Tiny Mongolia bourse hopes to tap resource firms with outside help
Watch out, Hong Kong. Another Asian stock exchange has big plans to start snapping at your heels. It is not Singapore, Thailand or even Malaysia - but Mongolia.
The undeveloped country’s stock exchange may be the world’s smallest national share trading platform, with a total market capitalisation of only US$693 million.
It is housed in a bright-pink former children’s cinema in Ulan Bator and open for trading between 11am and noon. Unsurprisingly, hardly any global money managers, except a few specialist hedge funds, want to use it.
But this pint-sized bourse is determined to move into the modern age. Mongolia has enormous untapped mineral deposits. Last August, its new Democratic Party government finalised a deal with Canada’s Ivanhoe Mines to develop the US$5 billion Oyu Tolgoi copper and gold reserve, which is the size of Manhattan and will take 60 years to exhaust.
Global investors are already salivating over Mongolia. But its local stock market has a big problem. Hordes of local mining companies are stampeding straight past the former children’s cinema and onto foreign stock exchanges. Mongolia Stock Exchange chief executive R. Sodkhuu is fighting back, though. He has invited Nasdaq, the London Stock Exchange, the Frankfurt Stock Exchange and the Korea Stock Exchange to submit bids to manage the Ulan Bator bourse, which is government-owned.
The winning bidder would be expected to completely modernise the exchange, providing trading technology that would make it easier for global money managers to buy and sell local companies’ shares. Staff at Nasdaq and the London and Frankfurt stock exchanges declined to comment, while a KSX spokesman could not be identified.
But Sodkhuu insisted they were interested. “All … are participating with their own plans,” he said in an e-mailed response to questions.
“The management contract will be signed on September 10.” The combined market capitalisation of the 20 largest Mongolia-based businesses reached US$15.39 billion in July, according to a study by Hong Kong investment bank Eurasia Capital. But less than US$400 million of this was contributed by companies whose shares are sold in Mongolia. The largest firms with Mongolian assets are Ivanhoe, whose shares are traded in New York; Centerra Gold, which is listed in Toronto; and coal miner SouthGobi Resources, which had a HK$3.06 billion initial public offering in Hong Kong in January.
Another Mongolian miner, Gobi Coal & Energy, plans to list in Hong Kong next year and expects to achieve a market capitalisation of US$800 million, according to a company presentation. The local stock market, Sodkhuu said, should be able to “list and trade shares that attract foreign investors’ interest.” He has a job on his hands.
Big companies and global fund managers bypass Mongolia’s stock exchange for a reason. It has virtually no liquidity. Alisher Ali Djumanov, the chief executive of Eurasia Capital, estimated that fewer than 100,000 Mongolians own shares. Sodkhuu said only US$93,000 worth of tock changed hands in Ulan Bator on an average day. Thomas Holland, a Hong Kong-based partner at hedge fund Cube Capital, one of the few that directly invests in Mongolia, said: “Building and exiting positions at reasonable prices [on the exchange] normally takes a few weeks.”
Investors in Mongolia say that when Ulan Bator’s stockbrokers get an order, they have to cast around widely for sellers. And when they finally match people up, everyone just haggles over the price. Last Friday, according to a bid-offer price list from a Mongolian stockbroker, shares in 32 companies traded in Ulan Bator were available for sale. Some, such as woollen rug maker Ulaanbaatar Carpet, had no price listed. But other resource-rich countries’ fledgling stock exchanges have gone from zero to hero in just a few years. “Mongolia should look to Qatar,” said John Finigan, the head of the Golomt Bank of Mongolia and former policy adviser to the gas-rich
Middle East emirate’s finance minister.
Qatar did not have a stock market until 1997. Its wealthy population has supported its growth, and its 43 listed companies were worth a combined US$93 billion in last year’s third quarter, the latest data available.
The Doha exchange signed a deal with NYSE Euronext last year that could make it truly global. After buying a US$200 million stake in the
exchange, NYSE Euronext will link Qatar’s bourse up to its own trading platform. That means fund managers based outside Qatar will be able to buy and sell Doha-listed stocks among themselves, greatly increasing liquidity.
Something similar could happen in Ulan Bator. “We expect things will improve greatly with [stock] market reforms, including the initiatives under way to bring in third-party management,” Holland said. The Mongolian government owns enormous assets, such as the untapped Tavan Tolgoi deposit, which contains an estimated six billion tonnes of coking coal. The State Property Council could eventually sell shares in Tavan Tolgoi in Ulan Bator.
Mongolia also needs cash to develop a modern trading platform. Its new strategic partner could provide that. And if it does not, a private equity house would probably be happy to offer funding, Adam Bornstein, a senior vice-president at Asian buyout fund CDIB Capital, said.
“Private equity investors actively pursue stakes in national stock exchanges for a number of compelling reasons,” he said.
“They are bets on the underlying growth of the economy and have high barriers to entry thanks to their highly regulated nature. When we look at the Mongolia stock exchange, we’re driven by similar motivations.” Masa Igata, the owner of Mongolian bank Frontier Securities, said the country was full of valuable resource companies that were clamouring to fund mining projects via share sales.
“We are dealing with several right now,” he said. He was unsure, though, whether any of them would wait for Mongolia to develop world-class share trading. “It will probably take over two years for the Mongolia Stock Exchange to develop to an international level,” he said. “Until then, I suspect, big private equity investors will buy Mongolian assets and seek to exit by listing shares in an international market.”
