UPDATE 2-Goldman to buy 4.8 pct stake of Mongolian bank

Thu Feb 9, 2012 7:59am EST

By Lawrence White

Feb 9 (Reuters) - Goldman Sachs has agreed to buy a 4.8 percent stake in Trade and Development Bank of Mongolia, in a bet that Mongolia's rapid frontier market growth will continue to surge.

The privately owned bank, Mongolia's only issuer of international publicly traded debt, is the oldest in the country and has previously secured investments from the Asian Development Bank and International Finance Corp .

The investment is being arranged by TDB Capital, the Mongolian bank's wholly owned investment banking subsidiary, TDB said in statement. It did not disclose the value of the planned deal.

The investment is a passive one made in the expectation of financial returns amid Mongolia's rapid GDP growth, said a source familiar with the matter. The investment was kept below 4.99 percent because buying a higher stake would have triggered a greater requirements under US legislation, the source said.

In just the last few years, Mongolia has become a hot-bed of investment banking activity, with bankers swooping into the capital city to win mandates for mining IPOs and auctions. Erdenes Tavan Tolgoi, the state-owned entity charged with developing the giant Tavan Tolgoi coal mine in Mongolia, has attracted much of the attention, as it plans an up to $3 billion multi-city initial public offering.

The Tavan Tolgoi coal deposit in Mongolia's south Gobi region has estimated reserves of 7.5 billion tonnes of coal, including the world's largest untapped deposit of coking coal used to make steel. BNP Paribas, Deutsche Bank , Goldman and Macquarie were hired to handle the listing.

Global mining companies have also taken an interest in the mineral rich country. The Mongolian government is trying to both attract foreign investment and also assert its authority amid the influx of foreign financiers, as it aims to pull the bulk of its 3 million citizens out of poverty.

A landmark 2009 investment agreement on the multi-billion dollar Oyu Tolgoi project in Mongolia's South Gobi region gave 66 percent of the project to Canadian miner Ivanhoe, with the rest remaining in the hands of the Mongolian state.

Rio Tinto owns 48.5 percent of Ivanhoe's shares and is also in charge of constructing the Oyu Tolgoi mine. Rio Tinto's own forecasts suggest the Oyu Tolgoi project alone could account for about 5 percent of the country's GDP growth.

China remains its dominant resources buyer and investment partner due to geographic location and insatiable resources demand.

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