* MP says Tavan Tolgoi IPO could be delayed if investment deal falters
* Contentious investment agreement to decide scale of IPO
* Politics to the fore as parliamentary elections approach
By Farah Master and Elzio Barreto
HONG KONG, Oct 26 (Reuters) - A contentious investment agreement on Mongolia’s huge Tavan Tolgoi coal deposit needs to be completed within three months to ensure that a much-heralded initial public offering for the project goes ahead on time, a legislator told Reuters on Wednesday.
Terbishdagva Dendev, a member of Mongolia’s Grand Khural parliament, said on the sidelines of a conference in Hong Kong that discussions on an investment agreement for the western block of the coveted 7.5 billion tonne deposit were expected to get under way in November.
Mongolia plans to open the western block of the vast deposit up to foreign investors, while the eastern block will be listed on international stock markets next year.
An initial plan to grant 40 percent of the western section to China’s Shenhua Group, 36 percent to a Russian-Mongolian consortium and 24 percent to Peabody Energy Corp of the United States was rejected by the Mongolian Security Council (MSC) and branded as “unfair” by bidders from Japan and South Korea.
A new deal is currently being thrashed out, and is expected to give a 33 percent share to a Peabody-led consortium that will include Japanese and South Korean firms. Any agreement will require MSC approval before it is finally submitted to parliament.
Graeme Hancock, chief operations officer with Erdenes Tavan Tolgoi, the state-owned entity in charge of the project, told the conference that the scale of the IPO for the eastern block would depend on the investment agreement.
“Once the terms of engagement on the west block are clear, that will have an impact on the IPO valuation,” he said. “I am hoping there will be resolution on this in the very near future so this can be built into our future cash flow.”
Terbishdagva said that if an agreement was not signed within three months, the international IPO would have to wait until after Mongolia’s parliamentary elections in June.
Government ministers have continued to insist that the IPO for Tavan Tolgoi’s eastern block will go ahead in the first or second quarter of 2011.
Tavan Tolgoi has already short-listed BNP Paribas , Deutsche Bank , Goldman Sachs and Macquarie as advisers on the IPO, which some say could raise as much as $15 billion.
Hancock said there were still a number of uncertainties about when and where the listing will take place — with the state of the global economy also a consideration.
“Clearly one of the issues is what the market is like at the time,” he said. “To a degree we are probably less sensitive to market conditions than some others might be but clearly we would prefer to be listing when the market is strongest.”
“I think at this point, certainly we would like to be listing during next year and earlier next year would be better. But basically we don’t have a fixed time at this point.”
Analysts have expressed concern that political jockeying ahead of next year’s elections was disrupting Mongolia’s economy and harming its investment climate.
Terbishdagva was one of the MPs who signed a petition earlier this year, urging the government to renegotiate an agreement signed with Canada’s Ivanhoe Mines Ltd in 2009 for the massive Oyu Tolgoi copper-gold project.
A group of 20 parliamentarians called on the government to renegotiate the terms of the deal to allow Mongolia’s stake in the project to rise from the current 34 percent to 50 percent as soon as Ivanhoe recouped its investment.
The government submitted a request to Ivanhoe in mid-September, but subsequently announced that no changes would be made to the agreement, which allows Mongolia’s stake to increase to 50 percent only after 30 years.
Nine of the petition’s original signatories have subsequently called for the resignation of Mongolia’s prime minister, Sukhbaatar Batbold, saying he has failed to implement parliamentary resolutions.
Analysts have said that the moves on Oyu Tolgoi were part of a concerted effort on the part of a small group of nationalist and environmentalist members to bring down the country’s coalition government.
Hancock of Erdenes Tavan Tolgoi said parliamentary approval of the project was unlikely to be delayed by political divisions.
“The coming elections do create some political uncertainty, but I think that there is very, very strong political support for Erdenes TT,” he said.
“I don’t anticipate there will be any negative political comments about us moving forward with the programme and the project.”