Mongolia: enter the yurt
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A rare opportunity for investors to invest in Mongolia outside its big natural resources companies comes with a foreign-run conglomerate involved in everything from real estate and cement to financial services and transport.
Asia Pacific Investment Partners, controlled by American businessman Lee Cashell, hopes to raise $30m through a placement of stock ahead of an IPO which could come next year.
APIP plans to use the funds raised now from institutional investors in its operations in Mongolia – to expand a fast-expanding property business and boost production at a cement factory: it intends to invest money from the planned IPO to develop a modest small business loan company and, later, develop it into a bank. Big plans, big ambitions.
Speaking to beyondbrics during a visit to London where he was drumming up investor interest, Cashell gives his pitch: Mongolia is a land of opportunities.
Cashell cites his own company’s example: founded in 2001 with starting capital of US $ 30,000, the conglomerate, which is audited by PwC, saw 2009 revenues of US$3.5m and earnings before interest, depreciation, taxes and amortisation (Ebitda) of US$1.2m, 2010 revenues of US$15.3m with an Ebitda of US$7.8m. According to a recent audit revenues for 2011 are expected to be US$25m, with Ebitda of US$20m.
Cashell says much of the growth opportunity for APIP is in its property-related businesses which include a cement factory, real estate agency, and property development company. A large part of the private investment raised will go towards his cement business, Asian Cement.
He tells beyondbrics he bought the cement factory three years ago for approximately US$3m when the local price of cement was US$60-80/tonne. Today Asian Cement is selling cement at a local market price of US$150/tonne.
The price of property in Ulan Bator has also sky-rocketed, Cashell says. For example, at an apartment building which APIP sold to Property Frontier, a London broker, called The Regency Residence, individual flats which sold for $800 per square metre off-plan in 2007 are now being sold for $2200 a square metre in the secondary market to wealthy Mongolians.
All of which is part of a bigger picture. “Even in stormy markets, if you have a good story, there are firms out there that still see it [the investment] as a good story,” says Cashell. He claims that among frontier markets, Mongolia comes out on top for hedge funds because of its high economic growth (with the IMF forecasting 9.8 per cent GDP growth for 2011), a favourable tax regime and parliamentarian democracy.
Cashell says he’s received US$10m in commitments to invest in APIP from high net-worth individuals, and APIP is in negotiations with six hedge funds. His next stops will be New York and San Francisco.
But Mongolia is not for the faint-hearted.
The Mongolian Stock Exchange made headlines among investors last year when it was world’s best-performing equity market with a 121 per cent gain in local currency terms. It climbed a further 55 per cent at the start of the year until the end of February. But since then it is down by 36 per cent. That compares with a 16 per cent decline, year-to-date, for the MSCI frontier market index (which does not include Mongolia).
APIP has also outlined several challenges ahead including 2012 elections, inflationary pressures (especially food), and a shortage of skilled labour.
Those joining Cashell in Ulan Bator can expect an unpredictable ride.