Eurasia Hedge Fund Bets on Mongolia, Plans Share Sale

Aug 28 • Business, Companies, Economy, Mining • 858 Views • No Comments on Eurasia Hedge Fund Bets on Mongolia, Plans Share Sale

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Bloomberg reports that,

Aug. 28 (Bloomberg) — Eurasia Capital Management plans to increase the world’s first Mongolia-focused fund fivefold to $100 million to tap economic growth fueled by the nation’s mining industry.

Eurasia’s hedge funds, which have about $200 million of investments across Central Asia, also expect to sell shares on London’s Alternative Investment Market or Deutsche Boerse AG by next June, said Alisher Djumanov, managing partner of the Singapore-based firm. Proceeds would be used to start private- equity and property funds, and expand in Central Asia, he said.

Mining in Mongolia, which has reserves of coal, copper, gold and uranium, will spur “double-digit” economic growth rates over the next 10 years as commodity prices remain high, Djumanov said in an interview. Mining accounted for about two- thirds of Mongolia’s exports last year, and foreign direct investment in the country rose more than 33 percent.

“The spillover effect from the mining sector will be significant,” Djumanov, 35, said. “We’re investing in companies that are expected to grow significantly on the back of this strong economic growth.”

Eurasia’s Mongolia Discovery Fund rose 12 percent this year, compared with the 16 percent drop in the MSCI World Index. The fund invests in coal mines, water utility as well as oil and gas companies, Djumanov said.

Genghis Khan

Economic growth in the former communist country that became a democracy in 1992 accelerated to 10.2 percent in the first quarter, from 9.9 percent a year earlier. The market value of the Mongolian Stock Exchange, set up in 1991, rose sixfold in the past two years to about $669 million, according to Istanbul- based Federation of Euro-Asian Stock Exchanges.

Still, the Asian Development Bank estimates 32 percent of Mongolians are on incomes below the government’s poverty line.

Djumanov’s foray in Mongolia, home of 13th century warrior Genghis Khan, began when he put $3 million in a property project in the capital Ulan Bator after he first visited the nation of almost 3 million people in September. The value of the investment has doubled, he said.

Through its funds, Eurasia Capital also owns 40 percent of Tuul Songino Water Resource, which has waste-water treatment and underground water purification projects in Ulan Bator.

Djumanov, born in Tashkent, the capital of Uzbekistan, said he raised $5 million in three hours from investors in Geneva when he first marketed the Mongolia fund in January, promising annual returns of 25 percent to 30 percent. The portfolio has grown to about $20 million.

Ivanhoe Mines

Eurasia Capital also has “limited” investments in companies with projects in Mongolia that are listed outside the country, including New York-listed Ivanhoe Mines Ltd. and Centerra Gold Inc., which trades in Toronto, he said.

“There is really limited capital that has arrived in this country” relative to the investment opportunities, said Djumanov, a former Credit Suisse Group investment banker who holds graduate degrees from Oxford University in England and Columbia University in New York.

Foreign direct investment in the country rose to $500 million, of which 67 percent went into mining, according to data compiled by Manila-based Asian Development Bank.

Mongolia is considering changing mining laws to force companies to share output or give more than half their projects to the state. Rio Tinto Group and Ivanhoe Mines have spent more than four years seeking government approval for a $3 billion project to develop the Oyu Tolgoi deposit. Prices for both metals have more than doubled in the same period.

Frontier Investment

“The government just wants to make sure it maximizes the revenues for Mongolians, and some form of nationalism entered the discussion,” said Adrian Ruthenberg, Asian Development Bank’s director for Mongolia in Ulan Bator. “It’s also a huge opportunity cost; the delay means some fiscal revenue is foregone.”

Eurasia Capital isn’t alone in seeking ventures in Mongolia, which borders China, the world’s fastest-growing major economy and the largest consumer of copper and other minerals. Almost 70 percent of investments in Mongolia came from China, according to the Asian Development Bank.

Frontier Investment & Development Partners, manager of a Cambodia-focused private-equity fund, plans to raise $100 million next year to invest in mining, infrastructure, real- estate and tourism projects in Mongolia, said Marvin Yeo, Frontier’s Phnom Penh-based co-founder.

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