|Executive Director of Mongolian Investment Banking Group (MIBG) A.Bilguun is an experienced specialist who studied finance at Saint Mary’s University in Canada. He previously worked at the Toronto Stock Exchange before founding his company in Mongolia.
In the following interview, he delves into ways to develop the Mongolian stock market, generate funds in Mongolia with cheap solutions, and reduce loan interest rates.
What made you want to establish MIBG? Why did you name your company MIBG?
Mongolia is not quite ready to start investment banking activities. However, this field will develop and become very significant in the future. I named my company MIBG because of this reason.
It seems that MIBG raised funds for a Mongolian mining project from Canadian investors. Mongolia has abundant mining resources so why aren’t local companies able to fund projects on their own?
The Mongolian stock market is too young to finance this type of projects with high risks. You can’t send an untrained child to fight in a war. Investing in the mining field is the same as going to a war. It’s very dangerous. The Boroo mine, for example, can be classified as a medium-sized gold mine in terms of its size and the amount of natural resources it contains if you compare it to other mines in the world. A study shows that it’s very difficult to find this type of mine. Even if you launch a thousand exploration projects a year, you’re likely to find only one medium-sized mine. This tells us how risky the exploration sector actually is.
There were around 20 exploration companies in Mongolia in 2012. According to statistics, each company annually invested some five million USD on average for mineral exploration. This means that Mongolia used to spend over 100 million MNT on exploration annually back then. However, none of these companies were able to discover a deposit. Simply put, all that money went to waste and companies didn’t earn a dime in return for their investment. This brings us to the question whether domestic investors are able to bear such huge amount of costs and risks.
…The soil that can provide essential nutrition for the development of the stock market is young people’s will to accomplish something great…
A couple years ago, Mongolians generated a large sum of money under the guise of savings and credit cooperatives. Ultimately, everyone lost their money and the sector fell. Lately, a lot of people are falling victim to pyramid schemes. Is it applicable to supply high-risk investment products when the local financial market is in this state? More than 3,000 exploration companies operate worldwide. Around 2,000 of them trade stocks at the Toronto Stock Exchange. The majority of them are experts at stock picking. Only professional investors should invest in exploration projects. This is how the global market works.
Ten billion USD was invested in the Oyu Tolgoi project. Mongolia’s GDP is around 11 billion USD, which means that it’s very difficult for local companies to generate funds for a large mining project.
What’s your next target? Do you want to contribute in the development of the Mongolian stock market or challenge yourself in the stock market of developed countries such as Canada?
I’m an entrepreneur. I follow the flow of money. Where there’s money, I go there. Many foreign companies are interested in the Mongolian Stock Exchange. But the problem at hand is whether anyone will be interested in buying investment projects on the Mongolian Stock Exchange. Can an ordinary person invest in a mining project and bear the cost? Can Mongolia raise 10 million USD? These are very important questions. If this possible, foreigners will end up coming to Mongolia.
MIBG traded stock worth 10 million USD for Canadian investors. If the Mongolian legal environment was better and this trade was conducted through the Mongolian Stock Exchange, would Canadians have bought it?
We need to establish a mechanism which allows people to invest in any kind of financial tool and expand it in the future. We should also categorize the types of risks. Keeping this in mind, the development of the stock market is very important. The reason why the majority of mining projects in the world choose Toronto Stock Exchange instead of London Stock Exchange and New York Stock Exchange is because the financial sector is based on people’s long-term confidence in their decision. Credit is originated from the word “credo” which means to believe and trust. The very first large mining project found financing through Toronto Stock Exchange so other projects became interested in achieving the same result.
I guess the process of generating money is closely linked to trust and credibility. There’s nothing stopping Mongolia from becoming a world hotspot for mining investment. We just need to start working.
…I’m an entrepreneur. I follow the flow of money. Where there’s money, I go there. Many foreign companies are interested in the Mongolian Stock Exchange. But the problem at hand is whether anyone will be interested in buying investment projects on the Mongolian Stock Exchange. Can an ordinary person invest in a mining project and bear the cost? Can Mongolia raise 10 million USD? These are very important questions. If this possible, foreigners will end up coming to Mongolia…
MIBG helps local companies and individuals find beneficial investment opportunities in international stock markets. Are Mongolians interested in buying foreign stocks?
Young people in Mongolia are actively buying stocks from international stock exchanges. However, there are some people who think playing the stock market is the same as playing in a casino. They try to buy stocks and bonds with pure luck without researching.
Nowadays, anybody can trade in international stock exchanges anytime and anywhere. I’m happy that young Mongolians are opening up to international investment opportunities and I hope they become much more active in the stock market from now on.
Like you said, the key to good trading economics is credibility. The stock exchange can’t develop without credibility. Do you think Mongolians will be able to improve their ability to trust and be trusted?
I reckon that it’s a growing pain. Foreigners were very interested in investing in Mongolia between 2009 and 2012. The cause of the sudden increase in investment was the stimulator. In other words, the Oyu Tolgoi agreement was signed and it attracted investors to Mongolia. We need a good stimulator now to enhance corporate governance and develop the stock market.
What I’m trying to say is that if a single Mongolian can raise a huge sum of money through stock trade, it will make others want to do the same. This is essential right now because that kind of stimulator will encourage hundreds or even thousands of people to start playing the stock market. Many young Mongolian entrepreneurs are doing successfully both domestically and internationally. The situation might be vague at the moment but it will get better soon.
Do you think it’s possible to develop Mongolia’s trading environment and relations between individuals and companies?
I engaged in this type of work before while living in Canada. I would say it’s possible. In fact, you can never know without trying it out first. However, you should never try to mimic foreign practices straightaway without testing it out first. We have no problem testing out forward contracts and unregulated market trades.
On the other hand, we must have some kind of regulation against frauds and scams. For example, there’s all kinds of fraud, starting from savings and credit cooperatives and pyramid schemes. Techniques for deceiving people are getting better as the financial market develops.
Experts say that banks take up 96 percent of the Mongolian financial market. Enterprises go to banks when they’re in need of money. However, banks don’t have the capacity to issue long-term loans with low interest rate since they’re offering high savings interests. What’s your opinion on this?
This type of banking system can’t continue for long. Many young people are seeking investment to start their new business ideas based on the latest technology. There will be many more of them in the future. These people need to offer collateral to get loans from commercial banks. Even if they put up their house as collateral for a loan, they will be faced with burdens of monthly interest payment.
The soil that can provide essential nutrition for the development of the stock market is young people’s will to accomplish something great. We used various methods to finance new innovative ideas. We tried issuing concessional loans through private banks. We got foreign concessional loans and distributed it through the State Bank. None of them worked out well. The only thing we haven’t tried is finding investment through the stock market. The main point isn’t whether this method will work or not but when it will be implemented. I wonder when a Mongolian person will be able to raise funds for their business through the stock market and compete on the world level.
Experts evaluate that it’s impossible for a financial system based on banks to develop further because practically no one is interested in getting loans with high interest rates. They believe it’s time to develop the stock market. The International Monetary Fund (IMF)’s extended program influenced the Mongolian Stock Market considerably. Can you comment on this?
Mongolia launches the IMF’s program whenever the economy is in a bad situation. The economic growth rapidly upsurges after it launches. This is connected to the process of correcting the state budget. The rumor that taxes would be imposed on savings interests raised 250 billion MNT at the stock market. This will prompt the government to lower bond interests.
People will start to prefer corporate bonds instead of government securities in the long run. I believe now is the era of stock market and a wide range of opportunities are becoming available.