What I saw of the conference was very interesting. They covered a lot concerning the coking coal and copper markets but the part which really stood out to me today was the bit concerning the soon expected Tavan Tolgoi IPO. There was a panel discussion where questions concerning the privatization were asked to a few key players instrumental in the process. This included Parliament Member of Mongolia, the COO of Frontier Securities, as well as the Deputy Director of BDsec, Mongolia's largest broker.
In the discussion, the 30/10/10 share distribution was brought up, witch I mentioned in the last paragraph of my previous post entitled Resource Curse. I've understood this breakdown as 10% being given to Mongolian citizens, another 10% being given to Mongolian companies and 30% listed on international exchanges (also the additional 50% being kept nationalized). This I see is a good thing as it would seem to create a sound economic foundation the country can build on. However, like I mentioned in my previous positing the government must create a sort of a lockup provision to keep this wealth in the local community and prevent speculators from snatching up all the privatization vouchers.
A recent article from the WSJ addresses this important issue. It talks about how 20 years ago when the nation finally was able to turn its back on Soviet style Communism it began privatizing many of it's state owned assets, giving out shares to the local people in the form of vouchers. However, many of them who were uneducated sold off the shares for a quick buck, intern allowing some foreign and local speculators to generate massive pools of wealth leading to great resentment. That was 20 years ago, and now the government is going to do it again, but as mentioned in the above WSJ article, this time the government is to create a lockup provision which will prevent these locals from selling off their vouchers immediately. Although it is unknown as to how long this provision will be instated for, many expect it to last 1-2 years.
Returning to the panel discussion, it was interesting to hear that one women was not in support of an IPO being used to raise initial funds, but rather that the government should do so by issuing debt. Her argument was that the shareprice needs to gain value before it's issued as an IPO. Also, its unknown exactly how much is in the ground, somewhere around 6 billion metric tons. Knowing a more accurate number would create a more accurate value. She went on to saying that many Mongolians are uneducated in regards to the securities market and if they were given shares (536 each initially) which were valued higher it would increase their desire to educate themselves about the securities market. "thats what this 10% issuance to the Mongolian citizens is about" she said. "It's about opening the door to our citizens to the Mongolian securities market". I found her point very valid and seemingly very important in the process of financing this major project and at the same time socioeconomically modernizing the country.
A recent article from the WSJ addresses this important issue. It talks about how 20 years ago when the nation finally was able to turn its back on Soviet style Communism it began privatizing many of it's state owned assets, giving out shares to the local people in the form of vouchers. However, many of them who were uneducated sold off the shares for a quick buck, intern allowing some foreign and local speculators to generate massive pools of wealth leading to great resentment. That was 20 years ago, and now the government is going to do it again, but as mentioned in the above WSJ article, this time the government is to create a lockup provision which will prevent these locals from selling off their vouchers immediately. Although it is unknown as to how long this provision will be instated for, many expect it to last 1-2 years.
Returning to the panel discussion, it was interesting to hear that one women was not in support of an IPO being used to raise initial funds, but rather that the government should do so by issuing debt. Her argument was that the shareprice needs to gain value before it's issued as an IPO. Also, its unknown exactly how much is in the ground, somewhere around 6 billion metric tons. Knowing a more accurate number would create a more accurate value. She went on to saying that many Mongolians are uneducated in regards to the securities market and if they were given shares (536 each initially) which were valued higher it would increase their desire to educate themselves about the securities market. "thats what this 10% issuance to the Mongolian citizens is about" she said. "It's about opening the door to our citizens to the Mongolian securities market". I found her point very valid and seemingly very important in the process of financing this major project and at the same time socioeconomically modernizing the country.
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