Government Decisions will Affect the Tavan Tolgoi IPO

The following is an interview concerning the IPO of  Erdenes Tavan Tolgoi with the CEO of Edenes Mongol B.Enebish, member of the board of directors of the Mongolian stock market B.Bold, and the President of the investment bank MICC D.Achit-Erdene.

How is the preparation for Erdenes Tavan Tolgoi’s  IPO on the international market going?

B.Enebish: The mining operation is going smoothly. We’ve started started exporting coal. We got 250 million dollars of advance payment from the coal mining which we deposited to the “Human Development Fund”. Preparations for exchanging stock on the international and domestic stock markets are well underway. Since April, we’ve been collaborating with 4 banks: Goldman Sachs, Deutsche Bank, BNP Paribas, and Macquarie. In November, the government made decisions about the structure of the stock exchanging company and what market to go on. They have made instructions to exchange 10-20% of the stock in the domestic market and exchange the remaining 80-90% on the London and Hong Kong stock markets by creating a company registered in England. We are quite busy ate the moment as we are in the main stages of preparation. Requests to the London and Hong Kong stock market will be sent within this year. We have already sent some of the necessary documents to Hong Kong. It is predicted that the stock exchange will commence in the coming month of April.

It is being said that in April, the Government will make monetary by making the face value of 10-20% of Erdenes Tavan Tolgoi’s stock to 1 million tugrugs per ctitzen. Is this the way Erdenes Tavan Tolgoi’s stock is entering the Mongolian market? Also, can you elaborate on the term face-value?

B.Bold: First of all, it is highly likely that the current ideas will take some sort of adjustments and modifications. Accountants and tax surveyors have precise ideas on the difference of  face-values and market-values. The problem is that the face-value might be anywhere from 1 tugrug to 1 cent. Only the accountants will constitute the price. I remember that Mongolian Energy Resources had a budget of 70 million dollars when they went on the Hong Kong stock market. That’s the price they had in terms of accounting. But they ended up gaining a market value of 4 billion dollars. So before we do talks with just the face-value at hand, the Government and the Ministry of Finance should try to make positive adjustments. It is the first time one our strategic mines is going to be priced on the global market, so we shouldn’t rush things.

The talk about Erdenes Tavan Tolgoi’s IPO has been going on for some time now. The public is anticipated to know how much the share price per stock is going to be. The Parliament has been saying that 10-20% stock is 1 million tugrugs to each person, so doesn’t this already give away the price? It seems like the Parliament is doing the job of the investment banks and advisers for them.

B.Bold: It is important for a democratic society to have individuals with their own opinion  on things. But of course, personal opinions and professional advice are two completely different things.  If the 76 parliament members have become advisers to Tavan Tolgoi and making their own valuations of the price, they’re not exactly doing the right thing. The ones who should be estimating the price are the Banks and advisers.  How much it will be will depend on the current financial situation. There will be of course an estimation beforehand. But first we will need to think about what’s happening on a global level. The price of metal is dropping in China. This means the price of coking coal which is used to manufacture metal is also going to drop. Plus, the drop of stock prices in Europe and we have a situation in which it is highly difficult to come up with an estimation.

D.Achit-Erden: There seems to be two concepts that are being discussed here: The first is face-value, which is the price accountants estimate. This price is usually the lowest. It could be anything from 1 tugrug to 1 cent. The second is market-value. which is determined by buyers and sellers. After a certain amount of  sales between large scale investors, be get the final price.

Handing out 1 million tugrugs worth of stock to 2.7 million people almost sets the price itself. I don’t have the exact numbers so I can’t say for sure but giving 2.7 million people stock worth 1 million tugrugs which is 10% of the entire company is  giving away 2 billion dollars worth of stock. This sets the company’s entire price at 10-20 billion dollars. It is doubtful that it will reach this price but at the same time, it is necessary. So I’m afraid this will have effects on the IPO process.

How will the Government affect the IPO?

B.Enebish: First of all, instead of  talking about the face value, they should focus on informing the public that they are giving 20% of the company to the people, and that they are turning their stock into money. If they go around telling the public of how much the face value is and how much money that they might be getting, it might result in some severe backlashes.


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