ING was the sole arranger for the deal.
Despite its name, TDBM is not a development bank and carries out the full range of wholesale and retail banking (but not investment banking) activities. Founded in 1990, the government divested itself of direct ownership around five years ago and the bank is now majority held by foreign investment company, Globull, and Mongolian institutions including the Mongolian Postal Bank. TDBM has 18 branches across the giant country, serving a population smaller than Hong Kong.
The price discovery process was arduous, say specialists, given the pioneering nature of the deal - no Mongolian corporate or the government have previously issued a G3 bond. However, many investors were familiar with Russian and Commonwealth of Independent States (CIS) banks, such as Nur Bank, Bank CentralCredit and Alpha Bank.
ôInvestors see this bank as being where some of the Kazakh banks were a few years ago. What really jumped out were the bankÆs growth rates,ö says one specialist.
The bank is said to have return-on-equity and return-on-assets which are in the top tier for the region, and a non-performing loan ratio which, while not desirable by international standards, accurately reflects the companyÆs Ba2 credit rating (MoodyÆs). The credit rating is two notches above the countryÆs foreign currency sovereign rating; specialists say that MoodyÆs new credit rating methodology is making this more common than in the past.
The bank has a capital adequacy ratio of 16%.
The paper was priced at 99.676, with a coupon of 8.625%, equating to a yield of 8.75%, 394 basis points above the reference US Treasury, namely the three-year November 15, 2009 with a 4.625% coupon. The tenor is a three-year bullet. The payment dates on the coupon will be January 22 and July 22. The settlement date is January 22, 2007 and the final maturity of the bond is January 22, 2010. The listing venue is the Singapore stock exchange.
Driven by the relatively good fundamentals and a certain amount of excitement at a very unusual credit, demand was strong, in excess of $550 million, according to one specialist.
ôOriginally the issuer was aiming for a $60 million transaction, but later it got upsized,ö says another source.
In terms of yield, pricing got tighter as demand built. ôThe deal got momentum during the bookbuilding and as the news spread, investors who were more Asia-centric as well as CIS specialists both got involved to boost the deal,ö he says.
ôYield guidance was initially 9.15%, which reflected the lower to bottom end of market feedback, but nevertheless encouraged people to look more carefully at the issuer. Yield gradually came down, to 8.875-9.125% as the order book grew. Final guidance was 8.750-8.875.ö
The credit ratings of the Kazakh banks provided a starting point for yield discovery, but given the lack of Mongolian equivalents or even a Mongolian sovereign, this was not entirely satisfactory.
Some investors opted for a bottom-up approach, looking at the bankÆs fundamentals. ôThis actually played to TDBMÆs strengths. ItÆs growing very fast, but then itÆs also a lot smaller,ö says a source.
96 accounts were allocated, 13 countries were accessed and 37% of the deal went to Singapore, 25% to Hong Kong, 17% went to the UK and 16% to the rest of Europe, scattered in small amounts over several countries. 5% went to offshore US accounts, given this was a Reg-S offering.
By type of investor, 42% were fund managers, 38% were retail/private banks, financial institutions 17% and pension funds were 3%.
The companyÆs management and investment bank carried out a roadshow from last Monday (January 8) with two days in Singapore, before proceeding to Manila on Wednesday, Hong Kong on Thursday and then closing the roadshow in London on Friday. Books were closed as of Friday and final pricing was at 10.15am on Monday.
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