Hong Kong may not need to start panicking just yet.
The undeveloped country’s stock exchange may be the world’s smallest national share trading platform, with a total market capitalisation of only US$693 million.
It is housed in a bright-pink former children’s cinema in Ulan Bator and open for trading between 11am and noon. Unsurprisingly, hardly any global money managers, except a few specialist hedge funds, want to use it.
But this pint-sized bourse is determined to move into the modern age. Mongolia has enormous untapped mineral deposits. Last August, its new Democratic Party government finalised a deal with Canada’s Ivanhoe Mines to develop the US$5 billion Oyu Tolgoi copper and gold reserve, which is the size of Manhattan and will take 60 years to exhaust.
Global investors are already salivating over Mongolia. But its local stock market has a big problem. Hordes of local mining companies are stampeding straight past the former children’s cinema and onto foreign stock exchanges. Mongolia Stock Exchange chief executive R. Sodkhuu is fighting back, though. He has invited Nasdaq, the London Stock Exchange, the Frankfurt Stock Exchange and the Korea Stock Exchange to submit bids to manage the Ulan Bator bourse, which is government-owned.
The winning bidder would be expected to completely modernise the exchange, providing trading technology that would make it easier for global money managers to buy and sell local companies’ shares. Staff at Nasdaq and the London and Frankfurt stock exchanges declined to comment, while a KSX spokesman could not be identified.
But Sodkhuu insisted they were interested. “All … are participating with their own plans,” he said in an e-mailed response to questions.
“The management contract will be signed on September 10.” The combined market capitalisation of the 20 largest Mongolia-based businesses reached US$15.39 billion in July, according to a study by Hong Kong investment bank Eurasia Capital. But less than US$400 million of this was contributed by companies whose shares are sold in Mongolia. The largest firms with Mongolian assets are Ivanhoe, whose shares are traded in New York; Centerra Gold, which is listed in Toronto; and coal miner SouthGobi Resources, which had a HK$3.06 billion initial public offering in Hong Kong in January.
Another Mongolian miner, Gobi Coal & Energy, plans to list in Hong Kong next year and expects to achieve a market capitalisation of US$800 million, according to a company presentation. The local stock market, Sodkhuu said, should be able to “list and trade shares that attract foreign investors’ interest.” He has a job on his hands.
Big companies and global fund managers bypass Mongolia’s stock exchange for a reason. It has virtually no liquidity. Alisher Ali Djumanov, the chief executive of Eurasia Capital, estimated that fewer than 100,000 Mongolians own shares. Sodkhuu said only US$93,000 worth of tock changed hands in Ulan Bator on an average day. Thomas Holland, a Hong Kong-based partner at hedge fund Cube Capital, one of the few that directly invests in Mongolia, said: “Building and exiting positions at reasonable prices [on the exchange] normally takes a few weeks.”
Investors in Mongolia say that when Ulan Bator’s stockbrokers get an order, they have to cast around widely for sellers. And when they finally match people up, everyone just haggles over the price. Last Friday, according to a bid-offer price list from a Mongolian stockbroker, shares in 32 companies traded in Ulan Bator were available for sale. Some, such as woollen rug maker Ulaanbaatar Carpet, had no price listed. But other resource-rich countries’ fledgling stock exchanges have gone from zero to hero in just a few years. “Mongolia should look to Qatar,” said John Finigan, the head of the Golomt Bank of Mongolia and former policy adviser to the gas-rich
Middle East emirate’s finance minister.
Qatar did not have a stock market until 1997. Its wealthy population has supported its growth, and its 43 listed companies were worth a combined US$93 billion in last year’s third quarter, the latest data available.
The Doha exchange signed a deal with NYSE Euronext last year that could make it truly global. After buying a US$200 million stake in the
exchange, NYSE Euronext will link Qatar’s bourse up to its own trading platform. That means fund managers based outside Qatar will be able to buy and sell Doha-listed stocks among themselves, greatly increasing liquidity.
Something similar could happen in Ulan Bator. “We expect things will improve greatly with [stock] market reforms, including the initiatives under way to bring in third-party management,” Holland said. The Mongolian government owns enormous assets, such as the untapped Tavan Tolgoi deposit, which contains an estimated six billion tonnes of coking coal. The State Property Council could eventually sell shares in Tavan Tolgoi in Ulan Bator.
Mongolia also needs cash to develop a modern trading platform. Its new strategic partner could provide that. And if it does not, a private equity house would probably be happy to offer funding, Adam Bornstein, a senior vice-president at Asian buyout fund CDIB Capital, said.
“Private equity investors actively pursue stakes in national stock exchanges for a number of compelling reasons,” he said.
“They are bets on the underlying growth of the economy and have high barriers to entry thanks to their highly regulated nature. When we look at the Mongolia stock exchange, we’re driven by similar motivations.” Masa Igata, the owner of Mongolian bank Frontier Securities, said the country was full of valuable resource companies that were clamouring to fund mining projects via share sales.
“We are dealing with several right now,” he said. He was unsure, though, whether any of them would wait for Mongolia to develop world-class share trading. “It will probably take over two years for the Mongolia Stock Exchange to develop to an international level,” he said. “Until then, I suspect, big private equity investors will buy Mongolian assets and seek to exit by listing shares in an international market.”
Hong Kong may not need to start panicking just yet.
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