Bankers pitch for Mongolian dollar bond

A debut Mongolian sovereign bond is back on the agenda as the country looks to raise funds for capital investment projects.

Senior bank officials have been feverishly pitching for Mongolia's inaugural dollar bond issue in recent weeks. As bankers have visited Ulan Bator, the capital city of Mongolia, to pitch for the IPO of state-owned coal mining company Erdenez Tavan Tolgoi, they have also been working to bring a bond deal back to the table.

A sovereign bond out of Mongolia has long been rumoured, but the country has not been successful in bringing it to market. Part of the reason for that, say analysts, is that there is simply no urgency to raise funds.

"A Mongolian sovereign bond has been on the agenda for several years. But it hasn't come to market because there has been no urgency. Mongolia doesn't really need commercial external borrowings. It still has [access to] sufficient multi-lateral and bilateral concessionary lending at low rates and with long maturities. Another reason why it has not come to market is changes in government, which tends to delay an initiative like this, when there are no compelling economic reasons," said Agost Benard, a Singapore-based credit analyst at Standard & Poor's covering Mongolia.

"The main reason why they want to tap the market now is to raise funds for capital investment projects for which concessional funding is not available, as well as to establish a benchmark to [help] Mongolian companies access the capital markets. The bond proceeds may potentially be used for the construction of downstream processing facilities for minerals. This is part of the vision to add value to the basic mineral commodity before exporting it," he added.

Mongolia is rated BB- by Standard & Poor's. It is rated B1 by Moody's and B by Fitch.

In June last year, Batbayar Balgan, the director general at the Financial & Economic Policy Department in Mongolia’s finance ministry, told participants at a FinanceAsia conference that discussions were underway to issue its maiden dollar bond. The size talked about at that time was up to $1.2 billion, but since then the expectations have been for a less ambitious deal size.

Bankers are not expecting a debut bond from Mongolia to launch until late this year. If it materialises, it would offer investors a chance to diversify their Asian sovereign bond portfolio and it would be expected to attract interest from US investors.

“A bond from Mongolia will be driven by US emerging market funds. It could fly as investors want to diversify their holdings, but it really depends on the rate and sentiment at that time,” said one Hong Kong-based investor.

A successful deal would offer a reference point for Mongolian companies planning to issue dollar bonds. So far, the only dollar bonds out of Mongolia are from the Trade and Development Bank of Mongolia, which has tapped the dollar market three times.

Of late, Mongolia has stepped up its efforts to raise its profile internationally. The Mongolian prime minister, Sukhbaatar Batbold, was in Singapore late last week to drum up support for foreign direct investment in Mongolia and to foster political ties.

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