ICBC contributes to $150 million syndicated pre-export financing arrangement for Ukhaa Khudag and Baruun Naran Coal Mine Project

On March 5, 2014, Mongolian Mining Corporation (MMC) signed a $150 million coal pre-export financing facility (loan) agreement with BNP and Industrial and Commercial Bank of China (ICBC) for the Ukhaa Khudag and Baruun Naran Coal Mine Project. The loan carried an interest rate of LIBOR plus a 6.00% margin, and it was repayable in 10 quarterly installments starting between September 2014 and December 2016. The borrower formally pledged the following as sources of collateral: Collection and Cash Collateral accounts with BNP Paribas Hong Kong, equity stakes in Mongolian Coal Corporation Limited and Mongolian Coal Corporation S.à.r.l., and certain coal stockpiles. The purpose of the project was to support the development of the Ukhaa Khudag coal mine and the Baruu Naran coal mine in the Gobi Desert within South Gobi (Ömnögovi) Province (exact locational coordinates: 43.597948, 105.222627). Khangad Exploration LLC operates the Baruun Naran coal mine for MMC. Leighton Asia operates the Ukhaa Khudag for MMC. Mining at Ukhaa Khudag commenced in April 2009 and commercial coal mining operations at Baruun Naran started in February 2012. Default: On March 23, 2016, the MMC published an announcement stating an event of default had occurred under the BNP and ICBC Facility Agreement and cross-default under the Senior Notes due to failure to make certain repayment of principal installments and interests and replenish certain collection account. 26 April 26, 2016, MMC received a notice from the agent under the BNP and ICBC Facility Agreement (the “Agent”) on acceleration and demand of the BNP and ICBC Facility Agreement (“Acceleration Notice”) and a notice from the shared security agent (“Shared Security Agent”) on enforcement under the intercreditors agreement (“Intercreditors Agreement”) entered into between the MMC, certain of its subsidiaries, the original lenders under the BNP and ICBC Facility Agreement, the trustee of the Senior Notes and the Shared Security Agent thereunder as referenced to in the MMC’s announcement dated March 23, 2012. Under the Acceleration Notice, the Agent demanded immediate payment of all amounts accrued or outstanding under the BNP and ICBC Facility of $95,433,943.90. As such, all such amounts were immediately due and payable. On April 29, 2016, MMC published an announcement stating that a default of interest payment of the Senior Notes had continued for a period of 30 consecutive calendar days and, as such, an event of default under the Senior Notes had been triggered. Restructuring: On March 14, 2016, MMC received a temporary waiver letter for the BNP and ICBC Facility Agreement to postpone the due date of MMC’s obligation to make certain repayment of principal installments and interests to March 22, 2016. Then, on March 23, 2016, MMC triggered the effect of default with a principal amount of $93,000,000. A debt restructuring process subsequently began. On July 7, 2016 (Cayman Islands time), MMC filed (i) an application (the “Application”) with the Grand Court of the Cayman Islands (the “Cayman Court”) to assist in the process of negotiations with its creditors and to facilitate recognition of the Debt Restructuring in different jurisdictions (as appropriate), as well as (ii) a petition for the winding up of MMC (the “Petition”) which was a necessary pre-cursor to facilitate the Application, with the Cayman Court. The Application was heard by the Cayman Court on July 19, 2016 and the Cayman Court granted the order (the “Court Order”) sought in the Application to appoint the joint provisional liquidators (“JPLs”) who were authorized to develop and propose the Debt Restructuring in accordance with their powers conferred by the Court Order, which were limited to MMC itself rather than its subsidiaries. Under the Court Order, experienced restructuring professionals, Mr. Simon Conway of PwC Corporate Finance Recovery (Cayman) Limited and Mr. Christopher So Man Chun of PricewaterhouseCoopers Ltd., were appointed as the JPLs of MMC. The JPLs submitted their first report to the Cayman Court on August 25, 2016 (Cayman Islands time). Court hearing of the Petition was scheduled to be heard on September 1, 2016. Relevant announcements were posted on the websites of Hong Kong Exchanges and Clearing Limited and MMC on July 21, 2016 and August 26, 2016. As MMC informed by counsel to the lenders (including the Lenders to the Company under the BNP and ICBC Facility, as amended from time to time, dated 5 March 2014) on July 8, 2016, BNP Paribas Singapore Branch filed an application for the winding-up of MMC and the appointment of the joint official liquidators to MMC (the “BNP Petition”) with the Cayman Court immediately after MMC submitted the Application and the Petition to the Cayman Court on July 7, 2016 (Cayman Islands time). By July 25, 2016, MMC and its subsidiaries had fulfilled all conditions set forth in the Deed of Termination and Release (“DTR”) entered into by and between with the Parallel Lenders on March 11, 2016. Under the DTR, the obligations of MMC and its subsidiaries under the borrowings taken from EBRD, FMO, and DEG were discharged in their entirety and the relevant security thereunder were fully released. MMC and its subsidiaries agreed to transfer its entire investment in Tavan Tolgoi Power Plant Water Supply LLC (the “TTPPWS”), a wholly-owned subsidiary of the MMC (and its subsidiaries), to a third party for consideration of MNT12.5 billion as a part of settlement of its certain overdue obligations. The transaction was completed and share transfer was registered on July 8, 2016. The book value of investment in TTPPWS was MNT6.6 billion and as such MMC and its subsidiaries realized a gain of MNT5.9 billion from this transaction. Then, on May 4, 2017, a Debt Restructuring was implemented. The outstanding principal and accrued interest of the BNP and ICBC Facility, along with 2017 Notes and QGX Promissory Notes, were restructured to (i) shares of the Company, (ii) the Perpetual Securities, (iii) the Senior Loan and the (iv) 2022 Notes.

