October 12, 2008

Mongolia the Newest Flavour of the Moment

By Zoe Phoon

AS the United States' financial Armageddon starts to sweep the world, it is getting tougher to find a safe haven where wealth can still be grown. That's why when some Swiss investors saw the world's first Mongolia-focused fund in January this year, they mopped up US$5 million (RM17.25 million) worth of units in just three hours.

Reportedly, the fund is now valued at US$20 million (RM69 million), due to the original promise of 25 to 30 per cent annual returns.

This has ignited Mongolia into the latest investment hotspot and made the country the financial version of the culinary world's popular Mongolia hotpot.

According to a Bloomberg report, mining in the Central Asian country, which has reserves of coal, copper, gold and uranium, is expected to spur double-digit economic growth over the next 10 years if commodity prices can be maintained at current levels.

Singapore-based Eurasia Capital Management (ECM) managing director Alisher Djumanov said minerals accounted for about two- thirds of Mongolia's exports last year and foreign direct investments (FDI) there soared more than 33 per cent.

Djumanov, a former Credit Suisse Group investment banker, said the spillover effects from the country's mining sector will be so considerable that ECM has invested in companies that are expected to grow significantly on the back of the country's strong economic growth.

Through its funds, ECM owns 40 per cent of Tuul Songino Water Resource which has wastewater treatment and underground water purification projects in Mongolia's capital, Ulan Bator.

Djumanov said ECM's hedge funds, which have invested about US$200 million (RM690 million) across Central Asia, also expect to sell shares on London's Alternative Investment Market or Deutsche Boerse AG by next June.

According to the Istanbul-based Federation of Euro-Asian Stock Exchanges, economic growth in the former communist country that became a democarcy in 1992 accelerated to 10.2 per cent in the first quarter of 2008 compared with 9.9 per cent a year earlier.

It added that the Mongolian Stock Exchange's market capitalisation has risen sixfold over the last two years to US$669 million (RM2.30 billion), even though 32 per cent of the country's three million people have incomes below the government's poverty line.

FDI in Mongolia too has risen, to US$500 million (RM1.73 billion) of which 67 per cent has gone to mining and the government is considering changing mining laws with a view to maximising revenues for its people.

Some 70 per cent of the investments came from China, the world's fastest growing economy and the largest consumer of copper and other minerals.

Djumanov said his foray in Mongolia began when he put US$3 million (RM10.35 million) in a property project in Ulan Bator and shortly thereafter saw his investment's value "double".

Also seeking ventures in Mongolia is Frontier Investment & Development Partners, manager of a Cambodia-focused private equity fund, which plans to raise US$100 million (RM345 million) next year to invest in mining, infrastructure, real estate and tourism projects there.

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