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Mongolia Delays $3 Billion Coal IPO to Retain Hong Kong Plan

Erdenes Tavan Tolgoi, the Mongolian coal miner planning a $3 billion initial public offering, said it delayed the foreign part of the deal by at least two months to September to help win listings in London and Hong Kong.

The state-run miner may list locally first as part of the government program to give citizens stock in the company and then pursue a sale overseas, Chief Executive Officer Baasangombo Enebish said today in an interview in the nation’s capital, Ulan Bator. Prime Minister Sukhbataar Batbold’s government had aimed to complete the IPO before June elections.

Mining companies have lost 27 percent of their market value since April last year, the Bloomberg World Mining Index shows, as global economic volatility curbed demand for resources. The IPO will mark Mongolia’s first listing of a state-run miner overseas as the country seeks to use its mineral riches to support an economy that grew by a record 17.3 percent last year.

“Ideally, we’d like to go to Hong Kong and London together,” Enebish said, adding that Hong Kong law currently restricts accepting Mongolia as a jurisdiction for listed companies. “And first we need to clarify what percentage we can actually sell in the IPO.”

Mongolia’s parliament is due to vote on a new securities law that should allow entities registered in the country to be accepted by the Hong Kong stock exchange, Enebish said. Erdenes TT, as the company is known, would list shares or depositary receipts in Hong Kong. The London listing would be of global depositary receipts, he said.

Goldman Sachs

Goldman Sachs Group Inc., Deutsche Bank AG, BNP Paribas SA and Macquarie Group Ltd. have been hired as financial advisers, Otgonbat Sedbazar, an adviser to the nation’s Resources Ministry, said in November.

Erdenes TT is developing the East Tsankhi part of the 6 billion-metric-ton Tavan Tolgoi coal deposit, one of the world’s biggest untapped sources of the fuel until mining began last year. The IPO may raise more than $3 billion, Mongolian cabinet office chief Khurelbaatar Chimed said in September.

The Mongolian government has pledged to distribute as much as 20 percent of the Erdenes TT shares to citizens as a way of fulfilling past election promises of spreading the country’s growing wealth. A third of Mongolians live below the poverty line, according to the World Bank.

Rail, Power

The coal company is also considering a sale of convertible bonds before listing, Mongolia’s Minerals and Energy Minister Dashdorj Zorigt said in a March 5 interview. The government won’t press Erdenes TT to complete the IPO before a parliamentary election in June, allowing the timing and place of sale to be decided on a “commercial” basis, he said.

Erdenes TT is due to start rail, road and power generation facility construction this spring and summer which will help to expand output, Enebish said. Delaying the international share sale will help the company “add in value,” he said.

Erdenes TT produced almost 1 million tons of coal last year and targets 3 million tons this year. The company is due to build a coal-washing facility this year so that it can offer higher-value products.

The state-owned miner also owns the license to the West Tsankhi coal area next to its operating site. Mongolia last year started a tender with foreign companies including Peabody Energy Corp. to offer the rights to develop that deposit. The winners would pay Erdenes TT royalty fees.

A “clarification” of the situation around the tender will also help Erdenes TT’s IPO, Enebish said, saying that the process is being managed by the Mongolian government.

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