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Winsway (1733)/Chalco (2600)-Mongolian operations could be subject to proposed controls on foreign investment into enterprises with strategic significance to ensure national security

Winsway Coking Coal (1733 HK) / Aluminum Corporation of China Limited(2600 HK)

WINSWAY’S MONGOLIAN TRANSPORTATION OPERATIONS COULD BE SUBJECT TO PROPOSED CONTROLS ON FOREIGN INVESTMENT INTO ENTERPRISES WITH STRATEGIC SIGNIFICANCE TO ENSURE NATIONAL SECURITY


EVENT

  • Intended suspension by Mineral Resources Authority of Mongolia of Mongolian coal licenses of Southgobi did not stop Chalco from continuation of its ambitious M&A activities in Mongolian coal sector.  This time Chalco agreed to buy from major shareholder Chairman Xingchun Wang 29.9% of shares of Winsway at HK$2.12 a share.

RISKS (not limited to)

  • Recent sensational developments involving abovementioned suspension of Southgobi licenses underscored importance of diligence for any controls from Mongolia on foreign strategic investment .

According to Frontier Securities research in this regard

Road and transportation is mentioned among strategically significant sectors of the economy for which lawmakers MP-s G.Zandanshatar, N.Batbayar, Ts.Bayarsaikhan, S.Byambatsogt, D.Terbishdagva and U.Enkhtuvshin proposed controls on foreign investment in their bill on procedures to implement foreign investment into enterprises with strategic significance to ensure national security, which they have submitted to Parliament Speaker on October 16,2009.

On April 18,2012 MP, Minister of Foreign Affairs of Mongolia G.Zandanshatar has said

“ Bills on implementing foreign investment in enterprises with strategic significance to ensure national security and amendment to law on state registration of legal entities will be hopefully approved this week. The taskforce is working speedily.

The Minister said

“It is fully possible to stop Southgobi/Chalco deal. Parliament has full possibility to approve the bill. Because Parliament already approved whether to discuss the bill. For second reading it is only necessary two weeks.In another words, it is possible to approve this law within two weeks.”

According to official website of Ministry of Foreign Affairs and Trade of Mongolia, (http://www.mfat.gov.mn/index.php?option=com_content&;view=article&id=1526%3A2012-04-17-08-00-12&catid=43%3A2009-12-20-21-55-03&Itemid=62&lang=mn)

On April 17,2012 at consultative meeting “Coal exports and its pressing issue”  organized by the Ministry and attended by representatives of Ministry of Mineral Resources and Energy of Mongolia, General Customs Agency and coal exporter enterprises, coal transportation was mentioned among topics on which information was exchanged on possibility for policy regulation from state.

RECOMMENDATION

  • We recommend investors to further diligently research issue of applicability of the Mongolian business of Winsway to abovementioned bills as well as status of this bill and associated implications.

Dale Choi | Chief Investment Strategist | Email: This email address is being protected from spambots. You need JavaScript enabled to view it.