The government of Mongolias recent Regulation S/Rule
144A debt offering marked the first time the country has tapped
the sovereign bond market.
Despite the countrys
foreign investment environment still being in flux, 2012
has seen a spate of Mongolia-related bonds. This year
quasi-sovereign entity Development Bank of Mongolia issued its
debut bond, and Mongolia Mining Corporation became the
countrys first company to tap the high-yield market.
But a sovereign offering from a country rescued by the IMF
five times in the last 22 years caught some by surprise. The
offering, rated B+ by Moodys, was launched on November 28
and was 10 times oversubscribed.
The Mongolia sovereign priced better than Sri Lanka
and even better than Spain, and set a new benchmark, said
Matthew Bersani, Asia managing partner of Shearman &
Sterling, who represented the Government of Mongolia.
Allen & Overys Walter Son, who acted for joint the
lead managers, said that this is an important deal for the
economy. This is not just because of the significant deal size
compared to the countrys nominal GDP, but also the need
for financing to support Mongolias infrastructure and
The deal also signals the new governments intentions
for inbound foreign investment. Following the
passage of the foreign investment law earlier this year,
and the election of several politicians considered resource
nationalists, foreign investors shied away from Mongolia.
Bersani said the sovereign offering was a chance for
Mongolias new government to articulate its vision. In
connection with the offering, the government adopted a number
of policies that were well received by investors, such as a
more reliable budgeting policy for annual state budgets.
Moreover, he said that the new government is taking steps
towards stabilising the budgeting process and making Mongolia
more attractive for investors.
Following the offering, there was a well-publicised report
that the Mongolian Peoples Revolutionary Party, which
held three cabinet positions, was withdrawing from the
However, after a collapse in the price of Mongolias
global bonds, Moodys issued a report titled
Political Infighting is Without Credit Implication.
This stated that the political threat created by the minority
members withdrawal from the coalition is a sideshow and
does not signal greater political instability.
But the price collapse demonstrates the global markets
concerns regarding Mongolias uncertain political and
investment climate. In 2013, counsel hope for more guidelines
regarding the implementation of the May foreign investment
Joint lead arrangers are Bank of America Merrill Lynch,
Deutsche Bank, HSBC, JP Morgan and TDB Capital.
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