio offices, The use of Chuulunbaatar the head of Monnis as Enkhbayar/Friedland intermediary and recipient of over $30 million in "private placements" just from South Gobi some declared and others not. If they want to improve their PR a good first step would be to find a new office and disassociate themselves from certain people.
Forgot to mention Chuulunbaatar being appointed to the board of Prophecy coal. The days of the one stop corruption shop are over.
http://bit.ly/11hnHS1
http://bit.ly/XGYOkQ
D. Bathuyag former Chairman of the Mineral Resources Authority a key player in the South Gobi mess has had his jail sentence reduced by 2.6 years.
http://bit.ly/11hnI8j
Are they serious? This is the guy who recently sold his seat to MAK for $500,000 so that the Boss could install his son into the Ikh Hural. He also cleaned out the Savings Bank of $1.4 million USD and blew it at a Seoul Casino.
http://bit.ly/XGYOkW
http://bit.ly/11hnH4c
Example of right and wrong.
Right:
Of course GOM has to keep an eye on OT LLC numbers.
Wrong:
DP lead GOM took over in august-sept and OT was item #1 in the list so de facto an in depth audit of OT was to be done at once in sept-oct!!!!
It's not because GOM had not to contribute in cash to OT that it was a free lunch and that there was no need to pay attention for the new comers.
GOM should know WEEKLY or MONTHLY what was happening at OT!!
If Mongolian board members did not inform GOM REAL TIME, may be it's something to settle between Mongolians to start with!
Joined and several responsibilities!!!
At this point in time,
this kind of comment is not exactly positive for the credibility of GOM.
Better silence until SUSTAINABLE ACTION AND AGREEMENT WITH RIO are in INKED and in PLACE to have crystal clear announcement...for the sake of all, Mongolia to start with.
(If Mongolia wants to have decent regular sustainable access to international, it'd better prove it understands how those work)
We already saw the effects of unintended consequences from speeches and comments from GOM over the last few months.
Everybody is not exactly ready for that exercise.
In my opinion, some are:
http://fxn.ws/ZtpnL1
while keeping a careful attitude.
That's not exactly a kind of threatening grab and run speech in my opinion!
Disclaimer: I am long TRQ shares and call options (very recent)!
http://bit.ly/ZDlU8A
Likely good news.
my Mongolian is not good enough to translate but I am sure some can flag the key points :)
http://reut.rs/11P5Og3
http://bloom.bg/Z7XsBJ
http://bit.ly/11P5Og6
and this on top:
http://bloom.bg/Z7XqK5
Overseas listed mines reacted positively.
http://bit.ly/ZclHyA
"The Mining Minister stated that international investors agreed to stop spreading and feeding negative news and messages through its’ associated PR companies and media channels".
Am I dreaming or what?
What about real, tangible, sustainable actions from GOM to start with?
http://bit.ly/11W1H1P
Same government ? Really ?
As for Ch. Ulaan , I think the IAAC will deal with him soon but he is right that a lot of the bad decisions and deals were made by the previous cabinet.
I think a lot of international investors and their PR companies and consultants actually talked up Mongolia. A good example would be Peter Epstein and his role as a paid consultant for South Gobi. It is only recently that poor communication and decision making is taking its toll. Mongolia is no longer a closed and isolated place if they are trading on open markets they will experience the reactions from negative news. I note that GOM recently hired its own American PR company lets see what they can do.
http://seekingalpha.co...
Maybe the new developments in coal bed methane extraction will encourage a revival in the coal sector.
http://seekingalpha.co...
This link has been previously posted but relevant again.
http://seekingalpha.co...
" Please note that Peter Epstein is a paid consultant for SouthGobi.SouthGobi has chosen not to meet with me, both this past September 2011 and during my current 18 day trip here in February 2012."
that was out on Monday.
Then afterwards, TRQ activity on NYSE was:
-1.60% with a volume of 1,426,367, the lowest of the last 5 days!
The impact is Z.E.R.O.!
Obviously whatever positive declaration GOM makes, President included, has limited or zero impact for international investors.
They are probably simply waiting for REAL, TANGIBLE, SUSTAINABLE ACTIONS OVER TIME to see if all this is real or just political noise.
