Feb. 5 (Bloomberg) -- Mongolia sits atop so much mineral wealth -- an estimated $1.3 trillion in gold, copper, coal and iron ore -- that it’s sometimes called “Minegolia.” It’s among the world’s fastest-growing economies.
Even so, some of its bigger foreign investors want out.
The recent turmoil at Golomt Bank LLC, one of Mongolia’s biggest lenders, illuminates some of the reasons.
Credit Suisse Group AG and Abu Dhabi’s sovereign wealth fund invested in Golomt in the past half decade, seeking a share of the country’s promised bounty. Those hopes have soured amid allegations that one of Golomt’s owners arranged loans he didn’t report, hid defaults for years and, as the bank’s board called for probes, oversaw the destruction of financial records, according to documents reviewed by Bloomberg News.
Both investors, claiming breach of contract, started arbitration efforts in recent months for repayment of loans, just as Mongolia’s leaders flew into Hong Kong and New York to drum up new investment.
Credit Suisse and Abu Dhabi extended a combined $35 million in convertible loans to Golomt starting in 2007. The agreements, reviewed by Bloomberg News, required the bank to provide prompt audited financial statements. Within five years of each deal, each investor was to gain Golomt shares as part of an initial public stock offering.
Come 2012, no IPO had occurred. Instead, that year the foreign investors, some members of the bank’s board and its chief executive officer learned the bank had missed payments on off-the-books debts to a Japanese trading company as far back as 2008, according to two people with knowledge of the bank and to documents reviewed by Bloomberg News.
Golomt failed to produce a 2012 audit in the first three months of last year as required in the loan deals.
Starting in late 2012, three companies examined the bank’s books, according to communications from the firms to Golomt’s board -- with one declining to sign off on the audit and two others alleging that some of the bank’s managers had deleted financial records.
In one probe commissioned by the bank’s board, PricewaterhouseCoopers LLP wrote that managers inside the bank deleted more than 6,800 files as well as records from the Swift interbank cash transfer system from August 2007 to May 2008.
“These individuals are still active within the bank,” PwC wrote in an Aug. 12, 2013, report.
Golomt vice president Bolormaa Luvsandorj said the bank stood by an audit of its 2012 results done late last year, which said the bank had resolved the Japanese company’s complaints.
“These are past issues,” Bolormaa wrote in a Jan 28. e- mail, adding that in 2013 the bank reported strong liquidity and “an extremely prudent loan-to-assets ratio of 57.1 percent.”
Golomt lawyer Bayaraa Battuvshin said in two January e- mails that any account of troubles at the bank was likely to be one-sided and that Golomt was unable to comment further because of an ongoing criminal investigation against a former employee.
Mongol Bank, the country’s central bank and financial regulator, investigated Golomt several times, according to its chief, Zoljargal Naidansuren. The results are confidential, he said. “The bank is safe and sound,” he said in a Jan. 29 interview in Mongolia’s capital, Ulaanbaatar.
Credit Suisse spokeswoman Josephine Lee said the bank wouldn’t comment on issues connected with Golomt. Mark Cutis, a representative of the Abu Dhabi fund, said by e-mail he isn’t permitted to speak on the matter.
The details of events at Golomt are based on interviews with people with knowledge of its operations as well as auditors’ reports and letters; loan agreements; communications among foreign investors, executives and board members; and investors’ requests for arbitration.