In October 18, 2010 TDB confirmed the successful issue of its second bond in the international debt capital markets, raising USD 150 million of 3 year Senior nsecured Notes under its Euro Medium Term Note (EMTN) USD 300 million bond programme to increase the bank’s funding base. base. In the very next day, the oldest bank of Mongolia, TDB celebrated its 20th anniversary. A few weeks later, on November 10th 2010, TDB confirmed the issuance of USD 25 million in five year Subordinated Notes under the same EMTN programme to increase the bank’s capital base. On this double occasion, we invited Mr.R.Koppa, President of TDB, to have his views on the bond issues, the current situation of the Mongolian economy and its further trend, and to share his impressions of working in Mongolia, especially at Trade and Development Bank.
-What makes these bonds special?
-In 2007, TDB successfully issued USD 75 million Senior Unsecured Notes, under its inaugural USD 150 million EMTN programme. This debut issuance was Mongolia’s first ever public placement of debt in the international debt capital markets. Later the Programme was upgraded to USD 300 million EMTN programme and a second bond issuance was contemplated in 2008 earlier but the global credit crunch compelled TDB to defer this action. The repayment of the first issue in 2010 and the improvement of global economy enabled TDB to reaffirm its attractiveness to international investors. Thus, on October 18th 2010, TDB was able to successfully launch its second issue on the market by completing the placement of USD150 million three year Senior Unsecured Notes under its USD 300 million EMTN programme followed a few days later with the issue of USD 25 million five year Subordinated Notes. This latter is the first ever issuance of subordinated bonds from a Mongolian corporation into the international public market. These issues have been part of an EMTN (Euro Medium Term Note) programme, listed on the Singapore stock change. TDB’s overall sound fundamentals enabled it to solicit strong market response, resulting in the senior note offering being 2.8 times oversubscribed. At our first such issue in 2007 mostly larger private investors bought majority of bonds, but this time the issue met TDB’s objective of broad institutional placement with asset managers taking up 42%, private banking accounts 25%, hedge funds 18% and financial institutions 11%. Geographically, Asia took up 50% and Europe and offshore US together took up the other 50%. Such broader distribution of the senior notes and the unprecendented issuance of the subordinated notes not only affirms TDB’s standing in the international markets, but also enhances our reputation. These bond issues are special, because the country’s first and still only issuer of debt on the international capital markets successfully tapped the market a second time.
-Our readers are not familiar with the word bond. Why is this bond transaction beneficial for your bank and for Mongolia?
-Bond is a term for debt obligations or notes which generally have maturities longer than two years. The word bond in English essentially means a promise to pay, and in the past were rather ornately decorated pieces of paper and thus appeared to look different from shorter maturity notes. Attached to the bond were small pieces of paper, called coupon, which represented the interest to be paid on each six month period. The investor, called the bond holder would physically clip off the coupon and present it to the paying agent to collect the interest due.
-These bond issues are likely to open a new historic page in the Mongolian financial market and there are sufficient benefits in the economy, as well as banking sector.
For TDB the senior bond with a three year term and an interest coupon of 8.5% provides the bank with longer term funding to help the bank make loans with longer terms, yet with a funding cost which compares favorably with rates for fixed term deposits, which rarely are longer than one year. The subordinated bond is treated by the market and the Bank of Mongolia as capital funds, which provides a stronger equity capital cushion for the bank as well as increasing its legal lending limit which increases our capability to serve major clients with loans and similar products. As the Mongolian economy enters a period of more rapid growth in the next few years, the banks will have to be prepared to expand their lending significantly to perform their important roles and there will be a need and opportunity to have the banks grow dramatically, which means they must maintain strong management, good lending policies, and strong capital positions to sustain high growth. Attracting low interest funds from international debt capital markets serves this purpose but can also help eventually to reduce the loan interest rates in the market, which are still higher than the rates in developed countries. Educated customers who are doing business in the Mongolian market economy understand that loan interest is dependent on deposit interest.
-TDB became the first Mongolian company ever issued bonds second time in the international capital markets. Do you have any intention to share your experiences with other Mongolian companies? What difficulties they may confront in order to tap into international capital markets?
-I couldn’t say tapping into international market is an easy action. TDB has long ago taken many measures to put itself into position to approach the international markets. The bank has employed the largest international accountancy and professional services firms since 1997, has maintained a debt rating from Moody’s, has implemented best practice operating procedures and internal controls, cooperated actively with the international financial community and has had a very strong earnings history. All these actions, generally required before an approach to the international debt and equity markets, have enabled TDB to reaffirm its attractiveness to international investors.
