Emerging Markets: Mongolia readies three-way listing

Emerging Markets, May 4 2011

The world’s first simultaneous three-exchange IPO is expected to be confirmed this week, from an unlikely quarter – a Mongolian coal mine.

The listing of Erdenes Tavan Tolgoi, which owns the vast Tavan Tolgoi mine, and the broader development of that mine in coming years, is potentially transformative for the Mongolian economy. The backers and bankers of the IPO, which is expected to raise $3 billion or more, have been choosing between the exchanges of Mongolia, Hong Kong and London for the listing. Emerging Markets understands that after a series of presentations by the three exchanges in Ulaan Baatar on Friday, it is set to announce a role for all three, with the only question being the precise role that London plays: a primary listing or a global depositary receipt issue. “It’s not decided yet,” says somebody close to the deal. “But it would be very surprising if any of the exchanges were excluded now.”

The listing, likely to take place later this year or the first quarter of 2012, will cast light on global appetite for emerging Asian capital. In the past year Asia has been a magnet for international debt and equity flows, then appeared to repel them again at the turn of the year, and more recently has attracted them again. If a single-asset frontier market coal listing can attract billions of dollars across three exchanges, it will clearly demonstrate that risk appetite remains.

Further barometers of Asia sentiment will appear in the coming days. Last night Renren, the Chinese social networking platform, was due to price an IPO on the New York Stock Exchange of up to US$743.20 million, having considerably increased  its planned listing size despite having recorded a US$64 million net loss in 2010 and no profit in 2009 either.

It should also become clearer how much money Shanghai Pharmaceuticals is likely to raise in a Hong Kong IPO expected to price on May 12. This deal, currently being roadshowed by global coordinators Credit Suisse and Goldman Sachs, has already attracted cornerstone investments from Pfizer, Temasek, Guoco and BOCGI, and based on initial guidance could raise as much as HK$17.3 billion (US$2.22 billion).

While those deals appear to show very positive momentum towards Asian equities, an alternative view is suggested by Yuanda China Holdings, which designs curtain walls of buildings such as Beijing’s Watercube Olympic swimming facility. This IPO was due to price in Hong Kong last Friday, but the company has instead said it plans to alter the terms of the deal and may reduce both the size of the deal and its price.

On the debt side, last Thursday’s US$2.5 billion 10-year global bond from the Republic of Indonesia suggested great appetite for Asian sovereign debt. The bond – half of which was sold to US investors, according to sources, and almost a quarter to Europe – epitomizes global demand for Indonesian debt which has led to foreigners holding more than 30% of government bonds. While this inflow underlines Indonesia’s recent success story, it is also starting to alarm policymakers who fear the foreign capital fleeing again.

Probably the most striking new debt deal to move forward this week will be a planned US$500 million exchangeable from the Pakistan state, which will convert into shares of state-owned oil and gas company OGDC. Look out for more on this in later editions of Emerging Markets.