Hong Kong: Mongolia's prize mine is squeezing to market through a narrow gap. Ulaanbaatar has again picked advisers to list Erdenes Tavan Tolgoi. It's no easy sell: a huge but landlocked coal deposit with one major market and a decade of false starts. Still, with some Chinese backing and a 2020 election to focus minds, it has a chance of making it this time.

It's been a bumpy ride. An early initial public offering plan in 2011 foundered after multiple delays, and Mongolian lawmakers sank a $4 billion investment proposal from a consortium including Japan's Sumitomo Corp in 2015. Investor appetite for coal has faded since, even if the quality, steelmaking kind - on offer here - remains in demand.

Bank of America and Credit Suisse, among advisers picked to run the $1 billion-plus sale, will meet plenty of scepticism. The lacklustre debut last year of Australian coking coal miner Coronado - one of only four mining IPOs since Glencore in 2011, according to Dealogic - won't help. Nor will coking coal prices in China, which have fallen steadily since June.

Even so, there are reasons to hope for a different result this time. For one, this sale comes after a commodity price crash and a subsequent 2017 International Monetary Fund bailout. That should temper Ulaanbaatar's expectations, sky-high during the boom years, when the mine's mooted valuation was $15 billion. Add to that a general election in mid-2020: President Battulga Khaltmaa will be motivated to get a sale done, amid public frustration over Mongolia's inability to turn mineral wealth into an economic boon.

There is scale too. Erdenes Tavan Tolgoi exported 13 million tonnes of coal in 2018. That could rise to an annual 20 million, one source familiar with the matter said - larger than comparable peers - and the deposit is among the world's largest.

The transaction looks simpler than past iterations too: a Hong Kong IPO, not a triple listing. Nor will there be free shares for the country's citizens, as in 2012.

Finally, a role for Bank of China suggests Mongolia's neighbor is supportive, encouraging big-name buyers who might help ensure a welcome in Hong Kong, a market rattled by months of protests. If all those stars align, the wandering IPO may settle at last.

CONTEXT NEWS

- Erdenes Tavan Tolgoi JSC, a Mongolian state-owned coal miner, has picked banks including Bank of America and Credit Suisse to run a Hong Kong initial public offering that could raise more than $1 billion, Bloomberg reported on Nov. 1, citing people familiar with the matter. A separate source familiar with the matter told Reuters Breakingviews that Bank of China was also involved, while Moelis was equity advisor.

- The effort marks the latest in a series of attempts by Mongolia to raise money to develop the giant Tavan Tolgoi coal mine, which is located in the Gobi desert.

- The country's lawmakers in 2018 approved plans for an initial public offering.

Published Date:2019-11-06