ERDENES TAVAN TOLGOI COMPANY ISSUES AND CONCERNS

Lately, the most widespread topic of conversation seems to be the issues surrounding the Erdenes Tavan Tolgoi. The loudest dialogue seems to surround the question of whether or not the company needs to sell its shares to the public. Questions about the company arose after Executive Director D.Ariunbold stated that Erdenes Tavan Tologi will begin distributing dividends this year.

Other concerns include whether or not the reason why the company is considering selling shares is because it wants to build a new coal washing plant. By calculating the cost of new equipment, officials have stated that a new coal washing plant could cost 175 million USD. The release of this figure was followed by doubts about whether or not one of Mongolia's top ten coal companies could raise that much through an IPO.

Further questions ask if purchasing new technology would be a means of repaying a 238 million USD loan from Development Bank of Mongolia for new technology?

A few years ago, it seemed as if creating an Erdenes Tavan Tolgoi IPO was inevitable. The company said it had to spend over 570 million USD to build a coal washing plant capable of washing 15 million tons of coal per year and to build a Tavantolgoi-Gashuun-Sukhait railroad. In order to carry out these plans, the company had planned on raising up to three billion USD. However, the company currently has no other investment projects lined up, and the railroad is going to be built by Mongolian Railway.

Skeptics have asked why they are considering raising a large amount of capital, and many believe that question should be answered by the government, not the newly appointed company leadership.

Another concern regarding Erdenes Tavan Tolgoi is to whom dividends will be distributed, with the underlying agreement that it should be distributed to the company's shareholders.

There are over 15 billion shares of Erdenes Tavan Tolgoi, 14 percent of which are owned by Mongolian citizens, 0.6 percent by enterprises, and the rest by the state. This ownership data was released by the Mongolian Central Securities Depository. The land Erdenes Tavan Tologi operates on is fully owned by the state.

According to their bylaws, Erdenes Tavan Tolgoi isn’t a closed joint stock company, but they aren’t a public company either. They are a limited liability company with one owner.

Recently, it was revealed that the 2.2 million Mongolian citizens who hold ETT shares aren’t actually company shareholders. The belief that Mongolian citizens could become shareholders was established by a parliamentary order that stated every citizen would be issued 1,072 shares of the company.

The order actually states, “Understand that the right to own 1,072 shares is open to you,” and “Erdenes Tavan Tologi is a company that has 15 billion shares registered with the state, and you will be legal shareholders after it has opened an account with the stock exchange.”

Whether or not these shareholders will be able to receive money, and if there is any legal basis for the receipt of dividends, are examples of further concerns surrounding the distribution of shares to each citizen.

To pacify such concerns, it was announced that the Ministry of Finance is working to establish an account for the company on the stock exchange, and to register ETT as a state-owned joint stock company. However, some skeptics say there is no need to give people the false hope that there will be dividends, and that the company's top priorities should be to first settle its debt to Development Bank of Mongolia, and to register Erdenes Tavan Tolgoi with the state as a closed joint stock company.

Officials have stated that it isn’t an easy task to monetize companies within the state registry. This statement is very true, for numerous factors can become detrimental.

An example of a detriment to the registration of ETT is the company’s stated value per share. The government has determined that the value per share is 933 MNT. The company should have a 14 trillion MNT value, but it has never had its properties and assets properly evaluated. Some sources say that there is no way the company’s value could reach 14 trillion MNT.

Determining a value per share will likely halt the registration of ETT and the registration of shares distributed to citizens will go unfinished. This has been backed by the Mongolian Central Securities Depository, which said, “A company is supposed to be entered into the state registry only after share distribution is complete.”

The issue of potentially trading shares on foreign stock markets is another area of heated debate. This issue caught the attention of many after Executive Director of Erdenes Tavan Tolgoi D.Ariunbold issued a statement that said the company's debt to Chalco had been repaid, and that in 2018 the company will have the opportunity to release an IPO in foreign stock markets. This raised numerous questions, such as whether or not the company meets the criteria to release an IPO on a foreign stock market, and what the capital raised would be spent on? Would Erdenes Mongol establish subsidiaries in Hong Kong, London, or Singapore, and would an Erdenes Mongol subsidiary be the parent company of Erdenes Tavan Tolgoi?

The government says that an IPO will be created for ETT, which would bring the company's shares to life. However, certain individuals feel that the public believes in such statements and gets their hopes up, that politicians have taught citizens to lick at candy from behind glass, and that the idea of Erendes Tavan Tolgoi shares being traded on foreign stock exchanges is yet another pipe dream.

Many believe that, from a political standpoint, Erdenes Tavan Tologi should become an open joint stock company based on the decision to issue shares to every citizen. This too is met with series of questions, namely why should the shares be traded on the Mongolian Stock Exchange?, Supporters of MSE trade point out that even companies that don’t need to raise capital register, start secondary market trading, and “bring life” to their public shares.

Perhaps the biggest area of concern surrounding ETT is the involvement of politics and politicians in its operations. T.Enkhbat from News Today noted, “Politicians like to talk about happy endings. However, they shouldn't forget important things, like a good start and continuation,” continuing with a troubling analogy, “If Erdenes Tavan Tolgoi was a building, its construction started with the fifth floor.”

T.Enkhbat also mentions that in order to fulfill their promises and put cash into circulation, political parties had the company take out a 350 million USD loan from Chalco and a 200 million USD loan from Development Bank. In order to fulfill a promise to give each citizen one million MNT, they implemented the 1,072 shares distribution scheme. He points out that one million MNT divided by 1,072 equals 933, and that Su.Batbold’s administration used this simple math to determine the value of Erdenes Tavan Tolgoi shares.

In order to register Erdenes Tavan Tolgoi on the stock exchange, Parliament and Cabinet have to consider the actual value of shares, the company’s overall valuation, and the amount of shares now held by citizens. A government order regarding registering Erdenes Tavan Tologi as a state-owned company will probably have to be issued soon.

T.Enkhbat said, “Hopefully, this time, the order will be more business and economics oriented, rather than full of political promises.”

The last and biggest issue of concern that currently surrounds ETT is the murkiness surrounding whether or not Erdenes Tavan Tologi will be given to investors. There have been several conflicting statements made about this issue, as well as silence from key players.

For example, Minister of Finance B.Choijilsuren has stated that no transactions will be carried out with investors this year. However, Minister of Mining and Heavy Industry Ts.Dashdorj has said that Tavan Tolgoi investment and cooperation contracts will be signed this year.

Prime Minister J.Erdenebat still remains silent on the issues.