Interview: Xavier Rolet
What are you trying to achieve with your partnership with the Mongolian Stock Exchange (MSE)?
XAVIER ROLET: In 2011 we signed an exclusive strategic partnership agreement with the MSE to prepare the local capital markets for substantial privatisation programmes. The LSEG is bringing specialists in to work on all operational aspects of the exchange, from trading, clearing and settlement as well as surveillance infrastructure to listing rules and training personnel. The idea is to ensure the MSE has a state-of-the-art toolkit to handle the large inflows of capital into companies we expect will be listed in the near future.
Most investors in Mongolian assets have come from neighbouring countries. How much new interest is there among London-based investors?
ROLET: Mongolia’s growth story is rousing considerable interest among investors. This was confirmed recently when we held Mongolia Investment Day at the LSEG. Specifically, there is a lot of appetite for investment in energy, mining, infrastructure and tourism. The visibility of opportunities in the country will be further enhanced by the recent decision to list Tavan Tolgoi (TT) – the biggest mining company – on the LSEG. It makes sense for Mongolian companies to dual list in London and Ulaanbaatar. The LSEG stands out because of the size of its capital pool and the diversity of its investors, many of whom have an emerging market focus and are eager to find growth opportunities outside the EU and US. Another advantage is that there is no overlap in trading hours between the LSEG and MSE. In contrast to other exchanges, such as Korea or Hong Kong, London will not be sucking out liquidity because the MSE is no longer trading when the LSEG opens. London’s trading session will actually help boost liquidity.
Where do you see market capitalisation in 2-3 years?
ROLET: GDP growth is expected to be at least 15% and capital markets should grow in line with this if not faster. There are also substantial privatisation measures that will expand the capital markets. Some capital will be provided by the state and will contribute to the local asset management industry. I expect liquidity to double. All it takes is one substantial initial public offering to dramatically expand the size of the market.
What risks are associated with such rapid development, and are Mongolian companies ready to comply with the rules of international capital markets?
ROLET: Risk always accompanies rapid growth, but I think Mongolia is in a good position to avoid many of the potential pitfalls. What makes me optimistic is the fact that the country has a vibrant democracy with political parties engaged in an intense dialogue on how best to make sure growth does not become inflationary. The government has witnessed the consequences of imbalanced growth in South-east Asia and is keen to make sure that the capital flowing into the country is invested in productive assets. At this juncture the focus will be streaming capital into infrastructure spending, with an emphasis on roads, airports and refineries.
Regarding the ability of local companies to comply with the rules of international markets – it is important to recall that Mongolia has vibrant democratic institutions that rely on the rule of law. You can import all the good governance you want but if you don’t have the underlying legal architecture it will not work. We are currently in the process of advising the authorities on what needs to be done. Companies are already compliant with International Financial Reporting Standards when it comes to accounting. Also, as previously mentioned, regulators and operators are importing best international practices to handle large inflows.
What impact is the ongoing eurozone debt crisis having on Mongolian capital markets?
ROLET: There is no correlation or connectivity between the EU and Mongolia. The country can keep growing on its own for at least several decades as long as it continues catering to regional demand for commodities.
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