(Corrects month law was passed in paragraph 2 to May 2012 from
* Amendments to exempt private firms from investment
* Curbs on foreign SOEs to be tightened
* Law blamed for deterring foreign investment in Mongolia
ULAN BATOR, April 19 Private firms looking to
invest in Mongolia will no longer have to seek government
approval after the country's parliament amended a controversial
foreign investment law on Friday.
Mongolia's Strategic Entities Foreign Investment Law
(SEFIL), passed in May 2012, was designed to restrict foreign
investment in firms in sectors like mining to just 49 percent,
and came amid concerns about the growing role played by overseas
capital in the country's mining-led economic boom.
But the law, passed shortly after China's Chalco
made a bid to buy a majority stake in the Mongolia-focused coal
miner SouthGobi Resources, was heavily criticised by
investors worried about the growth of Mongolian "resource
Partly as a result of the law, foreign investment in
Mongolia fell 17 percent to $3.9 billion in 2012, and in
February this year, the country saw its lowest monthly inflow of
foreign investment since at least 2010, according to the
Mongolia International Capital Corporation.
"The SEFIL was one of the key factors holding foreign
investors back," said Vidur Jain, an analyst at the local
investment firm Monet Capital.
The amendment passed on Friday will exempt privately-owned
foreign companies from the scope of the law, which demands
government approval for the purchase of equity in a company
operating within sectors like mining, banking and finance, and
communications and media.
"Excluding private entities from the law will be a step
towards attracting investment back to the country. However
investors would want to see a clear and well-structured law
before taking the plunge again," Jain said.
But the amendment also tightened the restrictions on foreign
state-owned entities (SOEs), removing a 100-billion tugrik ($71
million) threshold triggering government intervention.
That means all foreign SOEs will need the approval of
Mongolia's cabinet in order to buy into a Mongolian firm,
regardless of the size of the stake.
For purchases of stakes of more than 49 percent, the
approval of parliament will also be required.
The foreign investment law, launched by a number of
nationalist backbenchers in Mongolia's parliament last year, is
widely believed to have been primarily targeted at state-owned
firms from China.
Many politicians and citizens in Mongolia have been
increasingly alarmed by their southern neighbour's growing
economic hegemony, with China responsible for around 90 percent
of the landlocked nation's export trade.
(Reporting by Terrence Edwards; Editing by David Stanway and