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Legislative control puts curb on Mongolian investors

In May, Mongolia’s parliament passed a law that caps foreign ownership in strategic industries, including all-important mining. From now on, foreign investors will be allowed to own a maximum of 49% of companies in mining, finance, media and telecommunications, after which they will be subject to scrutiny by a government panel.

New restrictive legislation was not at the top of anybody’s wish list but the prevailing opinion among foreign investors has been that it could have been worse. The new law came about after Ivanhoe Mines, which is Canadian, agreed to sell its 58% stake in Mongolian coal miner SouthGobi Resources to Chalco, a Chinese aluminium corporation. Chinese ownership of Mongolian resources is much more sensitive than Canadian ownership, it seems, and a number of backbench parliamentarians immediately set about drafting a law that would limit foreign investment to 49% of any company in more or less any sector they would ever be interested in, including property, food and transport.

In the event, the bill that passed has been watered down in three ways: first in a more limited range of sectors that are affected; second with a concession that it will only affect foreign investments worth more than Tug100 billion (about $75 million); and third that it will only apply to deals involving state-owned enterprises.

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