Eurasia Capital Bullish on Japanese Investments in Mongolia

By , 22 November, 2010, No Comment

Below is a text from a newsletter I recently received from Eurasia Capital.  It is true that Japanese have been one of the most active early investors in Mongolia.  While investments from China today make up for around 80% of foreign direct investment (FDI) in Mongolia (according to some resources), Japan is still a significant presence here in Mongolia.  Enjoy reading.

Eurasia Capital: Japan and Mongolia: “Rising Sun” Looks for “Bluer Sky”

Towards strategic partnership. Japan, Mongolia’s fourth largest trading partner, is seen by the Mongolian Government as an important player for the development of the resource-rich country. In order to reduce its reliance on its two neighboring superpowers, China and Russia, Mongolia is seeking a “strategic partnership” status with the world’s third largest economy. Japan has been supporting Mongolia since the early 1990’s by providing extensive financial and technical assistance worth over US$1.3bn and helping in key aspects of democracy and transition into a market economy. Currently, Japan is actively involved in assisting in developing rural areas, protecting the environment, improving infrastructure, supporting SMEs and developing institutional and human resources in Mongolia.

Early investors. Japanese companies have been one of the early investors in Mongolia. During 1990-2005, more than 220 Japanese companies invested over US$100mn in various sectors in Mongolia including in textiles, telecom, banking and property. The prominent investments are:

  • Gobi cashmere factory, the largest cashmere producer in Mongolia
  • MobiCom, the first and largest mobile operator
  • Khan Bank, the largest commercial bank by assets, majority-owned by the Japanese Sawada Holding Company
  • Large Japanese trading houses, such as Marubeni Corp., Sojitz Corp. and Itochu Corp. have recently reached agreements with mining companies in Mongolia to sell coal to international markets and have expressed interest in developing the Tavan Tolgoi coal mine, and
  • “Four Seasons Gardens” (also known as Japan Town), being developed by Suruga Mongol LLC, a construction company established with 100% investment from Japanese Suruga Corporation.

Uranium initiatives. Being the world’s third largest uranium consumer, Japan is interested in sourcing uranium from Mongolia which is estimated to hold one of the world’s largest reserves. Seeing this opportunity, the Japanese companies are active on the uranium sector in Mongolia. For instance, Marubeni Corporation signed a letter of intent with Khan Resources Inc. related to exploration and mining of Dornod, Mongolia’s largest uranium deposit. The two countries signed an agreement on joint uranium development during official visit of the Mongolian Government to Japan in July 2009.

Mongolia to become rare earths supplier. With China, which controls nearly 97% of the world’s rare earth production, cutting back exports and, in the case of Japan, ceasing exports altogether, pressures are rising for businesses and governments worldwide in search for alternative sources. The Japanese and Mongolian governments have recently announced their intention to jointly explore Mongolia’s rare earth production potential, and the Japanese government has set up a US$150mn fund to help finance the search for substitutes for rare earths.

We believe Mongolia represents a unique opportunity for Japanese investors due to strong political support, favorable economic environment and attractive investment projects. We hold optimistic view that although moderate now, Japanese investments in Mongolia will increase as investors seek to capitalize on the expected boom in this resource-rich country. We expect increased interest from Japanese investors in Mongolia-listed stocks. Investors will seek to capitalize on massive growth as the Mongolian capital market, fuelled by a number of IPOs and additional share offerings, is set to continue to expand rapidly. Apart from Mongolian equities, two sectors in particular – banking and property will also offer high return opportunities to early investors from Japan as well as other countries.

To download full report please go to www.eurasiac.com

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Eurasia Capital is a Hong Kong-based pan-regional investment bank with focus on Mongolia, China, Russia and Central Asia.  The Firm offers cross border M&A and advisory, capital raising, sales & trading and research services to its international and regional clients including government agencies, major energy and resource companies, sovereign wealth funds, private equity groups and global portfolio investors. www.eurasiac.com

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