Goldman Sachs takes stake in Trade and Development bank
Goldman Sachs has purchased a 4.8 per cent stake in Mongolia’s Trade and Development Bank, amid a mounting credit crisis in the country’s fast-growing economy that is leaving banks scrambling for cash.
The investment, estimated to be worth less than $50m, is Goldman Sachs’ first deal in the Mongolian financial sector and underscores how keen foreign investors are to gain exposure to the economic growth fuelled by Mongolia’s resources boom.
Mongolian banks are also increasingly looking for overseas investments to meet their capital needs as the country has been experiencing a liquidity crunch since last fall as the government tries to rein in lending and cool inflation, according to bankers.
“The banks are out of money now,” said Peter Morrow, former chief executive of Khan Bank, one of Mongolia’s largest. “Liquidity was very high a year ago but it’s been burned up because there is such high growth and high lending.”
Another top Mongolian bank is also in talks to get funding from a foreign investor, according to a banker based in Ulan Bator.
Mongolia’s $8.6bn-a-year economy has been growing rapidly, with GDP growing 15 per cent last year and stubborn inflation that has remained in double-digits. This growth is being driven by the development of huge mining projects, such as the Tavan Tolgoi coking coal mine that is due to list in London, Ulan Bator and possibly Hong Kong this year. Goldman Sachs is among the banks leading that listing.
Dick Ranken, an adviser to the World Bank’s International Finance Corporation and a board member of Xacbank, said the very rapid growth rates in Mongolia meant banks are facing a number of restraints. “They need funding, both equity and debt, they need experience and expertise, and they need stronger governance,” he said. “I would suspect you will see a lot more western banks showing some very strong interest in the sector.”
Other bankers added that because of government efforts to curb inflation, very little consumer lending was available.
“Right now there is definitely a liquidity crunch and banks haven’t been lending since around November, but it is mostly because inflation is in double digits,” said Achit-Erdene Darambazar, president of MICC, a Mongolian investment bank. “The central bank also raised reserve requirements, so unless banks get funding they cannot lend.”
The privately owned Trade and Development Bank, with $1.4bn in assets, is one of Mongolia’s three largest banks, and the Asian Development Bank and the IFC have both invested in it. Goldman’s stake in Trade and Development Bank is limited to 4.8 per cent because any investment of more than 4.99 per cent in a financial institution would require a special exemption from the US Federal Reserve under the new Dodd-Frank rules. Credit Suisse also made a $20m loan to Mongolia’s Golomt Bank before the financial crisis, but this did not lead to any ownership interest.