The notes were placed at 5.75% to 6.0% below the initial guidance of 6.0%-6.25% due to high demand. The placement was reportedly oversubscribed over 10 times. DBM was established to finance large scale priority projects that help to accelerate economic growth.
The World's Fastest Growing Economy. Mongolia has already become the world's fastest growing economy in 2011. Fuelled by record FDI, export and government spending, Mongolian economy expanded 17.3% in real terms in 2011. The country attracted US$3.8bn in FDI in 2011. In our estimate, over 80% of FDI went into mining. Record exports reached US$4.8bn growing 64.4% primarily due to substantial increase in coal and iron ore export volumes and generally higher realized prices. The country became the largest coking coal supplier to China in 2011, producing over 30Mt and exporting about 21Mt of high quality bituminous coal. To maintain its mining driven growth and enhance living standards of its population, Mongolia is implementing major infrastructure and housing projects.
Funding Needs. The country needs significant investments into infrastructure and housing. '100,000 Apartments' affordable housing project implemented by the government is estimated to cost US$6.2bn. Railroad construction may require further US$7bn in the next five years. Major government industrial project Sainshand Industrial Complex is estimated to cost between US$10-US$14bn.
Fixed Income Opportunities. Mongolia will offer number of opportunities to fixed income investors, including sovereign, municipal and corporate bonds, CDs and mortgage backed securities. The sheer size of infrastructure funding needs in Mongolia means that the Development Bank of Mongolia would need to tap international debt markets in the near future again and become a frequent issuer. We expect DBM to issue bonds in various currencies (USD, Japanese Yen, Singapore Dollar) across different maturities.
Conclusion. The Development Bank of Mongolia debut bond issue marks the arrival of Mongolia, world's fastest growing economy in international debt capital markets. It established a sovereign benchmark and future "yield curve" that would pave the way for pricing of international bonds to be launched by Mongolian banks and corporates later this year and beyond.
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