Trade & Development Bank of Mongolia LLC, the nation’s largest lender by assets, sold $500 million of five-year dollar bonds after postponing the offering in July due to adverse market conditions.
The Ulaanbaatar-based bank issued the notes to yield 9.375 percent, according to data compiled by Bloomberg. The government’s U.S. currency notes due in 2018 yield 6.23 percent and those maturing in December 2022 pay 7.06 percent, the data show.
“We thought that from a relative value standpoint we were paid well and this was attractively priced,” Stephen Hooker, managing director of foreign research and portfolio manager at Newfleet Asset Management, which was involved in the bond purchase, said by phone Tuesday. “From a risk-reward standpoint, this seems like a good opportunity.”
The nation is tapping the debt market before the U.S. raises interest rates and as foreign-exchange reserves dropped 32 percent to $1.32 billion in the 12 months through March. Standard & Poor’s downgraded the outlook on Mongolia’s B+ rating, which is four levels below investment grade and on a par with Cyprus and Sri Lanka, to negative from stable on April 30, citing pressure from the growing fiscal and current-account deficits. Sri Lanka’s U.S. currency securities due in 2020 yielded 5.61 percent Tuesday.
Nomura Holdings Inc. recommended investors buy the TDBM notes and estimated fair value for the yield to be about 8.75 percent, credit desk analyst Gaurav Singhal wrote in a research note. The estimate was revised from an earlier assessment of 9.25 percent.
“TDBM’s dollar issuance will provide some relief to the country’s dwindling forex reserves as it plans to enter into a swap arrangement with the central bank,” said Hong Kong-based Singhal. “The transaction helps the sovereign to buy more time as Mongolia’s problems are related to FX liquidity.”
TDBM, which is returning to the international bond market for the first time in more than two years, has $300 million of dollar notes due in September, data compiled by Bloomberg show. When it considered selling debt in July, the yield guidance was 11.25 percent before the sale was postponed, a person familiar with the deal said at the time.
The nation’s external finances are expected to stay under pressure as exports are likely to weaken, while imports are on the rise, according to an April report from the International Monetary Fund. There will be potential difficulty in rolling over maturing public and private debt, the Washington-based lender said.
The government sold only half of its planned 30 billion tugrik ($15.4 million) of three-year notes on May 7, at least the eighth auction failure this year.
The current-account deficit is “fully financeable,” and doesn’t face severe balance-of-payments pressure in 2015, Bold at the central bank, better known as Bank of Mongolia, said on Bloomberg TV on May 5.
— With assistance by Helen Sun