Southgobi, Winsway , Chalco Bill to Limit Foreign Investment Into Strategic Sectors Rapidly Advances in the Parliament
Source: Frontier Securities
April 25, 2012
According to official website of Parliament of Mongolia (http://open.parliament.mn/index.php?option=com_content&view=article&id=4801:2012-04-24-10-33-58&catid=557:2009-06-07-04-45-38&Itemid=940) on April 24,2012
Parliament’s Standing Committee on Security and Foreign Policy has supported initial reading ( whether to discuss) of bills on implementing foreign investment into enterprises with strategic significance to ensure national security and amendment to law on state registration of legal entities. The bills are to proceed to the floor of the united session of Parliament.
According to the website, “ currently there are no legislative limitations on foreign investors for any kind of investing in and owning 100% shares of a company operating in sectors with strategic significance for Mongolia.
Law on foreign investment provides that foreign investors can engage in business and service on territory of Mongolia not prohibited specifically by law of Mongolia. Law initiators have viewed that there is a need to regulate issue of introducing foreign investment into strategically significant sectors in relation to national economy and security interests.
MP G.Zandanshatar has introduced that in researching policies and tendencies of controlling and prohibiting foreign investment in other countries of the world it can be seen that the controls are mostly applied to strategically significant sectors. For example, in the USA it is prohibited for foreign investors to own shares of air transportation companies.
MP-s have inquired whether the bill is related to issue related to South Gobi Sands , which is attracting public attention.
MP G. Zandanshatar has explained that the discussion of the bill only coincided with sensational developments related to the company.”
According to vip76.mn on April 13,2012 (http://vip76.mn/zandanshatarg/xevleliin-toim/xevleld-ogson-yarilclaga/35458-gzandanshatar-bidnii-tosliig-yaaraltai-batalj-sausgobi-giin-naimaag-zogsoox-bolomjtoi.html)
The MP and Minister of Foreign Affairs G. Zandanshatar said
“It is fully possible to stop Southgobi/Chalco deal. Parliament has full possibility to approve the bill. Because Parliament already approved whether to discuss the bill. For second reading it is only necessary two weeks. In another words, it is possible to approve this law within two weeks.”
Further, according to Parliament’s website,
“For Southgobi Sands company, because it has made trade without informing Government of Mongolia it is being currently suspended”(literal translation of the original text)
“and now for this company a process will proceed to get permission from Government of Mongolia. Foreign investment should satisfy a number of several requirements such as not contradicting national security of Mongolia, not influencing taxes and no establishment of monopoly .”
“ Although MP-s have united in opinion that it is necessary to urgently approve this bill and have agreed that despite the urgent need the bill should be thoroughly discussed”.
According to major Mongolian daily “Udriin Sonin” on April 25,2012 “Southgobi Sands has sold mineral licenses to Chinese Government’s Chalco company and informed Government of Mongolian informally. If the bill will be approved this agreement will be void. Therefore, it is necessary to urgently approve this bill. MP-s of the Standing Committee have unanimously agreed to urgently approve this bill.”
“MP D.Odkhuu said that it is possible to approve the bill by initial reading by session of Parliament”
“MP and Minister G.Zandanshatar said that this does not mean pushing away foreign investors. Legal environment is being created for foreign investors to get permission from the Government while operating in Mongolia. This law cannot be limited only by Southgobi Sands issue , it has coincided.”
