Mongolia: battle for mega-deal begins

It’s one of the hottest prizes in investment banking in Asia this year: the initial public offering of Erdenes Tavan Tolgoi, a Mongolian state company that owns a vast coal deposit in the Gobi Desert. On Thursday the Mongolian government starts formal interviews with many of the 18 banks – including Goldman Sachs, UBS and Deutsche Bank – that are fighting for a role in the IPO expected to take place in Hong Kong or London in 2012.

Competition for the deal is fierce. So which banks are in prime position to win the mandate?

With so many groups in the running – rumoured to include Citigroup, JPMorgan, Morgan Stanley, Merrill Lynch, BNP Paribas, and ING as well as the three banks mentioned above – the answer is far from clear. According to one source, the Mongolian government is struggling to cope with the number of pitches it has received or even understand the financial intricacies of the proposals – leaving the playing field wide open.

Some suggest that Morgan Stanley may have an edge because the son of Sukhbaatar Batbold, Mongolia’s prime minister, works for the company (as an analyst in Chicago). Then there is the fact that John Mack, Morgan Stanley chairman, visited Ulan Bator last Autumn and met Batbold.

Others reckon that JPMorgan and Deutsche Bank are in a good position, since both banks were hired by the Mongolian government for its original plan – now scrapped – to sell as much as 49 per cent of the Tavan Tolgoi coal deposit to a foreign bidder.

JPMorgan and Citigroup can also tout the fact that they arranged the Hong Kong IPO of Mongolia Mining Corp in October. MMC, Mongolia’s largest privately held producer of coking coal, raised about $700m in the deal.

Insiders also reckon Goldman Sachs and UBS have positioned themselves well with the Mongolian officials. Whatever the case, dealmakers reckon the government may end up mandating as many as five or six banks for the IPO, which would be consistent with many recent Hong Kong deals.

AIA, the insurance group, appointed eleven bookrunners for its Hong Kong IPOs last year, while Agricultural Bank of China, the mainland bank, had seven bookrunners for its share sale in the city.

Of course, appointing lots of banks to the deal team won’t put an end to the competition. Then comes the tricky decision of which bank is in charge.

Source:Financial Times, UK newspaper