Opalesque Industry Update - Hong Kong-listed Companies as Major Acquirers of Resource Assets in Mongolia. Over the last 12 months, Mongolia has become an attractive investment destination for the companies listed on the Hong Kong Stock Exchange (HKEx). Attracted by the country's huge mineral resources, the HKEx-listed companies have become the biggest acquirers of Mongolia resource assets since the second half of 2009 ($966mn worth of M&A deals or over 90% of total).|
Asset Injections. All recent Mongolia M&A deals in which Hong Kong companies were involved have been completed through injections of resource assets into the existing publicly listed companies. Before acquisitions, these companies engaged in a diverse range of activities and industries including agriculture, waterworks, IT, clean tech, plastic products and even manufacturing of toys and gifts. Following acquisitions, these below HKEx-listed companies are now primarily Mongolia-focused resource companies:
Bestway International Holdings (0718:HK), an investment holding company engaged in trading of plastic products, has acquired two tungsten mines in Mongolia for HK$940mn (US$121mn) in July 2009
Overpaid Deals. In our view, most of these companies have overpaid for these earlier stage resource assets. Poor post-acquisition share price performance only underscores investor concerns (Solartech is down 75% since May 2010 deal announcement). Owners of target companies with Mongolian assets (primarily mainland Chinese and Hong Kong private investors) are clear winners as they have disproportionally benefited from these deals. More asset injections to come amid zeal for "Mongolia resource play". We expect more Hong Kong-listed companies to pursue M&A deals in Mongolia through asset injections in a quest to transform into "resource play". Some small-cap companies may find too tempting to acquire resource assets in Mongolia in order to revive their sagging fortunes and join the growing league of Mongolia-focused resource companies at the HKEx. At the same time, the private owners of resource companies in Mongolia would target small-sized HKEx-listed companies in their effort to seek "back-door listing" through lucrative reverse takeovers.
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