estimated value of Erdenes Tavan Tolgoi IPO
Deutsche Bank and Goldman Sachs have been chosen as joint sponsors and lead managers for the IPO of Erdenes Tavan Tolgoi, the Mongolian coking coal asset whose flotation is expected to transform the country’s economy at a stroke. As Euromoney reported last month, the two banks were chosen alongside BNP Paribas and Macquarie to work on the deal after fierce pitching that involved almost all of the world’s leading investment banks. The latter two banks will act as selling agents, a more junior role. Erdenes TT chief executive B Enebish has told local media that the banks had already begun working on the deal, according to Dale Choi, an analyst at Frontier Securities in Ulaan Baatar.
Initial speculation suggested the deal might raise about $2 billion but sources are now saying that the total could be closer to $5 billion. Although the deal could transform the lives of Mongolia’s people, rocketing the country up the GDP per capita rankings, some sources in Ulaan Baatar worry that well-intentioned plans to distribute some of the proceeds from the deal could run into trouble. Mongolia’s government plans to sell about 10% of the deal at a reduced rate to local professional investors, as well as give away 10% to Mongolian citizens.
The latter pledge has sent many Mongolian couples into a frenzy of connubial activity, on the understanding that babies born before the listing might be eligible for the 550 shares that are to be allotted to each person. They will have to hurry if the listing goes ahead by the end of this year, as planned. The government is understandably eager to get the IPO done ahead of the next election in June 2012, so that it can reap the political benefits from the transformative deal and share distribution.
A similar dynamic is apparently playing out at the corporate level, with some investors and entrepreneurs rushing to get legitimate companies set up in time to benefit from the chance to buy discounted shares in the IPO. The Mongolian government is desperate to avoid a repeat of Russia’s processes in which a select few tycoons scoop up all of the shares allocated to citizens before those people have been educated on what their holdings could become worth in the longer term.
"The big question," says an investment banker who pitched for the deal but whose firm was not selected, "is whether the issuer can get the value for the shares that international investors are prepared to pay or whether they can only sell them in Mongolia at the price local investors are willing to pay. As far as the distribution to individual investors goes, you need to decide whether they will get the actual shares right away or perhaps have them placed in some sort of trust that can only be accessed over time."
Meanwhile the bidders for the all-important strategic investor role await the decision, expected soon, as to which of them has won. Six mining and mining-related companies and consortia are bidding, according to Frontier Securities’ Choi. They are Peabody Energy from the US, a Russo-Japanese-Korean consortium, India’s Arcelormittal, Australia’s Xstrata, Brazil’s Vale and China’s Shenhua Group. Mongolia might pick more than one of these bidders for the tender, says Choi, although the groups themselves will be hoping to win a sole mandate. The selection of a bidder is fraught with politics, as indeed is the process of deciding where the company will list – Hong Kong is the obvious frontrunner but the London Stock Exchange has been helping its Mongolian equivalent and will feel it should play some role.