Mongolia to Raise Up to $1.2 Billion in Bond Sale (Update3)
February 09, 2010, 8:32 AM EST(Adds commercial-paper sale in eighth paragraph.)
Feb. 9 (Bloomberg) -- Mongolia plans to sell as much as $1.2 billion of bonds overseas later this year, its first benchmark offering of dollar-denominated debt, to fund infrastructure to support its mining industry, Finance Minister Sangajav Bayartsogt said.
Investment banks are advising Mongolia to issue debt with maturities of between five and 10 years, Bayartsogt said in an interview in Ulan Bator, the Mongolian capital. The securities may offer a yield of between 8 percent and 11 percent, he said. That compares with 6 percent offered this year by Indonesia, which carries the same debt rating from Standard & Poor’s Corp.
Mongolia, which shares a border with three Chinese provinces and Russia, is seeking $25 billion in foreign investment over five years to help mine metal and coal deposits, which are among the biggest untapped mineral resources in the world. The government wants to boost living standards in the nation of about 2.7 million people, where per capita income is about $2,000 a year.
“We’ll be interested in buying the debt as Mongolia is abundant with resources and its politics and economy are stable compared with other emerging-market countries,” said Thomas Kwan, director of fixed-income investment at ICBC Credit Suisse Asset Management Co. in Beijing, which manages 75.2 billion yuan ($11 billion) in assets. “I expect the sale will receive good market response.”
The spread between yields on developing-nation debt and U.S. Treasuries widened 53 basis points to 3.23 percentage points in the past month, after falling 4.16 percentage points in 2009, according to JPMorgan Chase & Co.’s Emerging Market Bond Index Plus. Investors are shunning riskier bonds as Greece, Portugal and Spain struggle to fund budget deficits.
Lining Up
Governments and companies in developing nations from Turkey to Slovenia and Indonesia have raised $70.4 billion from debt sales so far this year, according to data compiled by Bloomberg. Indonesia sold $2 billion of 10-year bonds on Jan. 13 and the Philippines had sold $1.5 billion of debt the previous week, including 2020 notes at 5.67 percent.
Mongolia’s offering will take place after International Monetary Fund restrictions on the country issuing debt end in October, Bayartsogt said. Officials plan to meet investors in Hong Kong, London and New York, he said.
About 20 investment banks, including Goldman Sachs Group Inc., HSBC Holdings Plc, Morgan Stanley, Credit Suisse Group AG, Deutsche Bank AG and several Japanese lenders are in talks with the government about the benchmark offering, he said. Standard Bank Group Ltd. last June helped Mongolia sell $75 million of zero-coupon one-year debt to selected investors.
Dollar’s Appeal
“This first issuance is going to be benchmarking Mongolia so we have to prepare very well,” he said. “I think it should be dollar-denominated but Japanese banks are giving us very attractive proposals.”
The nation is rated B1 by Moody’s Investors Service, four levels below investment grade. Standard & Poor’s rates Mongolia BB-, the third best non-investment grade. Mongolia’s ranking is on par with Indonesia and the Philippines.
“The dollar-bond market is more liquid than samurai bonds and will provide a better price discovery, so it’s better for Mongolia to offer its first global bond in dollars,” said ICBC’s Kwan. “A possible comparison for Mongolia is Kazakhstan, which also has ample resources and relatively stable economy.”
Coal and Copper
Kazakhstan, holder of 3.2 percent of the world’s proven oil reserves, in November announced plans to sell about $500 million of foreign-currency bonds in 2010, its first such offer in a decade. Economy Minister Bakhyt Sultanov in December said the government may borrow as much as $1 billion from the World Bank, noting that it’s “too early to discuss” an overseas debt sale.
Mongolia is seeking to develop the $2 billion Tavan Tolgoi coal deposit and last October signed an agreement with Canada- based Ivanhoe Mines Ltd. and Rio Tinto Group to help develop the $4 billion Oyu Tolgoi copper-gold project starting in 2013. The project may operate for as long as 30 years and generate $30 billion to $50 billion in revenue, President Tsakhiagiin Elbegdorj said last September.
--Michael Forsythe, Belinda Cao. Editors: Shanthy Nambiar, Simon Harvey
To contact the editors responsible for this story: Sandy Hendry at shendry@bloomberg.net; Bill Austin at billaustin@bloomberg.net
