UK-listed Origo Partners will no longer make investments in Mongolia, an investment destination that makes up 20 percent of its portfolio, Chris Rynning, chief executive of the firm told Private Equity International.
As a result, Origo has significantly downsized its investment team based in Mongolia’s capital of Ulaanbaatar to just three people from about 25 people in early 2012, he said.
The remaining staff will manage the firm’s legacy portfolio, which includes five portfolio companies, but will make no new investments in the foreseeable future.
“Now we are exclusively focusing on China and view Mongolia as a legacy portfolio, which we are looking to realise, distribute or reinvest in China,” Rynning said. He added that the firm could also make opportunistic investments in Mongolia or Myanmar, where the firm has a small office.
Mongolia has attracted a lot of attention over the past few years with its abundance of natural resources and location next to China. However, the country is not providing foreign private equity players with good opportunities, which is making it difficult for Origo’s to deploy capital and to exit.
Most important, investors have long-awaited a foreign investment law. A bill was approved in October, and became effective on 1 November. However, until there's clear evidence that the law will be fully implemented in practice, Mongolia remains in “wait and see” mode, Rynning says.
Moreover, the ongoing dispute involving Rio Tinto’s Oyu Tolgoi copper and gold mine and the government over the $7 billion project in the Gobi Desert continues. The conflict concerns a number of issues including project financing and cost overruns, adding further uncertainty for foreign investors.
“In current environment, no one is going to go to Mongolia to look for new investments, something that would allow us to exit – to sell to a strategic or another financial institution – while these issues are unresolved. So the ability for Mongolia as a country to raise money for growth or to provide an environment to exit investments is not there. The market has just been dry for the last two years. Until those things are resolved, this market is not going to reopen.”
Rynning adds that Mongolia is “going nowhere” unless it builds railway infrastructure.
“Mongolia’s track record on building rail infrastructure and coal washing plants is disappointing. Unless they fix these things, not only Origo, but I don’t think any serious public or private equity investors are going to take a long, hard look at that country.”
Origo is a China-based private equity firm listed on the London stock exchange. Most of the firm's employees are based in Beijing. The firm mostly invests in clean technology and is currently raising a $200 million fund, according to PEI's Research & Analytics division.