The last 9 months give them good reasons to have doubts, including some very recent comments like this one.
http://bit.ly/ZclHyA
Ratings may be one thing and people in finance don't take that for face value,
but CREDIBILITY is much more important for a country like Mongolia is dire need for capital and it's not WORDS that can fix that in the short term.
ACTIONS please.
The mining projects must come first in Mongolia, because those are the only projects that investors are willing to take risk in as the rewards are potentially exponential. Mining is the backbone and cornerstone of Mongolia's growth story. Without real actions that the GOM is completely committed to OT and will not attempt another renegotiation, most investors will not commit to mining projects either.
There are plenty of mining, oil & gas projects in Indonesia and Africa. Investors do not need Mongolia. China does not need Mongolia either.
But hey, where there is chaos, there is opportunity. :)
If China and/or RIO and/or Russia cannot manage smoothly their project in Mongolia and are banging their head on the wall, what are the odds for me smaller guy to expect something fair?
Brutal but simple common sense.
I have to indicate I am long TRQ and long Call Options on TRQ
(accumulated over the last month)
Agreed, that makes my day,
i.e. I can still find very attractive prices on some MSE listed stocks for now,
because I am already setup, patient with plenty of time and
there is limited competition as most foreign investors are deterred from coming in many many ways.
BUT THAT DOES NOT HELP MONGOLIA I the short term / medium term :)
I have a feeling that Mongolia and Mongolians needs more capital to flow in that whatever YOU and I can provide.
If GOM and Mongolia want to have good deals, CHOICES, CONTROL ITS FUTURE instead of having it imposed (2009?), they need to fix this ASAP ...especially as weather is getting better and foreigners may be thinking about coming for conferences.
If NOTHING VERY SERIOUS is done then those investors will look elsewhere.
By the way, a group of financial investors from Hong Kong was 9 months ago considering a trip to Mongolia in may-june to understand financial markets (as I did a bit of lobbying and offered to help with introductions here and there).
In January, after reading the flow of "news" and "stories" from UB they dropped Mongolia and went for the plan B:
JAKARTA !!!
No comment.
http://on.wsj.com/ZLz9Ei
For instance in Indonesia, where there are clearly a lot of resources !!!!
http://bit.ly/ZFr0VP
http://bit.ly/ZLAwCM
http://seekingalpha.co...
Mongolia needs to take more steps to attract foreign investors only for the sake of being located a bit out of the way of most of the Asian commercial traffic.
http://bit.ly/14Mw8fQ
http://bit.ly/11z7hHt
Know when to fold 'em
Know when to walk away
Know when to run
You never count your money
When you're sittin' at the table
There'll be time enough for countin'
When the dealin's done"
Apologies to Kenny Rodgers.
http://reut.rs/Y1fYMw
“The amendment passed on Friday will exempt privately-owned foreign companies from the approval of parliament,
but they will still need approval from both the minister of economic development and the department minister for the industry in which the company operates.
The approval process will be triggered by any transaction involving 33 percent or more of a strategic entity, according to the original law.
But the amendments also tightened the restrictions on foreign state-owned entities (SOEs), removing a 100-billion tugrik ($71 million) threshold triggering government intervention.
That means all foreign SOEs will need the approval of Mongolia's cabinet in order to buy into a Mongolian firm, regardless of the size of the stake.
For purchases of stakes of more than 49 percent, the approval of parliament will also be required.”
Honestly I think it is GOOD and it is ENOUGH!!!
Absolutely no need to do more!!!
I (and I am not Mongolian) don’t think FOREIGNERS SHOULD HAVE EQUAL OPPORTUNITIES in strategic sectors!
It’s normal that GOM has to give a blessing above 33% on strategic stakes even for non SOEs.
Now the most important:
GOM has to support its words with actions and prove ASAP with some real examples / templates that this process is:
STRAIGHT,
FAIR,
SMOOTH,
PREDICTABLE.
Then the perceptions of:
* unknown,
* uncertainty
* volatility
that prevail now among foreigners may decrease substantially.
So I suggest that MED looks at its pile of projects waiting for approval, picks the most relevant and implement this.
