Source: www.eurasiac.com                           Date: 23 July, 2010

Over the last 12 months, Mongolia has become an attractive investment destination for companies listed on the Hong Kong Stock Exchange (HKEx). In this period several such companies have acquired resource assets in Mongolia worth USD966 million in M&A deals. All recent Mongolia M&A deals in which Hong Kong companies were involved were completed through injection of resource assets into the existing publicly listed companies. Before acquisition, these companies engaged in a diverse range of activities and industries including agriculture, waterworks, IT, clean tech, plastic products and even manufacturing of toys and gifts.

Following their acquisitions, the following HKEx-listed companies are now primarily Mongolia-focused resource companies:

Bestway International Holdings, an investment holding company engaged in trading of plastic products, acquired two tungsten mines in Mongolia for USD121 million in July 2009.

North Asia Resources Holdings, formerly known as Green Global Resources Ltd., acquired 100% of North Asia Resources Group Ltd., a private resource company in Mongolia, for USD227million in December.

Kiu Hung Energy Holdings, an investment holding company with businesses in energy, gift and toy industries, acquired coal assets in Mongolia from First Dean Holdings Ltd for USD180 million in March.

Solartech International Holdings, a manufacturer of cables, wires, connectors and terminals, has acquired an 87.9% stake in Sun Progress Ltd which owns a copper-gold-silver mine in Mongolia for USD193 million in May.

Ming Hing Waterworks Holdings, engaged in waterworks technology and engineering, acquired a number of coal, gold and copper mining and exploration licenses in Mongolia for USD245 million in June.

Mongolia Energy Corp, formally New World CyberBase Ltd., was the first HKEx-listed company to acquire a resource asset in Mongolia through asset injection. It paid over USD150 million for a coal mine in January 2007.

More Hong Kong-listed companies are expected to pursue M&A deals in Mongolia through asset injections. Some small-cap companies may find it too tempting to acquire resource assets in Mongolia in order to revive their sagging fortunes and join the growing league of Mongolia-focused resource companies at the HKEx. At the same time, the private owners of resource companies in Mongolia might target small-sized HKEx-listed companies in their effort to seek "back-door listing" through lucrative reverse takeovers.

Most of these companies would appear to have overpaid for these earlier stage resource assets. Poor post-acquisition share price performance only underscores investor concerns. For example, Solartech is down 75% since the announcement of its deal. Owners of target companies with Mongolian assets (primarily mainland Chinese and Hong Kong private investors) are clear winners as they have disproportionally benefited from these deals.