Trafigura buys Golomt Bank stake. Golomt Bank, the second largest bank in Mongolia, announced on March 27 that Trafigura Beheer B.V. bought 5.02% stake in the bank for MNT21.2bn (US$15.9mn). The deal follows earlier sale of 10.7% stake in Golomt Bank for MNT25bn to Swiss-MO AG in June 2011. Thus, Trafigura becomes the third largest shareholder in Golomt Bank after Bodi International LLC (over 80%) and Swiss-MO AG.
Golomt Bank is the second largest bank in Mongolia in terms of total assets and loans outstanding. Last year, the assets of the bank grew 35.4% to MNT2,131.1bn (US$1,528mn) and loans outstanding 58.8% to MNT1,245.9bn (US$893.1mn). Golomt Bank accounted for 22.7% of banking sector assets and 22.3% of total loans outstanding. Net earnings rose 51% to MNT30.2bn (US$21.7mn), ROE and ROA reached 1.4% and 21.6%, respectively. However, the profit growth and profitability ratios of the bank were weaker than the industry average. Total capital grew 48% to MNT 189.1bn (US$135.4mn).
Trafigura in Mongolia. Trafigura is the world’s third largest commodity trader with annual turnover of US$122bn in 2011. Trafigura first entered Mongolia back in 1997 when the trader started to buy copper concentrate from Erdenet Mining Corp. According to the company’s senior management, Trafigura views Mongolia as top priority in the context of its global expansion strategy. The company intends to expand its activities in Mongolia to deliver more iron ore, coal and copper to the Chinese market. In 2011, it secured its first iron ore and coal supply agreements in Mongolia and started tin shipments from the country. In 2010, it provided over US$40mn in financing to a lead and zinc project in eastern Mongolia in exchange for an off-take agreement. The company also invested in a trucking company to transport coal from producing mines in the South Gobi province of Mongolia to China.
Mongolian banking industry expanded 50.1% in 2011. The sector-wide net earnings exceeded US$130mn. ROA and ROA reached 2% and 27.2%, respectively. Assets surged to US$6.7bn and bank assets to GDP ratio reached the new height of 86.5% in 2011. Banking sector has been one of the most attractive sectors for foreign investors in recent years. The sector has already attracted considerable investor interest from Japan, the USA, Russia, the UAE and some others. In a recent deal Goldman Sachs bought a 4.8% stake in Trade and Development Bank of Mongolia, the country’s third largest bank, in February 2012.
In Eurasia Capital’s view, even though 5% stake in Golomt bank may only represent financial investment for Trafigura, this deal nevertheless has strategic rationale of cementing relationship with Bodi Group, the Bank’s controlling shareholder and Mongolia’s one of the largest business groups, as well as having access to deal flow in the resource sector in Mongolia.
Eurasia Capital reiterates its view that Mongolian banks will attract growing interest of international investors. The financial sector is considered as one of the most geared to Mongolia’s rapid economic growth, which is being fueled by development of its world class mineral resources. In light of upcoming large scale mining, infrastructure and housing projects and the demand for liquidity it creates, the Mongolian banks are still undercapitalized. Mongolian banks will need to seek access to long-term capital on international markets. We expect strategic and portfolio investors, global and regional players to buy significant and controlling stakes in Mongolian banks in the coming years.