Mongolia Aims to Woo Foreign Investors

HONG KONG—Mongolia plans to raise $1.5 billion by selling a government bond to finance the development of the landlocked country's infrastructure, its central bank governor said Wednesday.

The move comes as resource-rich Mongolia is trying to attract more foreign investment to help it exploit huge coal and other mineral reserves, but some planned projects have run into problems because of government policy shifts and a lack of key legislation governing investment rules. In May, Mongolia passed a law limiting foreign ownership in strategic industries such as mining and finance.

N. Zoljargal, the governor of the Central Bank of Mongolia, acknowledged at a Mongolia investment conference in Hong Kong that the new foreign-investment law and the outcome of recent elections have caused uncertainty.

Foreign funds have been treading cautiously since the laws were enacted. Firebird Management LLC, a private-equity fund with investments in Mongolia, said it has halted all new "strategic sector" investments in the country since the law was introduced, including mining, banking/finance and media, said two Firebird employees.

"As a result of the new [foreign direct investment] law, there has been an unfortunate slowdown in interest from foreign investors, and we attribute this to the ongoing political volatility," said Eric Zurrin, director general of Resource Investment Capital, a boutique merchant bank that specializes in frontier markets.

"We don't have an agenda to start working on the FDI law," said Rinchinnyam Amarjargal, former prime minister and now a member of the Mongolian parliament. "We are working on the mining law, trying to make it more manageable and transparent for foreign investors," he said on the sidelines of the conference, adding that resource nationalism is an issue all over the world.

Government officials said they will meet potential foreign bond investors as early as November on a roadshow and aim to issue the sovereign bond, which will be denominated in U.S. dollars, at the end of this year or early next year.

The move comes even as Standard & Poor's Ratings Services lowered its outlook Monday on its double-B-minus rating for Mongolia's government debt to stable from positive, citing "the country's underdeveloped, resource-driven economy and its weak policy environment."

The central bank chief said the government's plan was to slow inflation to single digits by 2013, with a target of 8% by the end of next year. Mr. Amarjargal, defending the country's changing regulations and laws, said, "We are just 22 years old in terms of having a market economy—you can't compare us to Hong Kong or Singapore."—Nisha Gopalan contributed to this article.

Write to Mariko Sanchanta at mariko.sanchanta@wsj.com

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