Business Council of Mongolia

Source:  The Wall Street Journal Asia                        Date: 17 August, 2010

Agricultural Bank of China Ltd has raised more money in an initial public offering than any other company in history after fully exercising an option to allot additional shares to investors on the Shanghai Stock Exchange, despite lackluster interest in the shares from investors since they started trading in mid-July. In a statement on the Shanghai Stock Exchange, the rural lender said it raised an additional 9.11 billion yuan (USD1.34 billion) from the Shanghai portion of the IPO by selling an additional 3.4 billion shares at the IPO price of 2.68 yuan each.

By exercising the overallotment option—also known as a greenshoe—AgBank brings the total amount raised from its dual listing in Hong Kong and Shanghai to USD22.1 billion, eclipsing the record held by Industrial & Commercial Bank of China Ltd. for its USD21.93 billion IPO in 2006. AgBank's shares have struggled to stir interest among investors even as China's A-share market has rallied. One of the worst-performing stock indexes globally in the first half of the year, the benchmark Shanghai Composite Index has risen more than 10% since bottoming out in early July.

AgBank's IPO has been under a lot of pressure politically to succeed. The last of China's major banks to publicly list shares, it originally hoped to raise as much as USD30 billion. By the time AgBank started tapping investors, markets had soured globally. Furthermore, doubt over the quality of the bank itself, long regarded as the weakest of China's four major banks, and its exposure to the country's less-developed rural areas, also took a toll on investor confidence. A roster of cornerstone investors, dominated by state-owned firms, rallied to support the IPO, taking 40% of the Shanghai issue.

Source: The Mongolian Mining Journal                             Date: 17 August, 2010

Minister of Mineral Resources and Energy D.Zorigt has said that his first priority is to set up Erdenes Tavan Tolgoi and to see that it works as an internationally competitive company, belying “not unjust” popular fears that a State-owned entity will not deliver the goods. Asked how he will do this, Mr. Zorigt said, “There should be transparency in selecting the management team, and professionals with international experience should be chosen. Only then shall we have a company drawing international attention and respect for its model corporate management, efficiency, and profitability.”

The Minister said work has begun on many fronts. He does not “see much merit in deciding everything beforehand” and prefers crossing bridges only when he comes to them. “We shall certainly have a general long-term vision and goal, but once we begin, there must be freedom to improvise, to respond to situations as they emerge. Deciding everything in advance is a sure prescription to failure. Personally, I’m happy to have an open mind,” he said.

He indicated that the Tavan Tolgoi reserves will be updated and the final figure could well be higher than the presently accepted 6.4 billion tons, of which some 3 billion tons were coking coal. More exploration will be done, especially in the eastern areas of Shar Tolgoi and Bor Tolgoi, before arriving at the final figures to be incorporated in the feasibility study.

Source: The Financial Times                         Date: 17 August, 2010

China is directing 2,000 industrial companies to shut obsolete factories to meet national energy intensity targets. Five years ago, Beijing pledged to cut by a fifth its industry’s energy intensity, a measure of energy consumed by unit of output. That goal looks in jeopardy, mainly because the USD586-billion stimulus package rolled out in 2008 favored China’s biggest and dirtiest industries. In the aftermath of the Lehman shock, China chose growth over the climate. Now the panic is over, there are tentative signs that it is planning another push to improve the efficiency of its smokestack economy. That is to be welcomed, so far as it goes.

Measuring energy intensity was much criticized in the run-up to the Copenhagen summit on climate change as a poor substitute for setting overall emissions targets. In fact, as the Japanese have argued, there is much to be said for focusing on how much energy individual industries use, a bottom-up approach that can be more practical than setting grandiose (sometimes unattainable) goals.

In China’s case, the problem is implementation. In practice, far from the eyes of the planners in Beijing, many party cadres have favored growth and job creation, and left environmental improvements for another day. Nor are Chinese data on energy use – surprise, surprise – entirely trustworthy. Recent statistical revisions make it easier for industry to meet its five-year target. There are even suggestions that the recent crackdown is not all it seems. Some of the factories slated for closure have already stopped producing.

Beijing is not blind to the merits of cleaning up its industry. For every unit of output, China uses almost six times more energy than Germany or Japan, a horrendous waste. Pollution is also a potential source of unrest, particularly since the Olympics, when Beijing’s inhabitants were reminded of what blue skies actually look like.

There is certainly more rhetorical urgency in the clampdown on heavy industry. Chinese officials are even hinting that it may be worth sacrificing a percentage point or two of growth to meet energy intensity goals. As Mr.Yasheng Huang, a China scholar at the Massachusetts Institute of Technology, has said, it is easy to produce high headline growth by digging holes and filling them up again. Too much Chinese economic activity is still spent in similar activities. It will take more than a dubious target dubiously implemented to convince skeptics that Beijing is really serious about a clampdown.

Source: www.mmegi.bw                         Date: 17 August, 2010

A delegation of Mongolian MPs recently visited Botswana to learn how the country has successfully managed revenues from minerals. The MPs are members of the Standing Committee on the Budget and such were interested in minerals as well as fiscal policy. Mongolia has decided to study practices in Botswana, Norway and Chile before formulating its own policy.

The Minister of Finance and Development Planning, Mr. Kenneth Matambo, told the delegation that at independence in 1966, Botswana was one of the 25 poorest countries in the world and depended on grants from the United Kingdom to finance the government budget. When diamonds were discovered in the 1970s it created an opportunity to start economic development. Revenues were channeled to develop infrastructure, and water, health care, primary education and roads network were identified as priority sectors. Agriculture was also emphasized as most people in Botswana were dependent on subsistence farming.

