19.06.2013 chinggis bond impact and significance, randolph s. koppa
TRANSCRIPT
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