Mongolia Discussing Law To Cap Investment By Foreign State-Owned Firms In Strategic Assets - Sources
04/30/2012| 06:52am US/Eastern
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The Mongolian parliament is discussing a law that will cap investment by foreign state-owned firms in strategic assets, according to people familiar with the situation, a move that could potentially derail Aluminum Corp. of China Ltd.'s bid to buy a controlling stake in SouthGobi Resources Ltd. (1878.HK).
One of the people said Monday that ahead of elections in June, the Mongolian parliament's plan to change the law is to ensure that acquisitions by foreign state-owned firms in strategic firms, such as resource companies or mines, will go through a government vetting process akin to that practised in Canada and Australia. Currently, there is no shareholding limit for foreign state-owned firms looking to invest in Mongolia's strategic firms.
Early last month, state-owned Aluminum Corp. of China Ltd. (601600.SH), or Chalco,--China's biggest aluminum producer by output--said it had agreed to buy a controlling stake in Mongolian coal miner SouthGobi Resources Ltd. (1878.HK) from Canada's Ivanhoe Mines Ltd. (IVN) in a deal worth as much as HK$7.20 billion (US$923 million) as the Chinese aluminum producer diversifies into the resources-rich country. SouthGobi, which listed in Hong Kong two years ago, is 66%-owned by Ivanhoe, and 14% by Chinese sovereign wealth fund, China Investment Corp. Two weeks after that acquisition was announced, SouthGobi said in a statement that the Mongolian government had suspended some of its mining licences on national security concerns following Chalco's bid to take control of the Mongolian miner.
SouthGobi also added that the suspension was initiated to allow the government of Mongolia to review the proposed change of ownership.
The foreign investment law was first flagged by Chalco and Ivanhoe on April 25, which said "SouthGobi, Ivanhoe and Chalco have been advised by the Government of Mongolia that it is considering the introduction of new foreign investment legislation to allow it to assess investments (in the resources sector)."
The companies said that they understood that the Mongolian government is looking at establishing "fair transfer pricing and taxation regimes with foreign investors" as well as legislation "from precedents in other major jurisdictions."
Such a law would have widespread implications for foreign investments in Mongolia's resources sector, where foreign investors ranging from Singapore state investment company Temasek Holdings to Chinese sovereign wealth fund China Investment Corporation have stakes in copper, gold and coal mines.
SouthGobi's main asset is the Ovoot Tolgoi Mine in Mongolia, which produces coal used in steel and power production. But the Hong Kong-listed company is also developing three other projects in the country and plans to increase production to 6 million metric tons this year from 4.57 million tons in 2011.
-By P.R. Venkat and Nisha Gopalan, Dow Jones Newswires; 852-2832-2343; nisha.gopalan@dowjones.com
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