$3 billion Tavan Tolgoi IPO on hold

Financial difficulties have forced Mongolian coal developer Erdenes Tavan Tolgoi (ETT) to put its $3 billion initial public offering (IPO) on hold for 2013. The company says it is looking to renegotiate a supply deal with Chinese state-owned Aluminium Corporation (Chalco) and will also accept a government fund of $350 million to help pay out the contract and repay its debts on the delayed 7.5 billion tonne development.

“We are shelving the issue until the mine has more infrastructure in place,” says ETT chief executive Batsuuri Yaichil.

The company’s problems have already forced it to suspend deliveries to China. “ETT is facing financial difficulties. That’s why we stopped our coal transportation and export,” Batsuuri Yaichil says.

The project is around 300km from the Chinese border, and was part of a mining boom expected to transform Mongolia’s fortunes. However, a host of financing problems and bureaucratic hold-ups, as well as concern about the role to be played by foreign investors has caused much uncertainty.

Little progress has been made since a major investment agreement for the mine’s western block involving China’s Shenhua Group, US-based Peabody Energy and a Russian-Mongolian consortium was shelved in 2011 after being branded unfair by Japanese and South Korean rivals.

“This is a classic example of how an enterprise can be used as a cash cow by government to advance political goals,” says Dale Choi, analyst with investors Origo Partners.

This year’s IPO was a bid for Mongolia to raise up to $3 billion in funds by listing the eastern Tsankhi section of the mine on foreign stock markets, but these plans are now suspended. The IPO was highly anticipated because of its size and expected fees. It has already been delayed several times and the further postponement is a major setback for BNP Paribas, Deutsche Bank, Goldman Sachs and Macquarie, which were scheduled to manage the listing.

In another recent setback, ETT’s hopes of renegotiating its deal with Chalco may now be dashed, as Reuters says Chalco has issued a statement ruling out the prospect of changing the 2011 contract.

Source: www.erdenesmgl.mn