As for other Mongolian companies, there are several steps, as mentioned above, which need to be taken before many of them will be able to list on the international stock exchanges. It will not be enough to simply have a good asset, such as a mineral deposit and a mining license, for example. Good business plans, a clear corporate and organizational structure and a transparent financial condition with a good earnings track record are some of the usual preconditions to list abroad. As we know, recently, Mongolian Mining Corp. raised US$670 million in its Initial Public Offering (IPO) in Hong Kong. We hope many more Mongolian based entities will be in position to access international capital markets and became well known internationally. Of course, we would be pleased to help and advise Mongolian companies which are preparing to enter the international markets.
-TDB’s second bond issue coincides with the 20th anniversary of the bank. Is it pure hazard or purposely done? By the way, happy anniversary to your bank.
-Thank you. While it is noteworthy that the bond issues occurred around our anniversary celebrations, the need and timing were also driven by the recent economic developments in Mongolia. The concluding of the Oyu Tolgoi agreement about a year ago, and the growing demand from China for coking coal, iron, petro;eum, and other minerals Mongolia has in abundance have spurred a massive increase in investment into the country while at the same time exports have grown dramatically. The pace of GDP growth is accelerating after a quiet 2009, and there is an increase in overall business activity. With these events, and TDB’s proud history and role in supporting the country’s growth and development,it is appropriate that the fund raisings occur now as we celebrate our 20 years of service. Mongolia has had a small and somewhat fragile economy for these past years of market economy, depending largely on import–export rather than manufacturing its own domestic production. As a bank, one of the keys to survival and success has been highly skilled and well trained professional staff, good human resource management and guaranteed banking service with strong capability to handle international transactions and foreign trade. TDB has continued to contribute towards foreign relations and trade through offering international standard services and maintaining a good reputation among the international financial community. Issuing bonds in the international market is not an easy thing to do, especially from newly emerging market economies, so being the first ever Mongolian corporation to do so is a real source of pride. Accordingly, our second bond issue is a very appropriate way to celebrate our 20th anniversary of achievement. We can proudly say that TDB today represents the Mongolian financial face in the world financial market.
-You are the banker who has tremendous experiences in many countries. How many years have you been working in Mongolia and what were your good memories?
-I’ve been working in Mongolia since 2004. During the almost six years I have been affiliated with TDB, I have many memories of firsts; that is types of banking products and transactions which were done for the first time in Mongolia by TDB. For example, TDB is the first bank that participated in and arranged syndicated loans with other foreign banks. Of course, a major event was becoming the first Mongolian entity to raise funds on the international public debt markets. I have fond memories of these and many other firsts because I was able to play a part with my colleagues in the bank in these milestone events, but more important, I was able to see how the bank staff grew in their knowledge, experience and professionalism.
Other good memories have been to see how many of the bank’s clients have had their businesses grow and prosper through their cooperation with TDB during the past years. As a banker, there is always a feeling of pride to be able to play a positive role in the growing prosperity of the clients the bank serves.
Of course, I also have fond memories of my time so far in Mongolia, and the relationships developed with colleagues, clients and others in the community. I am proud and honored to have been part of the wonderful history of TDB.
-What could be the TDB’s short term outlook and its further strategic plan? Please could you share with us your opinion on the Mongolian banking sector?
-Certainly the bond issues improve the recognition of TDB in the international markets and help open the possibilities for other Mongolian companies to enter into the international capital market. We are working toward continually offering international standard services to our corporate and individual customers and our future continued development will depend on this successful execution.
Currently, and in the next few years, as a result of economic growth, there has been and will be an influx of multinational corporations into Mongolia and local corporations will expand dramatically while the smaller firms, called SMEs will grow into corporations. According to the IMF and other organizations estimates, Mongolian GDP will double in next five years. Therefore banking sector will have to grow accordingly. TDB, one of the leading banks in Mongolia, is committed to grow and expands its activities as well. Of course, there will be threats and constraints, including inflation pressures rate and commodity price fluctuations. Nevertheless we view positively the future out and will remain attentive to developments. The main objective of TDB is to continue to be the leader in corporate banking and international banking services.
We will treasure customer satisfaction and work towards the introduction of many new products and high standard services to our customers. Since new amendments added in the Mongolian banking law there is opportunity for banks to offer new services such as brokerage and financial leasing service. In the future we will also offer more developed investment banking services to our customers.
-Let me leave the last question to you?
Rather than just celebration, the 20 year anniversary of TDB is an opportunity to thank our customers and staff. During the last 20 years, we have overcome many social hardships and confirmed our status as the leading bank in Mongolia. In this regard, I would like to thank our thousands of staff, founders and current management team. Moreover I would like to show my gratitude and wish the best for our customers, deposit holders and loan recipients who showed the confidence in us with their trust and coorperation during the past 20 years of contributing to the Mongolian economy
source: 'The Mongol Messenger' newspaper
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