Additional details

1. This project is also known as the Tavan Tolgoi (TT) Mining Project. 2. In 2014, the Mongolian Government offered the mining rights of the West and East Tsankhi coalfield of Tavan Tolgoi, located in Mongolia's South Gobi region, for public tendering, under which the winning bidder would have the right to mine in the region (the "TT Mining Project"). MMC formed a consortium by partnering with China Shenhua Energy Company Limited ("China Shenhua") and Sumitomo Corporation ("Sumitomo", and collectively the "Consortium") to participate in the tendering. On 23 December 2014, it was announced that the Consortium had been selected as the preferred bidder, and it entered into negotiations with the Mongolian Government so as to formalise its involvement through the terms of a cooperation agreement. Details of the intended TT Mining Project arrangement are set out below: (a) Under the preliminary cooperation agreement with China Shenhua, China Shenhua was to contribute additional equity of US$200,000,000, as well as US$450,000,000 shareholder loan, to Energy Resources, in exchange for a 49% equity interest in Energy Resources; (b) A joint venture company was to be be established between Energy Resources and Sumitomo to handle export sales of coking coal outside China; and (c) In return for the mining rights for the TT Mining Project, MMC was to make a US$200,000,000 prepayment, to the Mongolian Government, which will be used to offset future tax obligations of Energy Resources, as well as 2% - 8% additional royalties on the revenue, depending on the coal price, to Erdenes Tavan Tolgoi JSC ("ETT"), a subsidiary of the state-owned Erdenes MGL. According to the Mongolian Government’s Resolution No. 286 (the "Resolution 286"), there were several key criteria and obligations that the successful bidder had to honor, including: (a) In order to comply with the Investment and Cooperation Contract, the investment company exploiting and operating the mine had to be at least 51% owned by a private operating company or consortium of companies with a minimum of 5 years' experience in mining, processing, transporting and exporting coal in Mongolia, and whose controlling package of shares have been in the ownership of a citizen of Mongolia for the last 5 years. This requirement restricted the number of qualified companies for the project; (b) The consortium was required, within 2.5 years of being granted the licence, to expand coal processing capacity in Tavan Tolgoi region to at least 30mt of coal per year and sell the produced coal into at least two foreign markets. The fact that the MMC and its subsidiaries already had facilities with coal processing capacity of 15mt per year near the UHG mine placed it in an advantageous position as it was able to leverage the same facilities for the TT mine, given that the UHG and the TT mines are adjacent to each other; and (c) A base structure for the Tavan Tolgoi - Gashuun Sukhait railway must be built on a Build-Operate-Transfer ("BOT") basis. 3. A pre-export finance (PXF) facility is an arrangement in which a commodity producer gets up-front cash from a customer in return for a promise to repay the customer with that commodity (possibly at a discount) in the future. PXF funds may be advanced by a lender or syndicate of lenders to a commodity producer to assist the company in meeting either its working capital needs (for example, to cover the purchase of raw materials and costs associated with processing, storage and transport) or its capital investment needs (for example, investment in plant and machinery and other elements of infrastructure). PXF facilities are usually secured by (1) an assignment of rights by the producer under an ‘offtake contract’ (i.e., a sale and purchase contract between the producer and a buyer of that producer of goods or commodities), and (2) a collection account charge over a bank account into which proceeds due to the producer from the buyer of the goods or commodities under the offtake contract are credited. There are two key documents in prepayment finance transactions: a contract providing for the advance payment by the offtaker to the producer for the purchase of goods/commodities (the 'Prepayment Contract'), and a loan agreement between a lender and the offtaker (the 'Offtaker Loan Agreement') under which the advance payment is financed.” 4. Mongolian Mining Corporation (MMC) is a Mongolian coking coal producer listed in the Hong Kong Stock Exchange. It is the largest coal mining company in Mongolia, owning two coal mines located in the Gobi Desert, namely the Ukhaa Khudag mine and the Baruu Naran mine. MMC was incorporated in the Cayman Islands as an exempted company with limited liability on May 18, 2010 in anticipation of the Global Offering in Hong Kong. Prior to the incorporation, the business was operated by Energy Resources LLC, a limited liability corporation organized under Mongolian law on April 22, 2005, currently an indirect wholly owned subsidiary of MMC. According to the 2014 Annual Report of MMC, Odjargal Jambaljamts, the Chairman of the company, is the largest shareholder of the company. Kerry Group Limited, a conglomerate in Hong Kong, also owns a substantial interest in MMC. MMC was listed in the Hong Kong Stock Exchange on October 13, 2010. 5. In the Overseas Development Finance Dataset that Boston University’s Global Development Policy Center published in December 2020, it identifies a $1.3 billion China Eximbank loan for the Tavan Tolgoi coal railway project. However, AidData has not independently confirmed the issuance of such a loan. 6. The exact size of ICBC's contribution to the syndicated loan is unknown. For the time being, AidData assumes equal contributions ($75 million each) across the two members of the syndicate. 7. AidData has estimated the all-in interest rate by adding 6% to average 6-month LIBOR in March 2014 (0.331%)

Number of official sources

9

Number of total sources

15