Goldman Sachs goes to Mongolia

Goldman Sachs goes to Mongolia
Joe Biden also visited Mongolia recently, paving the way for US investment (AFP)

Goldman Sachs plans to acquire a 4.8% stake in the Trade and Development Bank of Mongolia (TDB).

The investment is essentially a proxy for what Goldman Sachs thinks is going to happen in Mongolia. That’s worth watching because Goldman, after all, is well-known for chasing and capturing economic growth around the world. And what better way to cash in on a nation poised to grow than by investing in its banking industry?

“Mongolia is a booming and fast-developing economy driven by growth in the mining sector and commodities exports,” Balbar Medree, the chief executive officer of the Trade and Development Bank, said in a statement. “Goldman Sachs’s global expertise and financial strength will help us grow further and enhance our offering.”

Mongolia has been one of the fastest-growing countries in the world during the past decade. The huge Oyu Tolgoi copper and gold project, which comes on stream in 2013, could boost Mongolia’s GDP by another 30%.

For a sense of how new this growth is, consider this: the TDB is the oldest and one of the biggest banks in Mongolia, but it was only established in 1990 and its total assets are just $1.4 billion.

But it’s the right bank to invest in — the privately owned bank has 25% of the corporate lending market, 43 branches across the country and is the first stop for many foreign corporations in the nation. In 2004, TDB became the first bank in Mongolia to receive investment from the ADB and IFC. In 2006, it was the first commercial bank in the country rated by an international rating agency and it is Mongolia’s only issuer of international publicly traded debt.

The deal was arranged by TDB Capital, which is TDB’s wholly owned subsidiary and its investment banking arm. Neither bank disclosed the value of the deal.

Of course, at the heart of the matter is mining. Erdenes Tavan Tolgoi, the state-owned entity that is developing the giant Tavan Tolgoi coal mine, plans a $3 billion initial public offering and Goldman is one of the banks mandated on the deal, along with BNP Paribas, Deutsche Bank and Macquarie.

The Tavan Tolgoi coal deposit in Mongolia’s south Gobi region has estimated reserves of 7.5 billion tonnes of coal, including the world’s largest untapped deposit of coking coal, which is used to make steel.

There was talk of a Hong Kong listing for a while, but it now looks more likely that the company will choose London and Ulan Bator, Mongolia’s capital. One of the reasons for the switch is to meet the Mongolian government’s goal of giving Tavan Tolgoi shares to all of its citizens for free this month. Hong Kong has restrictions on companies bringing in new investors during the months leading up to an IPO, making it unlikely that the city’s exchange could accommodate the offering.

For old Asia hands, Mongolia’s growth story is a bit of a miracle. Many might remember how bad weather — even for Mongolia — and natural disasters in 2000 destroyed more than 2.4 million livestock, which pushed economic growth down to 1.3% from 3.2% the year before. Indeed, an economic monitor of the nation for years has really been a case of watching the weather. But now, almost overnight, Mongolia is transforming from a landlocked country of nomadic farmers living in yurts to one of the world’s booming mining nations. Watch out Australia.

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