Mongolian bonds have bounced back from turbulence this year, and a broader range of issuance is on the way, according to speakers at the Mongolia Investment Forum in Singapore on Thursday, arranged by Capital Markets Mongolia.
Mongolian bonds have seen two downturns this year. The first was in April, when US president Donald Trump announced global trade tariffs, hurting commodities companies in particular.
Hong Kong-listed Mongolian Mining Corp, which produces coal, copper and gold, priced US$350m of bonds in late March, but they fell around 20 points in the secondary market following Trump’s “Liberation Day” announcement.
Ulenj Baskhuu, group chief financial officer of MMC, said some bondholders asked her to buy back some of their notes at a discount.
“It was the first time our bonds performed so badly,” she said. “But now they’re above par investors don’t remember they had that discussion with me.”
The second disruption came on the domestic political front.
In June, youth protests led to the resignation of prime minister Oyun-Erdene Luvsannamsrai. Then in October Mongolia’s parliament voted to oust his replacement, Zandanshatar Gombojav, a move that the constitutional court later blocked, saying it had no legal basis.
“I think we’ve seen worse,” said Linlin Ma, co-chief investment officer at Prudence Asset Management, which invests in Mongolian assets. “The message on the macro and fiscal policy front is quite consistent, and I think that gives investors great comfort when investing in Mongolia.”
The Mongolian sovereign is now trading around 220bp over US Treasuries, a record tight spread. This is helped by liability management exercises, meaning that its most recent US dollar issues have been either debt-neutral or debt-negative.
Meanwhile Single B rated Golomt Bank's US dollar bonds sold in May 2024 at a yield of 12% have tightened to around 8.5% in the secondary market.
On Thursday, the bank made its debut in the Japanese bond market with a privately placed ¥15bn (US$95m) 1.85% three-year Samurai bond guaranteed by the Seoul branch of Sumitomo Mitsui Banking Corp.
“Mongolia has absolutely become a mainstream investment,” said Florian Schmidt, founder and director of capital markets advisory firm Frontier Strategies, pointing to order books of US$4bn or more for recent sovereign deals.
“The government has resumed issuance of tugrik bonds, which is a good idea,” he said. “It reduces the risk of external shocks if you have more debt in your home currency than foreign currency.”
Banks are the main investors in the onshore bond market, with pension funds and life insurers yet to play a significant role, but speakers at the conference were hopeful this could change. They also urged banks to develop the currency swap market to make life easier for issuers of foreign currency bonds.
One offshore issuer is Mongolian Mortgage Corp (MIK), which raises funds to buy and securitise mortgages from commercial banks. Gantulga Badamkhatan, CEO of MIK, said that US investors typically have an easier time understanding the credit, as they are familiar with Freddie and Fannie Mae.
However, he said that many investors in MIK’s US dollar bonds wrongly perceived its credit risk to be on par with commercial banks, something he hopes will change as a wider variety of Mongolian issuers go offshore and investors differentiate between them.
He also said government support of its role in freeing up bank liquidity onshore would result in cost savings.
“If the government provided a guarantee we could bring down the coupon by at least 200bp,” said Badamkhatan.
He said MIK is aiming to issue green or sustainability-linked bonds in future, which will likely be part of a wave of ESG-related bonds from Mongolia.
“A significant amount of investment is needed in the next five years and we believe infrastructure bonds will be coming to market, including for green energy,” he said.
Equity prospects
In the equity space, ICFG, the Guernsey-incorporated holding company of microfinance institution InvesCore Financial Group, in February this year became the first financial institution from the country to list on the London Stock Exchange, through a reverse takeover.
It is looking to raise equity as it grows in Kazakhstan, Kyrgyzstan and Uzbekistan and considers expanding into the Philippines, Laos and Cambodia, said its interim CEO Enkhmaral Batkhuyag.
Mongolia-listed InvesCore has issued public and private bonds in the local market, as well as asset-backed securities and loan notes.
Non-resident foreign investors are not allowed to buy Mongolia-listed bank stocks. Speakers said that after the country's five biggest banks listed in order to comply with local regulations, easing the rules would help them access institutional capital.
Companies in general have become more willing to embrace public markets, said Zolbayar Enkhbaatar, founder and CEO of Capital Markets Mongolia.
“I’m seeing a big shift in mindset,” he said. “Companies are more open to IPOs and foreign investors.”