Mr O. OrkhonFirst Deputy CEO
August, 2011
Hong Kong
Mongolian Financial Services IndustryCoaltrans Mongolia
CHINGGIS BONDIMPACT AND SIGNIFICANCE
Randolph S. KoppaPresident,
Trade and Development Bank of Mongolia June 19, 2013
OUTLINE
• Background
• Purpose
• Update
• Impact on economy
• Market dynamics
CHINGGIS BOND PARTICULARS
• Amount: USD 1.5 billion; 0.5 in five year notes with a coupon of 4.125%; 1.0 in ten year notes with a coupon of 5.125%
• 144a/Reg S issue under a USD 5 billion GMTN
• Ten times oversubscribed
• Sovereign Deal of the year: Finance Asia
• Disbursed December 5, 2012
OTHER BOND ACTIVITY IN 2012
• March: DBM USD 580 million 5 yr at 5.75%
• March: MMC USD 600 3 yr at 8.75%
• September: TDB 300 million at 8.5% coupon (yield 8.625%)
In total, USD 3 billion of debt markets issuing from Mongolia in 2012!
PREMISES OF THE BOND
• Use of proceeds mainly for infrastructure
• Equity portion of large projects such as rail
• Expect to leverage proceeds 2 to 3 times
• Not for social or human development needs
• Not for fiscal expenditures
• Sovereign debt to GDP ratio 50% maximum
• Subject to Fiscal Stability Law
-2% structural deficit
-Mineral related revenues based on 15 yr prices
UPDATE
• Most of Bond proceeds have been allotted;
approximately 75%%.
• By end of 2013 most of these allotments willhave been disbursed.
• Meanwhile, significant portion of fundsplaced on deposit with Mongolian banks.
TRANSPORTATION NETWORK
Source: MRTCUD
PRINCIPAL USES OF BOND PROCEEDS
• Road infrastructure
- Highways from UB to provincial capitals
- Streets and related infrastructure in UB
By themselves these investments will notgenerate direct revenue, but will supportincreased commerce and housingdevelopment.
Approximately one third of bond proceeds
RAILROAD
• USD 200 million for soft costs and groundworks in a USD 1,500 million rail project from TT to Chinese border and from TT to Sainshand and further north.
• Project feasibility study has been done
• Ground works under preparation
• Equity partners and related financing now in tender phase
• Rail lines projected to have good profitability
RAIL PROJECT’S STRATEGIC IMPORTANCE
• Existing road link from TT to GashaanSukhait is costly and limited in volume.
• Rail to border will reduce coal costs $10 -15per ton.
• Rail to Sainshand will support industrial parkdevelopment.
• Rail to Northeast China will supportshipments to other Chinese ports.
• Link with Trans Siberian offers link toRussian ports
POWER
• Approximately USD 50 millionallotted for the equity in a powerplant to serve TT.
• Total cost of plant approximatelyUSD 300 million.
• Necessary to support wash plantsand to replace more expensivealternative energy such as diesel.
HOUSING INFRASTRUCTURE
• Site development in UB to provide housing to transform ger housing to housing connected with heat, power, water and sewer.
• Site development for housing in new towns.
• Approximately 10% of bond proceeds earmarked
• Revenue can be generated by selling improved sites to apartment developers
УЛААНБАÀТА
Р
ДАРХАН
ДАЛАНЗАДГАД
DORNOGOB
I
ТӨ
В
DUNDGOB
I
МАНДАЛГО
ВЬ
SUKHBAATA
R
DORNOD
KHOVD
ӨЛГИ
Й
UMNUGOB
I
ZAVKH
AN
GOBI-ALTAI
ЧОЙР
МӨРӨ
Н
БАЯНХОНГО
Р
UVURKHANG
AI
BAYANKHONGO
R
ЭРДЭНЭ
Т
ЦЭЦЭРЛЭ
Г
АРВАЙХЭ
ЭР
ARKHANG
AI
KHUVSGU
LBAYAN-
ULGII
ULAANGOM
УЛИАСТА
Й
ХОВ
Д
UVS
САЙНШАНД
GOBISUMBER
ЧОЙБАЛСАН
БАРУУН-УРТ
ӨНДӨРХАА
Н
ЗУУНМО
Д
KHENTII
SELENG
E
АЛТА
Й
75 000 household
housing in Ulaanbaatar
city
10 000 household housing
in the Central region
5 000 household
housing in the Eastern
region
5 000 household
housing in the
western region
5 000 household
housing in the
Khangai region
Size •75,000 in Ulaanbaatar•25,000 in Provinces
Investment US$ 6.2 bn
Time frame 2010-2016
HOUSING PLAN
INDUSTRIAL INFRASTRUCTURE• Approximately 10% of
bond proceeds will beonlent to companiesoperating in key sectors ofMongolia, either for exportor for import substitutionand self sufficiency infood.
• Key industries include,cashmere, wool, textiles,dairy and vegetableproduction.
IMPACT ON ECONOMY
• Considerable immediate impact in secondhalf of 2013 as road, rail and housinginfrastructure works proceed.
• The completion of the rail link to the Chineseborder from TT will have a longer termimpact and is critical to establishingMongolian coking coal’s strategiccompetitive advantage.
• Road and housing infrastructure will haveintermediate term benefits.
MARKET DYNAMICS
• Mongolia’s sovereign bond has established abenchmark for pricing other Mongolianissuers.
• Current market price reflects perceiveddelays in implementing projects, conditionsin the coking coal market, investment lawuncertainties, and, recently broader marketissues relating to the Fed QE 3 and relatedinternational market conditions.
PROSPECTS FOR FURTHER ISSUES
• Government of Mongolia has a USD 5 billion GMTN Programme.
• Debt to GDP would enable further issues, although keeping the fiscal deficit with the proscribed levels is a challenge this year.
• Consequently, further issues this year are unlikely, but could occur next year to support future critical infrastructure development.
CONCLUSION• The Chinggis Bond was a big success achieving
unprecedented demand and tight pricing for a maidenissue.
• Although it has been perceived that proceeds disbursementhas been slow, active utilization is underway.
• The direct and indirect impact of the bond should bepositive.
• Recent economic conditions here and international debtmarket conditions have affected the bonds pricing in thesecondary market.
• Nevertheless, Mongolia could be poised to reenter themarket when local and international conditions are morefavorable.
Thank you for your attention!
Juulchin Street - 7
Baga Toiruu - 12
Ulaanbaatar, Mongolia
Tel: 976-11-31 99 43
Fax: 976-11-31 24 18
Email: [email protected]
http://www.tdbm.mn
http://www.bankcard.mn
http://www.mongolianbusinessguide.com
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