Capital Markets
From The Report: Mongolia 2013
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The State Property Committee (SPC) created the Mongolian Stock Exchange (MSE) in 1991 as a vehicle for privatising state assets during the transition to a market economy. Despite early attempts to broaden the share ownership in state firms, shares became concentrated in the hands of a few, and, by 2010, it was estimated that 80% of the market’s capitalisation was owned by a dozen individuals. The MSE experienced a record-breaking year in 2011 when share prices surged thanks to foreign investor interest in the commodity-driven economy. Mining sector stocks performed especially well, with some coal producers seeing shares rise over 200%. Strong growth prospects over the medium term will ensure high returns for investors and will likely lead to the strengthening of the local currency. While some value investors will snap up cheap valuations during the economic rebound expected in 2013, the enactment of the new securities law is crucial to opening the market to new liquidity and issues.

This chapter includes a viewpoint from James Passin, Principal, Firebird Management.

Articles from this Chapter

Overview

Rising above: Rebounding from a crisis, market should benefit from new regulations
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While economic growth is forecast to be in the double digits for 2012, the slowdown in GDP growth from 16.5% year-on-year (y-o-y) in the first quarter 2011 to 11% in the second quarter, election jitters and the migration to a new trading framework kept investors largely on the sidelines in 2012. Equities realised significant value over the last two years before slowing in 2012. Yet over the medium term, both listings and liquidity should grow markedly once new legislation is enacted. Although…

Viewpoint

James Passin, Principal, Firebird Management, on increasing investor participation on the stock exchange
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In terms of aggregate sources of equity capital funding, the Mongolian Stock Exchange (MSE) has historically played a minimal role when compared to external stock exchanges. It has provided a useful means by which Mongolian entrepreneurs could raise capital from the local market for businesses that were not yet in shape for an international listing. Still, we have not seen very large, international-quality companies listed on the MSE, so whether or not there is a market for such securities remains…

Analysis

Tapping offshore: Issuing and floating abroad to finance growth
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Fundraising offshore has been a major trend among Mongolian corporates over the last three years. While commodities slumped in 2012 and political risk reemerged on foreign investors’ radar, Mongolia seems likely to continue tapping international markets via both debt and equity issuance in coming years. The government, however, must be cautious to preserve investor appetite for new issues by forging consistent policies. LISTINGS & REVERSE TAKEOVERS: Around 30 firms operating in Mongolia…

Analysis

Legislating change: Empowering the regulator and cleaning up the market
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A legacy of privatisation, Mongolia’s securities law continues to hamper the development of the world’s second-smallest bourse. While new legislation has been drafted with support from an international working group that included the London Stock Exchange Group (LSEG) and presented to parliament, its passage remained delayed in 2012. Although smaller pieces of legislation have passed in recent years, and new trading and settlement mechanisms have been installed at the Mongolia Stock Exchange…

Analysis

Consolidating brokers: Streamlining the sector to improve quality and facilitate growth
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The number of brokers and dealers more than doubled between 2009 and 2012, yet trading modernisation looks set to catalyse consolidation. In 2011 the top 10 of the 76 brokers performed daily trades amounting to more than 91% of the market, and the financial viability of most brokerages remains doubtful. As the World Bank and IMF noted in a June 2012 assessment of the financial sector, “Most intermediaries are poorly capitalised, inactive or unable to effectively intermediate between savers…

Analysis

Sharyn Gol: Mining
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THE COMPANY: Originally a state-owned company, Sharyn Gol was partially privatised and listed on the Mongolian Stock Exchange in 1995. It became 100% private in 2003. The firm has undergone complete restructuring since a New York-based company, Firebird Fund, acquired 61% of it. In January 2011 Sharyn Gol was named “most transparent joint stock company” at an event organised for the 20th anniversary of the Mongolian Stock Exchange. Sharyn Gol is a single-asset company. This asset, Sharyn Gol coal mine, is located in Northern Mongolia (215 km – or a drive of around three hours – from the capital Ulaanbaatar), and is close to the country’s…

Analysis

Sharyn Gol: Mining
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THE COMPANY: Originally a state-owned company, Sharyn Gol was partially privatised and listed on the Mongolian Stock Exchange in 1995. It became 100% private in 2003. The firm has undergone complete restructuring since a New York-based company, Firebird Fund, acquired 61% of it. In January 2011 Sharyn Gol was named “most transparent joint stock company” at an event organised for the 20th anniversary of the Mongolian Stock Exchange. Sharyn Gol is a single-asset company. This asset, Sharyn Gol coal mine, is located in Northern Mongolia (215 km – or a drive of around three hours – from the capital Ulaanbaatar), and is close to the country’s…

Analysis

APU: Beverages
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THE COMPANY: The name APU comes from Arkhi Pivo Undaa (vodka, beer, drinks). Established in 1924, three years after Mongolia’s communist revolution, APU is the country’s largest beverage producer, and its first national brand. The company was partially privatised in 1992, with 51% of its shares being retained by the state and 49% sold through the Mongolian Stock Exchange. In 2001 the remaining state-owned shares were sold through public auction, and the firm was 100% privatised. APU Joint-Stock Company (APU JSC) currently has a share of around 52% of the Mongolian beer market (down from 55% in 2011) and a 64% share of the vodka market…

Analysis

Tavan Tolgoi: Mining
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THE COMPANY: Not to be confused with Erdenes Tavan Tolgoi, Tavan Tolgoi Joint-Stock Company (TT JSC, also known as Small Tavan Tolgoi) is still one of the largest coal mining companies in Mongolia. The firm’s name means “five hills” and refers to the area’s landscape. The company is part of the larger Tavan Tolgoi deposit, the world’s largest undeveloped coking coal deposit, which is said to contain around 6.4bn tonnes of resources, according to exploration work conducted during the Soviet era. TT JSC was established in 1966, when it received an order to export 3000 tonnes of coal. Currently, the local government owns 51% of the…

Analysis

Gobi: Textiles
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THE COMPANY: Established in 1981 with Japanese economic and technical assistance to process natural goat and camel hair, Gobi produces cashmere and camel wool products from these fibres. It has since developed into one of the five largest cashmere producers in the world, and has around 1000 employees. Gobi was partially privatised in 1993, when 26.5% of its equity was floated on the Mongolian Stock Exchange. In July 2007 the remaining stakes were sold for $13.85m to a Japanese consortium, Toshisoke Investment Bank and HS Security. Gobi has exported its products to around 200 companies in 40 countries. The products are sold at retailers and…