Mongolia has repeatedly insisted that it wants to open its doors for business to all countries with a genuine interest in participating in the country’s sustainable growth. How much of this policy is lip service though and how fair is the bidding process for prospective foreign investors? Mongolia’s long awaited initial public offering (IPO) for its lucrative coal mine in Tavan Tolgoi will have to wait at least until 2013 according to recent remarks by government officials. The repeated delay of one of Mongolia’s signature markets is sending mixed signals to foreign investors and has the potential to erode investor confidence in the resource-rich Central Asian country.
Tavan Tolgoi represents one of Mongolia’s most important chips to foreign investors as the company controls an area that is believed to contain the world’s largest undeveloped coking-coal deposit. The mine is situated in Mongolia’s southern Gobi desert which has made it an appealing location for Chinese investors. In July 2011, China’s Shenhua Group was awarded a 40% stake in the mine. The remaining investment contracts were awarded to a Russian-Mongolian consortium (36%) and American mining company Peabody (24%). It was believed that this trilateral group would jointly develop the mine, but government officials in Ulan Bator demurred on their decision after Japanese and South Korean companies began protesting that the bidding process had been unfair.
The uncertainty has created a five-chair shuffle in which East Asia’s largest power brokers are competing to have a lasting economic footprint in Mongolia. Mongolian President Tsakhia Elbegdorj has cautioned that the contract for developing the mine is not a done deal after rejecting a previous decision to hand the majority of the mining rights to the Chinese-backed consortium. Elbegdorj insisted that it is “essential that it (developing the mine) is in line with policies and in line with our national security. We have two big neighbors and we need investment. I think the door is still open in the negotiations with big national investors.”
The underperforming price of coal in the financial markets is pushing the IPO deeper into 2013 as investors wait for an opportune time to establish a market presence. The Tavan Tolgoi IPO, which is expected to be offered at U.S. $3 billion, has also been pushed back due to legal constraints involved in listing Tavan in three international markets – London, Hong Kong and Ulan Bator. Reports of the delayed IPO come amid frustrations with Hong Kong’s increasingly complicated legal frameworks and restrictions. Mongolian officials are working to amend their legal securities framework to allow the IPO to list on all three markets.