Mongolian coal IPO a hot commodity
More than 150 bankers have descended into a Monglian deep freeze to battle for a piece of country’s upcoming coal IPO — the world’s largest untapped coking deposit that could have an offering price of up to US$5-billion. Bankers from a dozen Wall Street, European and Asia-Pacific investment banks have made pitches to the Mongolian government over the past few days to win the coveted underwriting mandate for the Tavan Tolgoi coal mine, sources with knowledge of the matter said. “It was bloody cold,” said one banker who attended, citing temperatures of -25C. “Ten or 12 government officials were there. They listened and asked good questions, which isn’t always what you get with a government pitch.” Investment bankers who took part in the pitching process said the size of the offering could range from US$1.5-billion to US$5-billion, depending on timing. They declined to be named because they were not authorized to talk to the media.Stories of bankers fighting in an Irish bar in Ulan Bator made the rounds in Hong Kong in the days prior to the formal pitching sessions.
Another hot topic among bankers involved concerned Morgan Stanley analyst Battushig Batbold, the son of Mongolia’s Prime Minister. He is a metals and mining analyst for Morgan Stanley in London, his LinkedIn profile says. Rival bankers have said the analyst, believed to be in his 20s, is involved in the IPO pitch, although local media said Mr. Battushig was not attending.
Mongolia sits on vast quantities of untapped mineral wealth. Analysts say it could be one of the fastest-growing economies of the next decade, as well as a key investment target for global mining giants. Mining has accounted for over 60% of total foreign direct investment received so far.
Hard coking coal is in great demand in neighbouring China, the world’s biggest steel producer, which needs coke to fuel blast furnaces. Other big Asian buyers are Japan, South Korea and Taiwan.
Bankers completed their pitches in the Mongolian capital of Ulan Bator Tuesday and while a decision is expected by next week, sources said the timing could change. Listings on both the London and Hong Kong stock exchanges were being discussed, they added.
Banks that flew representatives in included Morgan Stanley, Macquarie Group Ltd., Citigroup Inc., JPMorgan Chase & Co., Deutsche Bank AG, Credit Suisse Group AG and UBS AG, the sources said. They declined to comment.
The IPO coincides with a battle between resource-hungry Asian governments and global steelmakers to develop the mine, which has estimated reserves of 6.0 billion to 6.5 billion tonnes.
Landlocked Mongolia lingered in isolation for 70 years as a Soviet satellite state, serving as a sleepy buffer zone between its giant neighbours, Russia and China.
Now the democratic government, in power since the early 1990s, is trying to pull its three million citizens out of poverty by exploiting its untapped mineral wealth.
The Mongolian government plans to distribute shares in the company free to all citizens and another chunk to Mongolian corporations, according to officials, bankers and analysts.
“Ten per cent of the shares will be given to every citizen of Mongolia,” said Algar Namgar, executive director of the Mongolian National Mining Association. “And 10% of the shares will be traded to every Mongolian enterprise.”
About 30% of the asset is being sold to global investors through the IPO, sources say.
Mongolia plans to keep 51% of state-owned holding company Erdenes-Tavan Tolgoi, which controls the deposit, located in the South Gobi desert near China’s northern border.
At up to US$5-billion, the deal is not only fairly big in terms of fees, but also has a lot of prestige riding on it. It would be the largest such offering to come from a hot frontier market where similar deals are expected to follow.
The vast majority of imported coking coal in China, Japan and Korea comes by ship from Australia, but Mongolian imports will reduce freight costs.
Global coal prices have shot up in recent months due to disruptions in several coal-producing countries, including Australia, Indonesia and South Africa, while demand in Asia, particularly China and India, continues to grow.
In recent months, prices have galloped as massive floods in Australia slashed supplies. The price of Australian thermal coal, a benchmark for Asia, has risen 34% from a year ago to around US$127 a tonne while spot prices for coking coal have shot up more than 50% from a year ago to hover around US$370 a tonne.