Mongolia Picks Four Banks for Coal IPO

By ALISON TUDOR

HONG KONG—Mongolia has chosen four banks to manage the multibillion-dollar initial public offering of the world's largest coking coal deposit, people familiar with the matter said.

Goldman Sachs Group Inc., Deutsche Bank AG, BNP Paribas SA and Macquarie Group Ltd. won the battle among bankers to handle the IPO of state-owned Erdenes-Tavan Tolgoi Co. which controls the coal deposit in the South Gobi desert near China's northern border, the people said.

The government plans to sell up to a 30% stake in Erdenes-TT, as it is known, to international investors and an additional 10% to local companies, as well as give away 10% to Mongolian citizens. It would continue to hold about 50%. The shares are likely to be dual-listed on the Mongolian Stock Exchange and an overseas market, possibly Hong Kong or London.

The bankers could rake in substantial fees from managing the sale, which could value the company at US$10 billion to US$12 billion. However, it isn't yet clear which of Erdenes-TT assets will be included, who will mine the deposit and how much in royalties the operator pay, making estimates on the size of the deal little more than educated guesses for now.

The banks competed aggressively to manage the deal, in part because it is Mongolia's biggest share sale to date and partly because it could lead to more mandates as Mongolia's fledgling democratic government privatizes more mining assets to enrich its 2.9 million citizens, many of whom live in poverty.

Bankers noted the line-up could still change ahead of the IPO, with firms such as J.P. Morgan Chase & Co. and Citigroup Inc. lobbying hard for inclusion based on their experience handling Mongolian mining IPOs.

Consultancy McKinsey & Co. has been advising the government on its privatization plans, people familiar with the matter said.

The government has set a deadline for completing the listing before year's end—a target some bankers call too aggressive given the amount of work that still needs to be done. Still, appointing the banks could make it more likely that the government hits its target, which is ahead of elections due next year. Decisions are likely to be taken swiftly on the logistics of the share sale and on which assets to include.

The project on the ground will remain a huge undertaking that may take years to complete and will involve building mining infrastructure, as well as massive road and railway networks to transport the coal. Only after an operator is selected can there be any estimates of when the first coal could come out of the ground.

The Tavan Tolgoi deposit has about six billion tons of coal reserves, according to both the government and mining data firm Raw Materials Group. At least a quarter of the supply is coking coal, which is used in making steel.

The government is due to award a contract license for the eastern half of Tavan Tolgoi shortly. The state is also soliciting offers to develop the western part of the deposit. Erdenes-TT is likely to receive royalties from the concession operator, although how much is still unknown. China's Shenhua Group and Peabody Energy Corp. of the U.S. are among the leading contenders, said another person familiar with the matter.
—Prudence Ho contributed to this article.

Source: The Wall Street Journal