February 2011
The Government is carefully studying financial markets in the US, Europe and Asia before deciding where to go to issue bonds. This effort by the state to raise capital in world markets is a first in Mongolian history and can be likened to a company having an IPO on an international stock exchange.
However, what will be sold is not to be called Government bonds. As Mongolia’s lending grade is comparatively low, the Government has decided to issue “Mongolia Development Bank bonds”. Finance Minister S.Bayartsogt hopes this will attract more investment than a pure and simple Government bond.
He is likely to be proved right. News of thebond sale has been received with enthusiasm. Major investment banks and funds have shown interest in managing the issue. They must have done their home work and have decided that Development Bank bonds will be in great demand. The Government hopes to raise between USD300 million and USD500 million.
This year, the Government will sell bonds in the domestic market, too. Policymakers think there is money in the country waiting to be mopped up. The Government will guarantee repayment of both bonds. This will also be something new. It is unprecedented for a Mongolian government to be guarantor of commercial loans. On the eve of the lunar New Year, the Government agreed to a loan guarantee of MNT1.985 trillion in 2011, subject to Parliament’s approval. On February 10, the last day of the Autumn session, Parliament reviewed a draft resolution on the maximum amount to be approved for a loan guarantee but could not take a decision. That is likely to be made in the Spring session starting in April. This maximum amount to be set aside as loan guarantee is to be ratified by Parliament every year.
It looks as if from now on, the Government will stand guarantee for around MNT2 trillion worth of loans every year. That is the amount needed annually for 8-10 years to fund mega projects expected to cost MNT18.2 trillion altogether. Incidentally, Mongolians are fast getting usedto calculating in trillions or in billions “at least”. The 2012 amount is likely to be MNT1.72 trillion. The MNT18 trillion will be spent on 106 projects and over 400 programs. MMJ published the list in detail at the time when it was reviewed and approved by Parliament. The capital is likely to be distributed through the Development Bank, with the government providing the guarantee. International investment banks and funds will initially act as managers and brokers but the Government hopes it will eventually have a powerful national financial player to do the work. This is how investment in infrastructure development will come in the next 10 years.
Besides the Government, national companies are learning how to raise capital from international markets. As of 2010, loans taken by Mongolian companies from foreign sources reached USD1.3 billion. This high figure has nudged the central bank to demand mandatory registration of foreign loans. In a bid to pre-empt allegations of bias, the Finance Minister is planning to place the money in different economies around the world and to hire experienced brokers in this endeavor. A learning process has begun for Mongolians.
The MMJ feels the Development Bank will play a very significant role in all this and accordingly we publish a piece by E.Saikhantuya in both English and Mongolian which gives much information on it.
The present year begins what will be known as the decade of mega projects and the MMJ presents a list of the tasks calling for immediate attention. The launching of the new railway project is likely to fall behind schedule and G.Iderkhangai writes on feasibility studies and the challenges they throw up. The progress of the new railway line, heading north, will determine the fate of the second and third lines also, as well as of export, foreign trade turnover and development of processing industries. The MMJ will focus on this soon.
This year is also to be the year of coal. The MMJ presents a detailed analysis of the Australian economy by a professional team which also discusses its impact on the share prices of Mongolian coal deposits. Coming issues will give professional analysis of the movement of share prices of mineral deposits and information on new share issues.
The MMJ is committed to continually widening the horizons of growth, through articles and interviews, and to stressing the need for safety and for using advanced technology. We need feedbacks to know how you value our efforts and what you want from us to keep you in tune with what is happening around the world. Do write to us.
May the road leading to development be as short as possible.
Yours sincerely,
Luntan Bolormaa