Source: Financial Times

Erdenes-Tavan Tolgoi (ETT), the Mongolian company developing the world's largest untapped coking coal deposit, is considering dropping the Hong Kong Exchange (HKEx) portion of its USD 3 billion initial public offering (IPO).

“In the last several rounds of regular meetings with [ETT] executives, they have shown less interest in a Hong Kong IPO and seem likely to drop the Hong Kong listing proposal,” said a source close to the deal.

The company was planning to simultaneously float in London, Hong Kong, and Mongolia as soon as late March. Even the HKEx is reportedly “not very keen” on the offering, believing it would be a tough sell to investors skeptical of foreign mining stocks. In the case of Swiss commodities trader Glencore International, it drew a lukewarm response from Hong Kong retail investors on its dual listing in Hong Kong and London last year. Glencore had set aside as much as 10 percent of the deal for Hong Kong retail investors, but the weak response forced the company to allocate only 2.7 percent of the offering to them. Glencore's shares are down about 26 percent on both exchanges since the May 2011 IPO. Erdenes was expected to garner even less interest from Hong Kong retail investors since Glencore was a better known name, the source said.

The state-controlled firm is still trying to make the Hong Kong portion of the deal happen, but it is looking increasingly difficult as the listing requirements in Hong Kong are different than London. The main hurdle is the government's recent decision to give the shares to Mongolian citizens for free in February, ahead of the original schedule. The HKEx has restrictions on companies brining in new investors in the months leading up to their floatation.

There was a debate for some time about which location was most appropriate for the primary listing, but London has now reportedly become the more attractive of the listing options, although the deal is large enough for international markets.