CEO OF ARD FINANCIAL GROUP
SITS DOWN FOR INTERVIEW ABOUT UPCOMING RTO AND CURRENT ECONOMIC ISSUES
Ard Holdings is an institutional investor currently striving to become listed on the Mongolian Stock Exchange (MSE) through a merger with Investor Nation, one of its minority subsidies.
The UB Post sat down with CEO of Ard Holdings and former Vice Finance Minister Ch.Gankhuyag to discuss the proposed merger and reverse takeover of their companies.
As a prelude to the interview, Ch.Gankhuyag briefly introduced his company and its operations.
“Our company, as Mongolians work for the Mongolian people, which is the meaning of our name in Mongolian, the people. Previously, I used to work for foreign institutional investors, having established Khas Bank for example. We don’t want the Mongolian people just to be customers at a bank, taking out loans, receiving a card, and paying fees. The main idea of our financial institution is that we want the Mongolian people to have ownership,” he said.
The following interview explores what CEO Ch.Gankhuyag sees in store for Ard Holdings while also uncovering the opinion of the former Vice Finance Minister on economic topics of relevance.
What is the main goal you have in mind when you launch a reverse takeover (RTO) for Investor Nation and eventually Ard Financial Holdings?
The main goal is to enable the Mongolian people who already have ownership stakes in Investor Nation and Ard Holdings to trade their shares on the designated market place, MSE.
Has the fact that the Mongolian Stock Exchange is state-owned brought on any obstacles to your proposed RTO?
I would say MSE has been very forthcoming and welcoming to our approach to list on shares on MSE. Right now, the matter is being looked at by the Financial Regulatory Commission (FRC). I just had a meeting yesterday with the Chairman of FRC, S.Davaasuren, and we hope that the commission will issue the approval to go ahead with first Investor Nation and then with Ard Holding’s RTO. This is an unprecedented event in Mongolia. We hope that our current existing 3,000 shareholders will be able to go and trade their shares, instead what is happening right now is that shareholders trade their shares in the company headquarters in an unregulated way. We want to bring our shares to the marketplace.
You have been publically critical of the government’s handling of the Erdenes Tavan Tolgoi shares. Both MSE and Erdenes Tavan Tolgoi are state-owned. Do you think that privatizing MSE will promote better transparency pertaining to these shares and trading in general?
I think the stock exchange should be in private hands as well as any other company that operates in the financial services sphere. The public owns about 15 percent of Erdenes Tavan Tolgoi. Consecutive governments have violated minority shareholders or Mongolian citizens’ rights for the last six or seven years. We need to cure this situation regardless of who owns MSE. As it comes to the privatization of the stock exchange, we need to look at cleaning house in the Mongolian Central Securities Depository. The exchange and the depository are sister organizations. We need to take these two institutions away from the control of the Ministry of Finance. The bureaucrats who are sitting on the board of both the depository and the exchange right now are not capable of taking these institutions to its next stages of development.
Statistics show that only three percent of Mongolians own 80 percent of the savings in the country. Do you think improving awareness about trading stocks or shifting assets into
Regarding the privatizations of state-owned enterprises, I believe the process should be done through a proposal I made several months ago. That is combining privatization with the pension overhaul. Initially, state owned companies can be incorporated into the pension fund. Having a large pension fund will boost the economy and the development of the financial sector while also giving confidence to the people in their pension fund. The revenues of the state-owned enterprises will back current monthly contributions. It is not privatization; it should be called a state pension fund. The government and Parliament should still retain oversight and control over this entity but we will have to have a clear policy on how to go about privatization of enterprises that are owned by the government.
In addition, the state budget and the pension fund will finally be separate. Currently, the state budget or taxpayers contribute 700 billion MNT to 800 billion MNT annually as subsidies to the pension fund. That issue will be addressed with the program I am proposing.
