Last month HS Securities of Japan secured the 100% purchase of Agricultural Bank of Mongolia when its head, Hideo Sawada, delivered $6.85 million to Ulaanbaatar.
Like several state-owned banks in Vietnam, China and Russia, AG Bank was bankrupt after providing government-directed loans, provisions and state pensions while cultivating a NPL portfolio of 100%.
The previous government in 2000 decided with the central Mongol bank to privatize AG Bank within two years. The succeeding MPRP government reaffirmed that decision and issued a tender for its sale through the state property committee.
The $3.5 million minimum bid tender, organized by KPMG Barents, attracted three bids, each having to provide plans for the development of the bank. The government retained the right to veto any proposal if it felt it did not meet the interests of the Mongolian people. All three were approved.
HS Securities bid highest at $6.85 million, Russia’s Alfa Bank offered $6.2 million and a local consortium lead by Golomt Bank bid $5.28 million – “much lower than advised”, according to one local analyst.
Development Alternatives Inc (DAI) took control of AG Bank two years ago under an agreement between the Mongolian government and the US Agency for International Development. DAI’s Pete Morrow came in as CEO of an independent board that transformed a vast network of rural branches to financial soundness while maintaining a workforce of 16,000.
AG Bank has since opened 83 new offices to bring the network to 352 branches and added 478 staff. Morrow’s task was to bring financial services to a population of 2.4 million over a land area four times the size of California and prepare the bank for privatization. The bank’s growth since then has been impressive: over 56,000 loans made and more than 60,000 new current accounts – the majority opened by people who have never banked before.
Sawada is committing $20 million to AG Bank, which he sees as a bridge between Japan and Mongolia. HS Securities specializes in investment banking for Japanese small and medium-size companies and he is keen to promote trade and tourism between the two nations. His low-cost Skymark Airlines and HIS Group of travel agents cater for two million Japanese tourists each year and he hopes to bring 30,000 of them to Mongolia in his first year of business.
HS Securities managing director Yoshaiki Mishima explains that “while the bank will have new ownership, Morrow and his DAI team will be retained, having been lauded for their outstanding achievement in turning the bank around from near bankruptcy to its current highly profitable operations”.
The transaction is Mongolia’s second large-scale privatization and comes ahead of the planned sale of insurance, cashmere and oil companies.
