Mongolia tastes its first dim sum bond

Given the incentive of the high coupon of 10%, the issue provides an interesting investment alternative for CNH bond investors and further diversifies the offshore renminbi bond market.

Trade and Development Bank of Mongolia has priced the first renminbi-denominated bonds from the country, raising Rmb700 million ($115 million) at a10.0% yield, a record high coupon for a dim sum offered by a bank issuer.

The first dim sum bond from Mongolia, a neighbor with a complicated history and relationship with China, provides an interesting investment alternative for CNH bond investors and further diversifies the offshore renminbi bond market.

“High-yield dim sum bonds are usually issued by Chinese property developers. Now a foreign bank joins in the party and we believe that issuers in other types will also consider such financing,” said a source familar with the situation.

The deal should also encourage more non-China issuers to come and tap the CNH bond market. With more foreign companies trading or doing business with China, and with the use of the renminbi increasing, they need the currency much more than before to support their development.  

TDBM’s bond, priced on Tuesday night, translates to a 10.25% yield at 99.367, making it appear more attractive for investors. There are few comparables in the market and the closest notes are from Russian Standard Bank (RSB), which is also single-B rated (Ba3/B+/B+).

RSB last January priced Rmb500 million at 8% and later another Rmb750 million at 7.274%. The two-year 8% notes were trading at around 7.5% in the secondary market.

The B1 rating by Moody’s of TDBM’s senior unsecured notes, issued under the bank’s existing $700 million middle-term notes (MTN) programme, indicated more risks for investors. The issuer was also rated at B1 and put on a negative outlook.

“The risks of course have been priced in the coupon, and investors can make their own judgments,” said the source.

Potential risks include financial policy changes within the country, turbulence in the bilateral relationship between the country and China, and the issuer’s operation weakness.

However, investor appetite towards such notes seems healthy, with 48 orders and subscription of more than Rmb1.4 billion in the book, leaving it more than two-times covered.

Hong Kong investors took 52% of the notes, Singapore 42% and Europe 6%. Fund managers bought 66% of the bonds, banks 8% and private banking clients 26%.

Proceeds from the notes issue will be used for general lending and investment purposes. CLSA, part of Citic Securities, and Deutsche Bank were joint global coordinators. The two, along with ING, were joint bookrunners. TDB Capital also helped in the deal as joint lead manager. 

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