Mongolia Targets $700 Million in Debut Domestic Bond Sales From This Month

Mongolia’s newly created development lender is aiming to sell $700 million of domestic-currency bonds in 2011, with sales scheduled to begin this month, the bank’s chairman said.

Investors will be offered tugrik-denominated bonds due in five, 10, and 15 years in several sales from the end of this month to around September, Chuluundorj Khashchuluun, the Ulan Bator-based chairman of the Development Bank of Mongolia, said in a telephone interview yesterday. The bonds will be backed by the government, which has approved the sales, he said.

“In a week or two we will have another meeting with investors to make more concrete plans” to set terms for the initial sale, Khashchuluun said. The central bank and finance ministry are involved in “extensive consultations” on the sales, he said.

It will be the first sovereign offerings by the resource- rich nation that needs to quadruple the size of its rail network, add power and water plants, and build more roads before it can increase metal and mineral exports. New transport projects would also help Mongolia ease its economic reliance on its neighbor China, which took nearly 80 percent of shipments last year, according to official data.

The bonds will be offered via the stock exchange and the central bank, with a private placement also possible, Khashchuluun said. The size of the offering may be adjusted to reflect market demand and also bring in a wide range of investors with the number of sales not yet decided, he said. Domestic banks and international investors have shown interest in the debt and yields are being discussed, Khashchuluun said.
Surging Tugrik

Moody’s Investors Service rates Mongolian sovereign debt B1, four levels below investment grade, while Standard & Poor’s rates the North Asian nation BB-, three levels below investment grade. Moody’s rates Mongolia the same as Sri Lanka, which sold 10-year bonds to yield 6.25 percent in September last year.

“The bank’s lending can’t be very costly, because it is policy-based financing,” Khashchuluun said. Although, rates have to be high enough to attract investors, he said. “So it demands a balance.”

The tugrik has strengthened 18.2 percent against the dollar since the beginning of last year, the second-best performance among all currencies tracked by Bloomberg after the Australian dollar.

The government has tasked Development Bank of Mongolia, which opened yesterday, to help finance rail, road and other infrastructure projects as well as the building of an industrial park. The bank is in a hurry to start the sales so that it can access funding before construction stops due to freezing temperatures in the winter months, Khashchuluun said. Lack of infrastructure is holding back economic development across the economy, he said.

To contact the reporters on this story: Yuriy Humber in Tokyo at yhumber@bloomberg.net;

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net

Source:Bloomberg news wire service