MPP is continuing to attack the PM.
"MPP claims that it needs to verify some data of dismissed state staff, whether the Central Bank bought gold with Chinggis bond assets and if the Prime Minister`s relative won a tender in Tavantolgoi unfairly in order to add more reasons behind their demand for the Prime Minister`s resignation."
They are trying to make him the scapegoat for the drop in Foreign investment. If they bought gold with some of the Chinggis bond money the timing couldn't have been worse with the recent plunge in the gold price.
"Most of the proceeds from the Chinggis Bond are still in MongolBank and have not been spent." I wonder hpw much was spent on gold? This quote from Pat O'Connell, Mongolia's resident debt advisor.
Mongolia's PM is a powerful position and when PM Enkhbayar made most of his money.MPP is trying to get rid of Altanhuyag. Nearly all Mongolia's politicians have "won tenders" with their thinly veiled companies eg. Nomads.Bodi and Monnis. It is an essential part of doing business in Mongolia.
Thehttp://english.news...
"Chairman of the DP caucus was asked about the rejection on a suggestion made by the opposition MPP caucus to establish a working group due to a report that the Central Bank of Mongolia might be buying gold with the assets of the Chinggis bond.
D.Erdenebat explained the rejection by saying “The Central Bank is not subject to the Government according to law. It belongs to the structure of Parliament. Any hearings from Parliament are open. "
http://buswk.co/ZjMxUC
May be because of the Fiscal Stability Law!!!
If there is no export from ETT and OT, then the budget deficit may be impacted and the governor spells out that:
• The budget deficit is capped 2% of GDP,
• The borrowing limit is capped at 50% of the GDP.
So may be a limit of tolerance had been reached on the standstills at ETT and OT and de facto,
* Budget Deficit has to decreased
AND
* GDP to grow!!!
May be in the future, GOM should think about encouraging other foreigners to develop businesses (income generators) in Mongolia to limit its dependence on those 2 !!
It's as simple as that, and also because if it was pulling too hard on the US$ string now...it may BREAK!
On top, as all those central banks are printing, it makes sense to diversify borrowing to benefit from general competitive devaluations between USD, JPY, CNY, EUR, GBP.
US$1.5bn ?
It may still be in the account at Mongol Bank for now but there is already a long list of commitments for this, and the needs in term of capital for Mongolia are a LARGE multiple of this, say X15 or X20 !
Now they'd better move fast to restore investors (of all kind) confidence to get their growth engine up and running.
Moreover for railways, you need loans a bit longer than 5 years because you don't really get your return on capital so fast.
In borrowing this way, GOM is seeking funds from DIFFERENT LENDERS which is ALWAYS a good idea.
You JUST DON'T WANT TO BE AT THE MERCY of one market and one type of investors, and whatever event (else) affecting that market.
So for me it's wise.
This is getting beyond a joke. Now after the MCA/MCC is about to wind up its compact with Mongolia.The failure of their center piece project the road from UB to Zamin Uud is now replaced by a new toll road to be finished in 2015.This has no chance of happening on time or on budget.
http://bit.ly/ZSF6PW
In short, his message is:
"get down to earth quickly, get ETT up and running (i.e. PRODUCING (even if it's below cost for now) asap and stop disturbing RIO on OT because you are in serious needs for the revenues it generates, directly and indirectly,
otherwise you will fail big time to meet the requirements of YOUR OWN Financial Stability Law".
In that respect, a member of GOM that jeopardizes OT's business and delays production
is de facto responsible for breaching that law.
Is my understanding correct ?
The article is basically a summary of what we have been talking about recently but good to see an Australian comment.
Then during all that time, other foreign private equity investors were just waiting, not sending $ to their Mongolian operations delaying production of just everything as well as taxes and royalties.
The general attitude was wait-and-see!
If things could not be normalized between RIO and GOM why would smaller guys expect to be able to conduct their business normally there.
Very simple.
It is also suicidal to move coal to Chalco for less than it costs to produce and transport. Enebish and others who were involved in this poor deal have ruined the chance for Mongolia to get off to a good start with ETT. Chalco knows it can bribe to get a good deal for them and as usual Mongolian officials sell out their own people for 20 pieces of silver.