Rapid economic development was achieved by saving part of the revenue surpluses for the future. At the end of April, 2010, the accumulation was enough to cover19 months of the country’s import needs. The accumulated reserves were partly used to finance part of the huge budgetary deficits that followed the recent economic and financial crisis.

Mr. Matambo advised the Mongolian MPs not to get excited over the sudden influx of mineral revenues and urged them not to spend these on increased and unproductive consumption. Instead, they should be invested in areas that ensured sustainable development. Botswana’s economic planning is based on the principles that it is not advisable to be excessively dependent on natural resources because they are exhaustible, that economic crises can always recur, and that it is more sensible to have a diversified economy, instead of one overly dependent on minerals.

Source: The Wall Street Journal                         Date: 17 August, 2010

The good news: Chinese people have more money, on average, than most analysts realize. The bad news: Most of that extra wealth lies with the already-rich, widening income inequality beyond that suggested by official figures. This crowd is often supplementing its earnings with 'gray' income which can include kickbacks, bribes and the like.

These are the conclusions of academic research into China's real income levels by Mr. Wang Xiaolu, of the China Reform Foundation, an economic development research group. Happily, the sponsor of the research, Credit Suisse, provides a silver lining: Its analysts have thoughtfully proposed a number of stocks and sectors that could benefit from the fact that China's filthy rich are both filthier, and richer, than they seem at first sight.

Based on a detailed look at spending and income patterns in China in 2008, Mr. Wang estimates China's average urban household income is 90% higher than official data. His figures suggest the top 10% of Chinese households are 3.2 times richer than public data show, while the second decile's income is 2.1 times higher.

Behind this official underestimate of Chinese household wealth lies what Mr. Wang terms 'gray' income, such as government and party officials receiving outsize cash gifts when their offspring marry, or benefiting from a bit of insider trading in the property market, or receiving under-the-table payments in return for favorable treatment. Such items contributed to total hidden income in 2008 of nearly USD1.4 trillion, equivalent to roughly 30% of China's GDP.

One corollary, that the gap between China's rich and poor is becoming ever wider, is a worrying social problem. Still, not to let corruption and inequality get too much in the way of a good investment story, Credit Suisse's takeaway is that there could be even more latent potential in the Chinese consumer story than investors currently suppose. That's good news for luxury goods providers like LVMH or BMW, for Chinese property developers, and for gambling companies with a big presence in Macau.

Rather than a consumption basket, maybe call this one a corruption basket.

Source: www.nationallifedaatgal.com                          Date: 13 August, 2010

The National Life Insurance LLC has introduced two new products. With its voluntary retirement plan, Mongolians now have the opportunity to be insured in two kinds of retirement plans. The first of these is the existing compulsory retirement plan where the premium is paid into the social insurance fund, while the second aims to set up an endowment fund for insured individuals. The new plan is not meant to compete with the State retirement plan, but targets those who are outside it. It offers greater choice to people on choosing the age from when they wish to draw pension. Employers can offer this plan to motivate their employees to work longer.

The insurance company, the only one providing life insurance in Mongolia, has also developed a family health insurance scheme to help people tide over the ever-increasing costs of medical treatment. The scheme covers accidents, illness, hospitalization or surgery. The company has listed the following salient features of the scheme:

·         Worldwide coverage - 24 hours a day/ 7 days a week/ 365 days a year.

·         Maximum annual cover is USD 1,000,000.

·         The client can choose the doctor and the hospital, in or outside Mongolia.

·         Coverage includes both outpatient and in patient expenses, yearly check-ups and local ambulance service.

·         Those opting for a high-end product will get worldwide emergency medical and travel assistance service from International SOS Medica to the limit of USD1,000,000.

·         Service utilized at the company’s recommended hospitals can be paid for by direct billing. In all other cases reimbursement will cover 80% of treatment cost, subject to the annual limit.

·         Every policy will be valid for one year and terms are flexible.

Three options are presently available:

§  Platinum plan – Worldwide coverage and overall annual limit is USD 1,000,000.

§  Gold plan – Worldwide coverage, excluding USA & Canada, except in emergency cases. Maximum annual limit is USD1,000,000.

§  Silver plan – coverage area is only Asian countries and annual limit is USD 300,000.

Source: Oilbarrel.com                           Date: 13 August, 2010

Petro Matad has hit hydrocarbons with its first well in Mongolia. The company has struck oil at its Davsan Tolgol-1 wildcat well in Block XX where good reservoir quality is indicated by fast drilling breaks through all sandstone and conglomerate intervals. Petro Matad CEO Douglas McGay has said, “To have achieved success on the first well has been both a significant achievement for our company and Mongolia, and also a tribute to our technical team.”

The company’s shares had been rising steadily before the drilling started and then rose with the successful outcome. But you never can tell. Even with great advances in technology the industry-wide success for wildcats is reckoned to be one out of six wells drilled. Mongolia is real frontier territory. Squeezed between China and Russia, Mongolia is twice the size of the UK and France combined yet very sparsely populated. It is a country of climatic extremes, with a short drilling season, creating some major logistical and technical problems for drilling crews.

We do not know as yet how much oil has been discovered. Provisional resource estimates for the DT-1 well were put at 122 million barrels. The significance of the strike, however, as Mr. McGay has said, is that it has de-risked the whole block, which is home to a further 14 prospects and where several further wells are planned.