Mongolian Capital Market

Development Gateway Ulziibayar Bold

Chair, Board of Directors, MASD

CEO, Ard Capital Group LLC

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This material is intended solely for information purposes and is not to be

construed, under any circumstances, by implication or otherwise, as an

offer to sell or a solicitation to buy or sell or trade in any commodities or

securities herein named. Information is obtained from sources believed

to be reliable, but is in no way guaranteed. No guarantee of any kind is

implied or possible where projections of future conditions are attempted.

In no event should the content of this material be construed as an express

or implied promise, guarantee or implication that you will profit or that

losses can or will be limited in any manner whatsoever. All investments

are subject to risk, which should be considered prior to making any

investment decisions.

Disclaimer

Phase I: Until 2009

• Early 1990s democratic reform transition to market economy,

• MSE established in January 1991 to privatize State-Owned

Enterprises (“SOE”s) boosting private ownership & private

sector,

• Citizens granted 1 privatization voucher to choose shares to

be listed on MSE,

• 475 SOEs privatized & MSE listed in 1992-1995,

• First Securities Market Law in 1994.

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• By 2002, concentration of dispersed shares in few

hands lead to drop in trading volume,

• Market needing new products,

• Revised Securities Market Law in 2002 bringing new

products,

• 18 IPOs, 4 follow-up public offerings, 5 corporate

bond introduced to MSE from 2005.

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However...

• Lack of regulations such as minority shareholders

protection,

• Over-regulation on new products,

• Lack of transparency & corporate governance of

listed companies,

• Lack of new listing & financial products,

=> Lead to low market liquidity, low participation.

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• From 2010 international investors attracted to Mongolia

because of mining boom,

• Drastic increase in MSE trading volume & market

capitalizations,

• Strategic partnership agreement with LSE signed by State

Property Committee to develop MSE & local capital

market,

• July 2012: New trading platform (MIT system) introduced

to MSE.

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Phase II: 2010 to 2013

• Tripartite agreements between Brokers, Clearing Banks

(Escrow Accounts to hold cash ) and MSCH&CD (to hold

shares),

• Upgrade of MSE website

▫ Financials of JSCs,

▫ Details of dividends payment (ex-dates),

▫ Market screen + Bid-Ask with sizes,

▫ Details of Government bonds outstanding,

▫ …

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• New Securities Market Law approved by Parliament effective

January 1, 2014:

General framework

Dual listing

DR

Capital raising procedure simplified

New regulation regarding the transparency, disclosure & corporate

governance

• Approval of Investment Fund Law

Exemption from corporate tax

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50 30 56 131

718 516 621

1,374

2,169

1,800 1,671

0

500

1000

1500

2000

2500

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Market Capitalization (MNT bn)

585.69

32,955

14,911.2

0

10000

20000

30000

40000

2005-1 2006-1 2007-1 2008-1 2009-1 2010-1 2011-1 2012-1 2013-1

MSE Top-20 Index

9

41.4 13.0 89.4

8.0

3.1

1.7

0

25

50

75

100

2010 2011 2012

Weight of foreign individuals & companies

Гадаадын иргэд

Гадаадын ААН

=91.1

=49.4

=16.1

Foreign individuals

Foreign companies

Activity, Local vs. Foreign(2010-2012)

Source: MSE, MSCH&CD NB: Foreign activity in 2012 might include some internal reorganization by foreign funds

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Phase III: 2014-2015

Drastic FDI drop due to political & economic conditions, impacting negatively capital markets

1,629.7

4,620.1 4,407.8

2,098.1

276.0 182.7

0

3000

6000

2010 2011 2012 2013 2014 2015

FDI (USD mln)

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Political appointment for professional organizations authorities affects operations & priorities.

1,374

2,169

1,800 1,671

1,442 1,262

0

600

1200

1800

2400

2010 2011 2012 2013 2014 2015

Market Capitalization (MNT bn)

12

16,474.09

12,763.89

8000

12000

16000

20000

MSE Top-20 Index

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• MASD recognized as the Self Regulated Organization

• New MSE management team, more responsive

• New initiatives:

IPO: Mongol Post, Mongolia Mortgage Corporation=

Total MNT 43.5 bn

Bonds: Erchim bond, MNT 0.5 bn

Government bonds: MNT 562.4 bn in 2015

Phase IV: New Era?

Recent IPOs (15% Free Float)

Mongol Post,

MNP

Mongolian

Mortgage

Corporation,

MIK

MNT 6.7 bn MNT 37.3 bn

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235: Listed companies

• 235 have filed their financials with MSE

• (only 91 in 2012!),

• 21 have already announced 2015 dividends ,

• 58 “Compliant” brokers.

Current MSE

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I. Recognition of Capital Market importance: Priority

II. JSCs have bullish expectations on Capital Market Development. Low rate of delisting. JSC are very committed.

Capital Market Opportunities

329

261 237 235 236

0

100

200

300

400

2012 2013 2014 2015 2016

Number of JSC

16

9,137 10,540

14,985

0

5000

10000

15000

20000

2013 2014 Aug-15

Annual Accounts Opening at MSE

74.2 79.1

11.4

52.2

7.4

0

30

60

90

2011 2012 2013 2014 2015

Total Dividends Paid (MNT bn)

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III. More IPOs Coming

Short-term:

• Additional share issuance of “Suu” JSC,

• Expected IPO issuance of “Monos Group”,

• 5 pilot projects with JICA.

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• Thermal power plant IV, • Thermal power plant III, • Thermal power plant II, • Thermal power plant Darkhan, • Thermal power plant Erdenet,

• Shivee Ovoo JSC* , • Baganuur JSC *, • Telecom Mongolia JSC *, • Mongolian Agricultural Commodity Exchange, • MSE.

(*) Already MSE listed

IV. Privatization 2015-2016

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V. SOEs To Be Privatized on MSE in Long-term

82 State Owned Enterprises

Total Asset:

MNT 11.7 tn ~ USD 5.8 bn

Source: State Property Committee

(2014)

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• Dual listing & DR issue of more than 40 mining

companies listed abroad (LSE AIM, HKEX, ASX, TRX) such as TRQ, MMC,…

Issues

• Tax favorable environment,

Exemption from capital gain & dividend income

tax,

Tax incentives for IPO issuers,

• Establish local institutional investors base,

• Upgrade professional participants skills,

• Raise awareness & knowledge of Mongolian public

to be associated with Mongolia’s success.

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Technical Issues

• Technical issues, among others:

• Account opening complications,

• Fund transfers between MSCH&CD and Clearing Banks,

• Fixing flaws in equity indices definitions & “close”,

infrastructure related issues,

• Faster FRC approval process for corporate actions,

• Mandatory payment of dividends to MSCH&CD accounts,

• ….

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Privatizations through capital market

=> Sustainable stable sources of capital through capital market for Government & private sector,

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Objectives

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Main Sources Of Information

• MSE Website

JSC quarterly financials,

Information on corporate actions, privatization,…

• MSCH&CD Website Entitlement Report,

Dividend announcements,

• FRC Website

Review of JSCs’ shareholders with same interest,

Complete review of listed companies,

Review of shareholders who newly bought 5 or more percent of JSC,

Detailed information of shareholders who own 5 or more percent of JSC,

Review of companies who took loan by hypothecating company’s property etc.

• Brokers research reports

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Thank You For Your

Attention