August 31, 2011
Mongolia’s first private-equity fund, started by a former Uniqlo executive, plans to make its debut investment by the end of October, betting on growth in the country’s mining industry.
The Mongolia Opportunities Fund aims to raise $75 million by June 2012 and has received $25 million from investors including Mitsubishi Corp., Japan’s biggest trading company; International Finance Corp., the World Bank lending arm, and the European Bank for Reconstruction and Development, said co- founder Batsaihan B. Jamichoi, who introduced the line of low- cost cashmere sweaters at Uniqlo, a unit of Fast Retailing Co., Japan’s biggest apparel chain.
Mongolia, the world’s most sparsely populated nation, is one of the richest countries in terms of natural resources and has the second-largest reserves of rare earth. Economic growth may surge to 23 percent in 2013, more than twice the forecast expansion in China, as large mining projects begin production, the International Monetary Fund said.
“Mongolia is going to enter a high economic growth era and we wanted to capture the opportunity in becoming the vehicle for companies looking to grow their businesses,” Batsaihan, 37, said in a telephone interview from Ulan Bator, the capital of Mongolia.
Batsaihan, who is targeting infrastructure and service providers in the country’s mining industry, is aiming to offer new means of funding for Mongolian companies that pay an average 20 percent to 30 percent interest on bank loans, he said.
“Flow of capital is currently centered on Mongolia’s mining industry and it has to be diversified — otherwise the country risks catching the so-called Dutch disease,” he said.
The term “Dutch disease” was coined by The Economist magazine to describe a surge in income from new natural-gas fields in the Netherlands during the 1960s that triggered a currency gain and eroded exporters’ earnings.
The Mongolian fund, run by Mongolia Opportunities Partners, has about 30 to 40 companies in the pipeline, with four of them among the firm’s top picks for its first investment, Batsaihan said. The four come from mining infrastructure, financial services and construction material industries, he said.
Batsaihan expects industries supporting Mongolia’s mining businesses to benefit as more mines are discovered for development. Mongolia accounts for 16.77 percent of total reserves of rare earth oxides globally, according to an Eurasia Capital report published in January, based on data from the U.S. Geological Survey.
Mongolia’s stock index was the world’s best performer in the past five years as exports of coal and copper surged, contributing to the nation’s economic growth.
The MSE Top 20 Index jumped 17-fold in the past five years, making it the best performer among 92 benchmark stock measures globally tracked by Bloomberg. The tugrik has strengthened 4.8 percent against the dollar in the last 12 months.
The fund, which targets an internal rate of return of about 30 percent, plans to invest in five to eight companies and will hold the stakes for three to five years, Batsaihan said.
It may list companies it has put money in on Mongolia’s or regional exchanges such as in Hong Kong to exit its investments, he said.
The fund aims to seek alliances with Japanese companies using Batsaihan’s experience in the country as a student and working at Fast Retailing, he said.
“What I learnt from my days at Uniqlo was that nothing is impossible if you set your heart to it,” said Batsaihan, who previously worked as a manager in Fast Retailing’s marketing department.
He will run the fund with executives from Asia Pacific Capital Ltd., a Hong Kong-based asset management firm, including Managing Director Gage McAfee, he said.
Photo Credit: Junichi Otsuki via Bloomberg