Ahead of the curve
In a year in which several emerging markets sovereigns faced refinancing pressure, the Government of Mongolia stood out for its foresight.
The frontier sovereign tackled its US dollar maturities with time aplenty, funding a tender offer with a new bond issue in September that repriced its curve and brought in new investors.
Mongolia sold US$600m 5.5-year 5.125% bonds with ratings of B/B (S&P/Fitch) at 98.823 to yield 5.375%, inside initial guidance of 5.75% area.
Its US dollar bonds due March 2024 were yielding around 4.95%, so it paid just 27.5bp for a maturity two years longer, suggesting that it printed inside its curve. The new issue also set off a rally in the 2024s, which ended the year at 3.31% as refinancing fears eased.
Final orders were over US$2.1bn 18from 119 accounts, but the sovereign resisted the temptation to print a larger deal, choosing to build pricing tension and avoid creating another big refinancing hurdle in a few years.
The government used the proceeds to redeem US$367.444m of its US$500m 10.875% 2021s – the priority due to their high coupon – and US$200.808m of its US$1bn 5.125% 2022s.
Mongolia reassured investors by making it clear that it would not be suspending its debt payments under the G20’s Debt Service Suspension Initiative, and its proactive debt management kept up the prudent approach it has shown in recent years.
As well as cutting financing costs, the government took steps to engage with ESG-focussed investors by explaining its plans to transition the economy away from mining.
In 2016 Mongolia approved a project called 2030 Vision, under which it outlined a sustainable financing roadmap that will integrate climate and ESG considerations into its funding plans and encourage the growth of low-carbon industries.
Refinancing the 2021 and 2022 bonds freed up funds that were earmarked to develop a hydro-power project, build schools, fund coronavirus response efforts, construct roads in rural areas, and develop affordable housing to encourage people to move out of traditional yurts, which are heated in winter by burning wood or low-quality coal that pollutes the atmosphere.
This sustainability roadmap helped attract a large order from a development finance institution.
Mongolia could not hold face-to-face investor meetings, but the virtual roadshow managed to attract investors that a traditional roadshow might not have reached. Around a fifth of the investors in the deal were first-time buyers.
HSBC, JP Morgan, Morgan Stanley and Nomura were joint lead managers and joint bookrunners for the new offering, and dealer managers for the tender. Morrow Sodali was tender and information agent.
JP Morgan was the development finance structuring agent, and Frontier Strategies advised the Mongolian government.
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