- Communications from Parliament and Mongolian media create impression that the bill has a high likelihood of being speedily approved
- Exact regulations including “not contradicting national security of Mongolia, not influencing taxes and no establishment of monopoly” and implications of this bill for investors and especially regarding globally listed companies with assets and operations in Mongolia will be fully understood after the bill becomes a law and its publication
- According to media reports, in previous version of the bill , minerals, energy and power, roads and transportation, banking and finance, telecommunications and media were among strategically significant sectors (http://vipnews.mn/medee/uil-yavdlyn-medee/6945-undesnii-ayuulgui-baidlyg-xangaxad-strategiin-ach-xolbogdoltoi-aj-axuin-negjid-gadaadyn-xorongo-oruulaltyg-xeregjuulex-jurmyn-tuxai-xuuliin-tosol-sanaachlan-bolovsruuljee.html)
- For Southgobi Sands, it appears that option for a “process to get permission from Government of Mongolia” is open. It could be presumed that this “process”would be open to all related foreign investors
- We re-iterate our recommendation to investors to continue further diligently research implications of this bill if approved
From: Dale Choi, Frontier Securities [mailto:firstname.lastname@example.org]
Sent: Tuesday, April 24, 2012 6:20 PM
To: ‘Dale Choi, Frontier Securities’
Subject: WINSWAY(1733)/CHALCO(2600)-MONGOLIAN OPERATIONS COULD BE SUBJECT TO PROPOSED CONTROLS ON FOREIGN INVESTMENT INTO ENTERPRISES WITH STRATEGIC SIGNIFICANCE TO ENSURE NATIONAL SECURITY
Winsway Coking Coal (1733 HK) / Aluminum Corporation of China Limited(2600 HK)
|WINSWAY’S MONGOLIAN TRANSPORTATION OPERATIONS COULD BE SUBJECT TO PROPOSED CONTROLS ON FOREIGN INVESTMENT INTO ENTERPRISES WITH STRATEGIC SIGNIFICANCE TO ENSURE NATIONAL SECURITY|
- Intended suspension by Mineral Resources Authority of Mongolia of Mongolian coal licenses of Southgobi did not stop Chalco from continuation of its ambitious M&A activities in Mongolian coal sector. This time Chalco agreed to buy from major shareholder Chairman Xingchun Wang 29.9% of shares of Winsway at HK$2.12 a share.
RISKS (not limited to)
- Recent sensational developments involving abovementioned suspension of Southgobi licenses underscored importance of diligence for any controls from Mongolia on foreign strategic investment .
According to Frontier Securities research in this regard
- According to Mongolian internet website vip76.mn, (http://vipnews.mn/medee/uil-yavdlyn-medee/6945-undesnii-ayuulgui-baidlyg-xangaxad-strategiin-ach-xolbogdoltoi-aj-axuin-negjid-gadaadyn-xorongo-oruulaltyg-xeregjuulex-jurmyn-tuxai-xuuliin-tosol-sanaachlan-bolovsruuljee.html),
Road and transportation is mentioned among strategically significant sectors of the economy for which lawmakers MP-s G.Zandanshatar, N.Batbayar, Ts.Bayarsaikhan, S.Byambatsogt, D.Terbishdagva and U.Enkhtuvshin proposed controls on foreign investment in their bill on procedures to implement foreign investment into enterprises with strategic significance to ensure national security, which they have submitted to Parliament Speaker on October 16,2009.
- According to Mongolian news portal mminfo.mn, (http://www.mminfo.mn/content/22266.shtml?alias=politics)
On April 18,2012 MP, Minister of Foreign Affairs of Mongolia G.Zandanshatar has said
“ Bills on implementing foreign investment in enterprises with strategic significance to ensure national security and amendment to law on state registration of legal entities will be hopefully approved this week. The taskforce is working speedily.”
- Further, according to vip76.mn on April 13,2012 (http://vip76.mn/zandanshatarg/xevleliin-toim/xevleld-ogson-yarilclaga/35458-gzandanshatar-bidnii-tosliig-yaaraltai-batalj-sausgobi-giin-naimaag-zogsoox-bolomjtoi.html)
The Minister said
“It is fully possible to stop Southgobi/Chalco deal. Parliament has full possibility to approve the bill. Because Parliament already approved whether to discuss the bill. For second reading it is only necessary two weeks.In another words, it is possible to approve this law within two weeks.”
According to official website of Ministry of Foreign Affairs and Trade of Mongolia, (http://www.mfat.gov.mn/index.php?option=com_content&view=article&id=1526%3A2012-04-17-08-00-12&catid=43%3A2009-12-20-21-55-03&Itemid=62&lang=mn)
On April 17,2012 at consultative meeting “Coal exports and its pressing issue” organized by the Ministry and attended by representatives of Ministry of Mineral Resources and Energy of Mongolia, General Customs Agency and coal exporter enterprises, coal transportation was mentioned among topics on which information was exchanged on possibility for policy regulation from state.
- We recommend investors to further diligently research issue of applicability of the Mongolian business of Winsway to abovementioned bills as well as status of this bill and associated implications.
Dale Choi | Chief Investment Strategist | Frontier Securities | #705, Blue Sky Tower, Peace Avenue 17, 1st khoroo, Sukhbaatar district, Ulaanbaatar, Mongolia| Office: +976 7011999 | Mobile: +976.99103371 | Email: email@example.com