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Par value of TT shares is estimated to be 60 Cents

According to Parliament of Mongolia on February 14,2012, initial reading of TT resolution amendment bill was done. The bill , approved by Economic Standing Committee of the Parliament, provides for free distribution of up to 20 per cent of shares of Erdenes Tavantolgoi company to citizens. If the citizens want to get cash, the Government will buy at par value and , in return, Government will propose to sell to national enterprises at the same par value.

Citizens will get record of 1 million MNT(750USD using today’s Bank of Mongolia’s today’s reference rate) worth of TT shares. Students can get tuition assistance/credit of 1 million MNT and seniors and developmentally challenged citizens 1 million MNT in cash. Rest of citizens, if they want to cash the shares, they will have to sell back to the Government.

This transaction is to be done before international IPO. Government is to make detailed regulations after bill is approved.

In regards to inquiries of MP-s whether the Government will be able if come up with the money if all citizens will want cash, the Government taskforce explained that Government has made research in this regard and determined that there is probability that about 50 per cent of all citizens will want to sell shares to Government and the rest will want to own shares. Government has position that it has capability to resolve of citizens who would want to cash the shares.

After discussion by MP-s the bill is transferred to Economic Standing Committee for final reading.

According to news.mn, MP S.Bayartosgt, ex- Finance Minister, has commented regarding cash capability of Government in regards to cashing TT shares

  • When shares will be sold to national enterprises at par value , this money will go into the budget in a form of privatization revenues, it would possible to accumulate funds in the budget
  • Currently 330 billion MNT (248 million USD using today’s Bank of Mongolia’s today’s reference rate)  to issue as a priority to seniors and developmentally challenged citizens is reflected in the budget)

According to news.mn, MP D.Zorigt, ex-Chairman of Economic Standing Committee has said

  • Parliament is discussing increasing number of free TT shares from 536 into 1072
  • initial price of the shares will probably be decided after determination by professional organization
  • after initial valuation par value of all 15 billion shares will be determined, nobody cannot definitely say about it now
  • my ballpark figure is 800MNT(0.60USD using today’s Bank of Mongolia’s today’s reference rate) . This has probability of increasing to 1500, 2000, 3000 after real price is determined company will improve infrastructure and exports
  • it is economically beneficial for citizens not to cash TT shares

According to news.mn on February 1, 2012 CEO of Erdenes Tavan Tolgoi company (ETT, license holder for TT) B. Enebish has commented regarding Parliament discussions on amendments to TT resolution and increase of number of shares to citizens from 536 to 1072.

  • It’s within Parliament’s full right to decide to change to give 10% of ETT shares  instead of enterprises previously to citizens now.
  • It appears that the bill includes that free shares will be bought from citizens by par value and sold to enterprises at par value
  • It has been proposed that par value is to be equal to one million MNT in connection with approved budget
  • In this case, Parliament will turn out to be organization that directly determines par value of ETT shares. This is in principle wrong. It  is within full rights of Parliament to decide to give that much to these group of people and that much to another group of people. However, determining directly one million MNT will not comply to principles of market based society and capital markets
  • We are in process of preparation for IPO on international stock market. It is necessary to do IPO after those issues are resolved. Issue of par value should be approached carefully. It would be proper to formulate as price to be bought by Government or a price to sell to enterprises.
  • Hong Kong Stock Exchange , for example, prohibits to moves in any away shares of company four weeks before submitting application or six months before shares are traded
  • Yet movements such as Government buying shares from citizens and re-selling to enterprises might cause difficulties in terms of timing
  • Advising investment banks give advice that Parliaments usually don’t decide par value of the shares. Any company determines par value of shares as low as possible.
  • Depending on future of the company, the law of the markets is that value of shares increase tens and hundred times from par value. Yet determining par value at million MNT in connection with political promises is wrong
  • We are working with main plan to do IPO in May of 2012. However, if there are continued changes in ownership of the company it might delayed. If we want IPO on time we have no choice but to do IPO that satisfies requirements of international stock exchanges.

Dale Choi

Chief Investment Strategist,

Frontier Securities