Source: BCM NewsWire                  Date: 10 september, 2010

In his speech at the 1^st Annual Mongolia Investment Conference on September 7, Prime Minister S. Batbold reminded investors that Mongolia’s predicted economic growth was fueled not only by the country’s rich resources but also by Mongolia’s democratic political system, open economy and the low tax regime. The conference, organized by Eurasia Capital and Monbiz with The Business Council of Mongolia and the Corporate Governance Development Center as partners, brought together 22 leading international investor groups, executives and decision makers from the Mongolian government, Mongolian banks and leading Mongolian corporate executives.

The Prime Minister had to cancel his appearance at the last minute, and his speech was read out by Mr. H. Gankhuyag, his Economic Advisor and CEO of Tenger Financial Group. Mr. Batbold reiterated his commitment to develop Mongolia’s capital market by assigning a working group to overhaul the stock exchange and to bring in changes in the regulatory framework around capital markets. He also hoped to announce soon the choice of an international management team to restructure the Mongolian Stock Exchange. The Government had received a number of bids from international stock exchanges and the progress of selection was “so far so good”.

The Prime Minister urged major international companies operating in Mongolia to allow some of their shares to be traded on the Mongolian capital market so that local investors can take part in the success of these companies.

The actual proceedings began with a presentation from Mr. Alisher Ali Djumanov, Chair of Eurasia Capital. In ‘Mongolia 2010-2020 Outlook’, he predicted that Mongolia will experience the highest GDP rate globally at 19% per annum for the next 10 years, a growth that will be propelled by the “development of mineral resources, very active multi-billion dollar investments, surging exports and robust maintaining prices for commodities going forward”.

With the estimated monetary value of Mongolia’s underground mineral resources put at USD1.3 trillion, Eurasia Capital analysts estimate that in 2020, the country’s GDP will grow from the current USD5 billion to USD30 billion. “2010 could be a transformational year for Mongolia, a beginning of the multi year bull market for various Mongolian key assets,” said Mr. Djumanov, drawing examples from the phenomenal success of other frontier markets like Qatar and Kazakhstan.

He also cited the Mongolian Stock Exchange, which went up by 125% this year, as a leading indicator of investor optimism. “We believe this is the beginning of the global out-performance of the Mongolian local equity market,” he said, adding, “The MNT has gone up 9% so far this year against the USD, making it the second best performing currency globally.”

Mr. Djumanov expected the banking sector to increase its current assets of USD2.8 billion to USD25 billion by 2020. “Banks will be one of the main beneficiaries of the mining-led Boom in Mongolia and the industry will grow 9 to 10 times in the next 10 years,”, he said, adding with a chuckle that the main challenge for the Central Bank will lie in defending the appreciation of the MNT. Not just mining, banking and real estate, “all assets across Mongolia will do very well, particularly local equities,” Mr. Djumanov said.

In a presentation on the macroeconomic outlook for the country as part of the fist panel discussion, Mr. N. Zoljargal, Deputy Governor of the Central Bank, projected a growth rate reaching 7.5% by the end of this year. However, the biggest policy challenge was in deciding where the money should go. The high poverty rate of 36% and a salary raise for Government employees were the biggest pressures on the budget, he said, reminding investors that “any capital inflow is going to create jobs”, which would mitigate poverty and unemployment. Lack of economic diversification, absence of a regulatory framework and an underdeveloped domestic capital market were other key challenges he felt could affect the overall macroeconomic stability of the country.

According to Mt. Philip Ter Woort, Head of Resident Office of the EBRD, adoption and implementation of the Fiscal Stability Law and establishing a Fiscal Stability Fund are crucial to maintaining a stable economic environment in the country. “There is a general will in Mongolia to make the mining sector work and as a consequence people understand that to attract the international investor, a stable economic environment is required,” he said.

Answering participants’ questions on investment options in the country, Mr. Woort admitted that the mining sector was still the first choice with the mining supply chain coming next. However, the meat industry and the banking sector also have potential investment opportunities. Panel members including Dr. D. Batkhurel from the Department of Development Policy and Strategic Planning and Mr. Mandar Jayawant, Managing Director of Mongolia Opportunities Fund also answered questions on infrastructure development hurdles and possible side-effect on GDP predictions.

The second Panel discussion saw the CEOs of Khan Bank, Xac Bank and Trade and Development Bank answering questions on the banking sector’s role in the country’s projected growth, building equity funds and wealth management. Answering panel moderator Mr. Kh. Gankhuyag’s question on whether international banks were set to enter the Mongolian stage, the new CEO of Khan Bank, Mr. Simon Morris, replied in the affirmative. “I think the local banks do not have properly prepared balance sheets, and in most cases, they lack the technical expertise to structure some of the deals that will be needed to finance some of the projected growth,” he said. At least one foreign bank has been applying to open a representative office in Mongolia, acknowledging the growing interest in Mongolia by international bankers.

The CEO of TDB, Mr. O. Orkhon, shared his optimism for development of banking related services and products in Mongolia. “We shall have everything related to investment banking and your role in developing this market is to be vital because you will be the beneficiaries and clients,” he told the participants while announcing that TDB now had a new company TDB Capital to run investment banking services.

The later half of the conference was dedicated to project overview presentations by representatives of leading foreign mining resource companies including Ivanhoe Mines, SouthGobi Energy Resources, Prophecy Resources, Gobi Coal and Energy and Mongolia Energy Corporation. The audience was given a solid background of each company’s project scale, infrastructure development, mining costs, production schedules and investment opportunities in the field.

Participants of the final session representing Mongolian Corporates included leading local companies Mongolia Development Resources, Newcom group and Just Group.

Newcom Group was the only non-resource company present at the conference. The company has recently launched a Joint Venture Company with ERBD called Clean Energy to harness energy from Mongolia’s first wind farm with a capacity of 50mw which will supply the National Power Grid. Answering an investor’s questions on privatization of power sector, Mrs. Dulamsuren Begzjav, Managing Director of the Newcom Group, replied that the Government sees the need to liberalize the power sector but mentioned it had taken the company six years to work with the government to put the legislation in place as an indication of how slow progress can be.

While mining resource companies and financing and banking were the main sectors represented at this year’s conference, Mr. Djumanov saw future possibilities for other sectors like mining supply chain, telecommunications, services, retail and consumer goods. “I think all these sectors will get representation and maybe even have separate dedicated events,” he told BCM.

International participants included Aberdeen Asset Management (Singapore, Hong Kong), Argo Capital Management (UK), East Capital (Sweden), Prosperity Capital Management (UK), Cartesian Capital Group (US), Nicholas Edwards Investments (Japan), Morgan Stanley (Taiwan, Shanghai) and Ivory Capital (US).