"RIO and OT can borrow relatively cheaply and GOM will benefit from this!!"
EBRD and ADB. Recently resigned Bayartsogt was governor of both these banks that have approved massive loans already for OT. This seems to be suiting Rio but not the people of Mongolia as their start up costs remain as debt to Turquiose Hill who will no doubt charge them higher interest than the deal arranged by Bayartsogt?
The benefits are much more than the negatives for Mongolia at large.
Anyway, you think what you want.
I am telling you as I see it without bias.
If Mongolians have problems with some of their politicians, they should not elect them but send them to court.
I heard so many time Mongolians were proud of their democratic system. Then put it at good use.
Actions related to business with foreigners impact the cash flows Mongolia at large and Mongolians badly need NOW.
This seems to be 2X crazy first it is costing money for ETT to deliver then they are paying a higher interest rate than first agreed for the money already advanced. Not sustainable and falling into the hands of MMC.
"Mongolia’s largest state-owned coal company, agreed to pay a higher interest rate on $186 million due to Aluminum Corp. of China Ltd. as part of an accord to resume coal deliveries."
Mogi also says Friedland's stake in Turquoise is now only around 8%
ONCE there is a clear agreement between GOM and RIO and Mongolian MPs stop fighting for something they don’t even know, then the CREDIT of OT, TRQ and Mongolia improves big time! The political premium decreases.
Part 1:
RIO and OT can borrow relatively cheaply and GOM will benefit from this!!
OT gets funding for the second phase, in very good conditions because the POLITICAL RISK is perceived lower.
Once RIO has insurance GOM is not there to backstab them, then it can go FULL STEAM AHEAD produce as much and as fast as possible FOR THE SAKE OF ALL, to catch up with time wasted, but also to prove to Mongolia it is a reliable partner it can count on.
Even if cash flows from production are not coming TODAY to GOM, the fact problems are settled (TANGIBLE ACTIONS NEEDED) and everybody is acting in good faith, means Mongolia can easily get short term funding in good conditions to plug short term holes.
If GOM settles nicely with RIO with REAL AND TANGIBLE ACTIONS then Chinggis Bond II will be a walk in the park!
Part 2
If GOM can settle peaceful with RIO on OT (tangible actions needed), it is a TEMPLATE for all other foreign investors and FDI will flow in even faster than in 2011.
If GOM keeps on the guerilla with RIO, even a US$1.5bn debt is UNSUSTAINABLE in this environment.
If GOM settles with RIO and really works SERIOUSLY as a team player, the current debt is something RIDICULOUSLY LOW compared to what Mongolia and Mongolian will be showered with!
Your country is VERY RICH and all MONGOLIANS can benefit very seriously from this (even if it’s never fair an equal, it will be a lot) so fighting for a higher % of the $ pie while reducing the total $ amount was not smart at all.
That is why I was so upset about what happened over the last 12 months because what GOM and MPs were doing was not in the best interest of my friends, Mongolians in UB, while pretending to do so!!!
Even US$10bn debt over 15 years, or more, invested wisely in infrastructure should be NO PROBLEM to repay while enjoying a much higher quality of life. On top, foreigners will inject EQUITY taking a lot of the risks on their own making the debt burden for Mongolia even lower.
Remember, I am investing on MSE listed stocks, i.e. local companies (most are not mines!), since 2011, and keep on buying so if Mongolia had not this kind of potential, I would not bother wasting my time and money.
I am still wondering if those going after RIO on OT thought about this more than 5 mn. That was plain suicidal.
So don't worry about the debt.
Worry about your government having some common sense and getting down to earth.
It takes a while to build but it goes fast,
so at this point it will boil down to REALLY TANGIBLE ACTIONS...
...while 2 years ago Mongolia had a good "credit", had much more flexibility, not much to do and had just to enjoy FDI that was helping Mongolia to modernize and Mongolians to enjoy a better life.
May be Mongolians should go visit Qatar and check how all this happened over the last 30-40 years.
http://preview.tinyurl...
http://bit.ly/13GgSME
An ancient Buddhist City in Afghanistan about to be destroyed by a Chinese Copper Mining venture.