In terms of long-term savings, our company Ard Insurance has piloted private pension funds starting in 2007. People make monthly contributions to the fund which is a long-term savings program and also serves as life insurance. It is a mixture of life insurance, long-term savings, and the pension program. We have 800 active subscribers to this program.
I believe that Mongolians do understand the importance of savings but do not earn enough to save and that issue needs to be addressed. The public needs to be educated about financial services and products, and need to understand the products in the market before they make sophisticated financial decisions.
As you know, Mongolia has upcoming bond debt obligations of 660 million USD in 2018. The country has fallen into a debt cycle, refinancing bonds when it matures through new sovereign bonds. As an executive active in the financial sector, do you see Mongolia escaping this debt cycle?
The government should approach the debt very responsibly. The issue of accountability and responsibility should be brought up. 1.5 billion USD raised through the bond, where did it go? Who took loans? Which projects did we finance? Are these projects paying back?
We need to make sure the sources of repayment are very clear before issuing any bonds. It is not fair if the government borrows 1.5 billion USD and asks all taxpayers to carry the burden.
Digging into who incurred how much debt to finance what is a more philosophical approach. The practical approach would be to cut expenditure in the budget, stop distributing money and handouts. We should not even start discussing salaries of civil servants. All that money that is saved needs to be contributed to the bond repayment. Anything that is left needs to be refinanced or restructured.
In this capacity, do you think the extended fund facility program with the International Monetary Fund (IMF) is a positive for the economy?
It is a must. I am happy that Prime Minister U.Khurelsukh’s first meetings was to invite the IMF and [affirm] his commitment to the program. As a country we should stay financially smart and disciplined. We should not stop spending because IMF told us to. We should spend wisely. Eventually, we should spend money to increase salaries of civil servants in order to create a better, more efficient government. We might need fewer people in the government if we pay adequate salaries. We cannot talk about strong and efficient government while paying civil servants pennies. Looking at the case of Singapore, the best and the brightest go to work in the government. Not because they want to become corrupt officials but they can earn a good living. In this economic climate, I’m not saying to increase salaries right now.
One matter and in fact the only matter that I agreed with President Kh.Battulga on is the fact that we need to negotiate with IMF. We should protect our sovereign interests. I don’t agree with his stance that Mongolia should start kicking out investors, stop importing and start producing everything here in Mongolia. Particularly, I don’t want Mongolians to become involved in cheap labor-intensive industries.
You said you oppose the protectionist and nationalist rhetoric, especially those used by President Kh.Battulga. Recently, the prospect of allowing foreign banks such as Bank of China and ING to operate in Mongolia through a proposed bill on investment banking has been discussed. What are your thoughts on this issue?
I think foreign banks can operate here and there should be an even playing field for all business entities in Mongolia. However, we cannot let foreign government-owned banks operate in Mongolia. The sovereign policy of Mongolia should be dictated by Mongolians and not Beijing or Moscow. Private banks should be welcome to operate in Mongolia and this is a compromise that I believe we can make. We have banks that are owned by foreigners but we don’t have a foreign state-owned bank operating here. That should stay this way.
You mentioned block chain technology, which basically employs a public ledger that makes all transactions accessible to everyone. Do you think that block chain technology could be incorporated into the activities of your company or in Mongolia in general?
I think the government should seriously look at this issue. While Mongolians are busy fighting their political games and getting engaged in populist agendas, the world is moving ahead.
In terms of crypto currencies, just recently, we enabled the first transactions using bitcoins in Mongolia. We want to focus on this area and I invite all universities, academia, and businesses to come together and make Mongolia one of the pioneering environments supportive of this development. This is one area where we can compete.
Our company has made efforts to keep up with modern technological advancements in the financial sector. Mongolians are falling behind in modern advancements of crypto currencies, block chain technology, artificial intelligence, and the internet of things. Ard Financial Group has been advocating more devoted research into these types of new technologies.
...The bureaucrats who are sitting on the board of both the depository and the exchange right now are not capable of taking these institutions to its next stages of development...