S.Bold-Erdenedetails how Parliamentary procrastination and indecision has putin jeopardy the Erdenes Tavan Tolgoi IPO on global exchanges. If things do not change by the first half of February, selling DRs could be the only way for the company to raise funds.
Talks on the Erdenes Tavan Tolgoi IPO have been going on for a long while now, and at the end of 2011, it finally seemed that the company will be listed on three different stock exchanges, London, Hong Kong and Mongolia. But now in the new year it looks like this will not be the case, and there are serious doubts whether Erdenes Tavan Tolgoi will be able to issue its IPO on the London and Hong Kong Stock Exchanges. The main reason forthe uncertainty is that the State Great Khural is yet to takea final decision onissues related to the company’s stocks. There hasbeen no agreement among MPs on amending articles passed by the State Great Khural in 2010, and on whether to give 10 percent of the company’s shares to business entities, as initially announced, or to transfer the allocation in favour of citizens. If these issues are not settled very soon, Erdenes Tavan Tolgoi’s IPO in London and Hong Kong will be delayed. A postponement is inevitable, according tosources familiar with the process, if the State Great Khural does not clear the way by, say, the middle of February.
All global stock markets, including the Mongolian Stock Exchange, have certain requirements that companies planning an IPO have to fulfil. There are unconfirmed but reliable reports that the Hong Kong Stock Exchange has already turned down Erdenes Tavan Tolgoi’s request for listing, as it was wary of the prolonged indecisiveness of the State Great Khural and also of the State’s over-involvement in the stock valuation process. Companies seeking to register in the Hong Kong stock market are required to submit a formal request along with a detailed prospectus at least six months before the proposed IPO. During this timebefore the IPO, known as the “quiet period”, they are expected to take no steps that can be seen as affecting the stock valuation.
Not merely has the State Great Khural not taken clear and final decisions in time, it has also set its own price on Erdenes Tavan Tolgoi shares by announcing that the value of the shares to be given to citizens would be MNT1 million and has asked the Government to monetize the shares. These factors are believed to have influenced the Hong Kong Stock Exchange to reject Erdenes Tavan Tolgoi’s request for listing. Analysts explain that in case the Government buys every citizen’s share for MNT1 million, the stock price will drop after the listing, causing loss to investors. Earlier,the Hong Kong Stock Exchange hadagreed to overlook the shortcomings in Mongolia’s legal environment and said it would consider a listing requestwithout insisting on establishing a new company in Hong Kong.
There is every likelihood that the London Stock Exchange, too, would not accept Erdenes Tavan Tolgoi’s registration plea for similar reasons. The basic conditionsthat companies to be registered on the main board there must meet include submission, six months prior to registration, of their properly audited financial reports for the last three years, three years of profitable operation, and current assets that will covernormal operation costs for 12 months following the registration. Erdenes Tavan Tolgoi has not met these conditions.
Still, The London Stock Exchange was willing to list Erdenes Tavan Tolgoi on the FTSE 100 index, but the company has not yet sent a formal request for this or any financial information. The Stock Exchangeneeds three to six months to consider a request and review aprospectus. Again, if Erdenes Tavan Tolgoi wants an IPO in London before the parliamentary election in Mongolia, it has only until the middle of Februaryto send the request and the prospectus. The deadline cannot be relaxed, raising serious doubts if Erdenes Tavan Tolgoi will be listed on FTSE 100.
Work is on to determine what can be done if there is no IPO abroad. One, and perhaps the only, option is using DR or Depository Receipts. (Our readers will recall that the Mongolian Mining Journal published articles and interviews on DR last summer.) A source at Erdenes Tavan Tolgoi says that they have set up a working group to coordinate with the Government on the issue.
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