That is something new.
Mongolian owned, Mongolian managed.
??
Generally complaints of all kind are coming from another location...
Weird.
If they are sending coal to Chalco as a charity and below cost then they have to try and make savings.They don't want union troublemakers and they don't care about creating good jobs and conditions for Mongolian workers.
Same problems with my 14 years old now also seriously overconfident while he did not issue some Chinggis Bonds :) :) :)
Moral hazard is a very popular nowadays.
"Planned resumption of field activities and confirmation of licenses standing:
Despite recent speculation driven by an ongoing Mongolian court case, Kincora has had confirmation from the Mineral Resources Authority of Mongolia (“MRAM”) that all its licenses remain in good order. A staged systematic exploration programme is planned with field season activities expected to recommence within the next month."
Elsewhere or even in Mongolia 2 years ago, that would have been enough.
Now, thanks to the doubt created, especially after this:
http://bit.ly/11xZ70l
this:
http://yhoo.it/14KUDJX
and this:
http://bit.ly/11xZ8l3
it may be a good idea to have CLEAR CONFIRMATION of this from MRAM or the PM himself !
GOM and related institutions have to understand that if they intend to raise capital, debt, equity ...or syndicated loans, from foreign investors, through local market or foreign markets, it'd better pay attention on how to handle PRICE SENSITIVE INFORMATION because that seriously impacts the COUNTRY RISK PREMIUM!!
http://bit.ly/ZrNeIf
http://reut.rs/103E0q9
"The offer fell apart after Japan and South Korea called the bidding process unfair and Mongolia’s National Security Council, which reviews large foreign investment projects, rejected the plan."
The offer fell apart because corrupt officials such as Enebish signed off on a stupid deal with Chalco. This deal now has a higher interest payment on the money advanced from Chalco and it still cost the people of Mongolia more than they get paid for delivering coal to Chalco.
Nice connection to MCS and Robert Kerry. My understanding is this is a private rail line?
http://bit.ly/YvJUhU
http://bit.ly/10s3Lfq
Maybe this project, the rail line being constructed between the coal mines and the Chinese border, will show what can be a workable arrangement between government and industry to help build the rest of the rail network in Mongolia.
http://bit.ly/10s3Lfs
http://bit.ly/YvJRm4
http://bit.ly/YvJRm2
http://bit.ly/15rwXLc
http://bit.ly/12hYZTs
http://bit.ly/15rwZTv
http://bit.ly/12hZ1uK
http://bit.ly/15rwXLi
Japan was supposed to be getting ETT coal via Chalco as part of the $250 million advance to GOM.
Japan has tried for centuries to get a foothold in China and Mongolia, as Mongolia's most recent invader following their creation of Manchukuo and their archeological attempts to create a link between Mongolian people and Japanese I would be wary of their motives. They are trying to get Mongolia indebted to them for the supposed new Airport at Terelj and their "generous" low interest long term loan which will service the casino and link to Japan Town on the Zaisan side of the Tuul River.
http://bit.ly/10mgKSM
http://bit.ly/10ToAz8
Since Japan is relatively poor in raw materials, they probably will be interested in remaining a good customer for Mongolian natural resources, woolen articles and some other items.
Don't kid yourself their motives run deeper than woolen jumpers.
But I say "that was against Stalin" instead of "that was against Marshal Choibalsan" mostly because the Japanese were ultimately aiming to control the main railroad junction near Chita, which the Japanese had controlled for a short time when they interfered in the Russian Civil War just after World War One. By controlling that railroad junction they could prevent Stalin's troops from moving eastward along the Trans- Siberian Railway to Khabarovsk and Vladivostok and southeastward through Manchukuo to Port Arthur and the Korean Peninsula along the Chinese Eastern Railway. They were afraid that Stalin was making the Soviet Union strong enough by 1939 to overturn the results of the Russo- Japanese War of 1904-1905 which happened in their favor.
