New government bond replaces Eurobond

2017-03-22 11:05:34

Ulaanbaatar /MONTSAME/ Due to the Development Bank of Mongolia’s USD 580 million Euro bond  which matured on March 21, the Ministry of Finance announced that Development Bank-owned Eurobond is to be replaced by a new bond issued by the Government of Mongolia in February, 2017. Credit Suisse and J.P.Morgan will be acting as the bond’s underwriters.

In March of 2012, the Government of Mongolia launched USD 580 million worth of bond, “Eurobond” that was matured on March 21, 2017 with an annual interest rate of 5.75 percent. In order to build railroads and fifth power station, 36 percent of Eurobond was traded to European investors, 32 percent to American investors and 32 percent to Asian investors.

At the beginning of 2017, question rose among the investors whether the government can repay the debt. Owing to the staff-level agreement with the International Monetary Fund on three-year Extended Fund Facility program, the Government of Mongolia earned the investor’s trust in the newly offered bond. In addition, 82.07 percent of the investors have agreed to the exchange offer.

And thus, the Government of Mongolia launched the new bond costing USD 600 million with 7.625 percent interest rate in the first week of March. Reports indicate that the new bond will make interest payments every six months, which is approximately USD 26 million. Although Khuraldai bond is simply replacing “Euro bond” with slightly higher interest rate, the new rate is reasonable compared to the previous government issued bond with an interest rate of 10.825 percent. A total of 76 percent of the bond was bought by American investors while 18 percent by European investors and 6 percent by Asian investors. However, only USD 476 million (82 percent of Eurobond) will be used for Eurobond replacement and the rest USD 124 million was offered to the investors as a new bond.  

But this could also increase foreign investments, expand the drawing power and attract investors in both public and private sectors. Furthermore, Chinggis bond’s maturity date in 2018 could also be settled with relatively low cost. And by stabilizing the economy, private entities may attract more investments and increase workplaces to further develop the economy. But it will require smart policy from the authorities as the IMF made budget adjustment demand which includes seven types of tax increase.