So I think the Japanese aggressors of 1939 were actually thinking of heading north into Siberia from the area of the Mongolian- Manchukuo border incidents and not further west into Mongolia.
http://bit.ly/12ssKT4
http://bit.ly/YTFjrW
At any rate, there should not be any worry about a recurrence of that situation in these times. The geopolitical situation of 2013 in Northeast Asia is way different than that of 1939.
http://bit.ly/11Nd6VB
http://bit.ly/188wStx
http://bit.ly/188wStz
As predicted months ago the Presidential election should be an easy victory for Elbegdorj. Interesting choices by MPRP and MPP a woman and a popular wrestler as opposed to some very dirty potential candidates who have all but conceded this election to the DP.
A loan for OT with no details made public by a Government that is about to lose office in September. This also follows the US refusal to support it supposedly on environmental grounds.
http://bit.ly/YWFanL
Glad to see that the Asia Foundation is not heading/ organizing and speaking for the electoral observer team for the forthcoming presidential election. Lets hope Dame Audrey can do a better job than William Infante did in 2008 and that she has the resources to attend more than the <10%? of stations that were attended last time.
http://linkd.in/10z5LBz
I hope that some of the observer team will be brave enough to mention what really happens. The 2008 election saw not just a blackout of the "press' except for MNB but the shutdown of the internet. Tanks were deployed and people shot dead in the streets. Who ordered the response?Hundreds of people many innocent and political rivals were imprisoned in Gandshudag.
http://bit.ly/YWF7IL
It was never a good idea to have TAF, an organization founded by the CIA in 1951 as the committee for free Asia as electoral observers.There doesn't seem to be much political grooming going on yet? Will the observer team monitor the appalling standard of political advertising and monetary promises?
"EFIC's decision to lend money to Rio comes despite Australia's Productivity Commission urging the organisation to ''substantially reorientate'' its focus toward small exporters, rather than big companies that can easily source money elsewhere at low interest rates."
Why are Australian taxpayers paying for this? 34% of these set up loans are liabilities for the GOM and will have to be repayed at a higher interest rate as debt to Turquiose Hill. Australia has already wasted over $63 million dollars in Mongolia since 1995.
Regarding the attempt to sue Bayartsogt, this has no chance as stated before the IAAC is DP controlled. He has resigned his position and will get a slap on the wrist then return later.
“Eight NGOs delivered the request to the Anti-Corruption Authority today, May 7th.” Which organizations delivered this request? Are they Mongolian as the article is written by a Mongolian?
These are all god points but l don’t think he will be giving any answers.
Over 42,000 public officials are required to gve their income statements to the IAAC most of them are lies a.The most famous one was Enkhbayar who claimed that he only wned one apartment in Ub and a saddle given to hm by George Bush!
http://bit.ly/16GyCwf
I love a good spy story unfortunately l think K.Sairaan is in deep trouble. It’s very interesting to see his connection to the former PM Bayar. Another former advisor to Bayar and former Ambassador to Australia Jambaldorj has just been given a plum job as Mongolia’s permanent representative at ASEAN. I wonder what we are to make of this. Will Bayar make his anticipated comeback at the next election cycle?
"According to the Presidential Election law no online or physical press should insult or release slanderous comments related to candidates during the period of the Presidential Election. "
This is missing the point of a media crackdown as some leaders are already protected under Mongolian law. The biggest problem is the standard of advertising by the political parties and the seemingly unregulated advertising lndustry.Enkhbayar had his TV9 and various newspapers along with key editorial placements.
http://seekingalpha.co...
http://bit.ly/10TRXCU
Khurelsukh as previously posted famously cleaned out the Mongolian savings Bank of $1.4 million USD and with 2 others blew it at a Seoul casino. He escaped conviction but a female Bank employee was sentenced to 6 years jail.Enkhbayar's wife flew to Korea to get the proof so that Enkhbayar could use it against him. After the MPP's poor performance in the last general election he resigned hen sold his seat to the Boss of MAK company Nyamtaisha who plans to install his son in the Ikh Hural. The seat was reportedly sold for $500,000 and Khurelsukh at the time said he needed to go to Korea to help his sick wife.
If he is studying on an Australian Government Scholarship or Leadership program then some serious questions need to be asked. These programs have recently provided a tax payer funded education for the General Secretary of the MPRP.There are many examples of the MASP corruption going back to 1995 and involving over $63 million. T