/ Mar 17, 2017


TDBM has issued 5 bonds in the international market with a total value of over USD 1 billion. There are no other Mongolian banks, even a company of any kind that has issued bonds successfully as many times as TDBM did. Let us begin the interview from this, shall we?

Since 2007, TDBM has successfully issued total of five bonds internationally. Mongolian Government and Development Bank of Mongolia are the only other entities with successful bond issuances. TDBM is not only the first issuer of the country but also still the only commercial bank that has issued bonds. From these five issuances we raised funding with total amount of approximately USD 1.14 billion. Proceeds of the bonds have been utilized to continually finance our customers’ businesses, representing our continuous contribution to the economic development of our country. We are proud to do our part to the prosperity of our country, through what we do.

Many factors lie behind the established track record of five successful issues, including our experience, history of repayments at maturity plus, more importantly, TDBM’s recognition on the international market. Our prudent business conduct, profitability, management efficiency and other factors play important role as well. With every bond issuance there are many financial and legal obligations to comply with. Thus, taking the responsibility to meet our obligations, under every agreement and contract, and following the law and regulations, is considered to be a great contribution to our success. This repayment is another proof, that until this day, we have been responsibly meeting all our obligations, duties and responsibilities.


It seems not so long since TDBM issued its RMB 700 million Notes. 3 years have passed since then. Are the Notes due mature and repaid yet?

Yes, on Jan 20th, 2017, we have successfully repaid the RNB 700 million notes, that we issued three years ago, from the bank’s own funds. This signifies our fourth successful repayment of internationally traded notes and I believe it has proven our financial strength, and reliability.

This was the first Mongolian bond issued in offshore Chinese currency, moreover it was the first bond issued by an entity with no Chinese investments. Buyers of the notes were mostly institutional, including large banks and asset managers. Interest from institutional buyers essentially means the notes were considered to have a low risk for the offered yield, as well as displaying the issuer’s reputation, and reliability. Also it is worth to mention that TDBM’s USD 500 million Notes issue was named “The Best High Yield Bond” by Finance Asia, one of the most reputable finance magazines in Asia, in 2015.


What was the impact of the RMB 700 million note issuance on the Mongolian economy?

First of all, I want to emphasize that the main advantage of raising funds through bond issuance is that it has a relatively longer tenor than through deposits. For example, we issued bonds with three to five years of tenor. Secondly the interest rate is relatively lower. In other words, bond issuance is an opportunity to raise a substantial amount of funds with favorable terms, without having to secure it by any assets, only by making an offer to the investors and asking them to rely on our reputation, financial strength, and credit rating. On the other hand, the proceeds of the bonds enable us to offer financing with lower interest and longer tenor to our customers.

The last few years have been a rough time for the Mongolian economy. The Balance of Payment deficit reached a historical high, due to reduced FDI and subdued export value. In other words, capital leaving the country was significantly higher than that coming into the country. The funding from the bonds issued during this rough economic period, helped to build up country’s FX reserve, and to stabilize the local currency, as well as support GDP growth.

Same could be said about the USD 500 million guaranteed notes we issued in May 2015. Proceeds under these two issues, have been immediately sold to the Central Bank under a long term SWAP agreement. I wish to emphasize its significance again, on sustaining the country’s FX reserves.


Undoubtedly, Trade and Development Bank of Mongolia has a lot of experience on issuing notes. But, how about other commercial banks? How accessible is the international market for other banks to tap? Is it as possibility to share your vast experience with others?

We sure did gain a lot of experience as we successfully issued 5 notes in last 10 years, and, of course, the international market is open for anyone with certain credentials to make offerings and to attract capital.
Experience and recognition of the issuer would be the success factors, but the most important consideration is risk assessment. To be precise, the fate of any issuance proposal would be decided by the investors risk assessment of the issuer and the macro-economic situation in the issuer’s country.

Therefore the credit ratings assigned by Moody’s S&P, Fitch or any of the Big Three, play somewhat a key role in the decision of investors. Unfortunately, the credit rating of Mongolia, assigned by the Big Three has been downgraded multiple times in the last few years and this is adversely affecting not only the Government itself, but also other issuers of the country as well. The window for the issuers to issue notes with lower cost has significantly been narrowed, furthermore the results could lead to unsuccessful issuances and deals as well.  

According to current methodologies of rating agencies, the sovereign assessment usually serves as the country rating ceiling; therefore, once they downgrade the sovereign rating, they usually downgrade other entities’ rating of the country automatically as well. Thus, the market window for the existing and any new issuers of Mongolia will widen once the overall economic conditions are stabilized, GDP growth has rebounded, and sovereign rating has improved.
As for sharing our experience, we do, with no hesitation. Let me bring up an example: for every bond issues by the Government of Mongolia, we assisted, as a local advisor and co-manager. The issues include, Chinggis Bond issued in 2012, RMB 1 billion Notes of 2015 and USD 500 million issue of 2016.

Bond issuance takes a significant amount of preparation. Sure, experience could serve as a leverage to ease up all the preparation work to a certain degree. Thus, we are and will always be open to counsel those who are willing to issue notes on the domestic and international markets, with zero hesitation.


During your bond issuances, you organized a number of roadshow meetings with potential investors. What are their impressions about investment environment of Mongolia?

Well, as we are the first issuer of the country which successfully issued quite a few times, I trust that we stand among well recognized players on the market. Every time we issue, we organize roadshow meetings in large financial centers around the globe including Hong Kong, Singapore, London, Boston, New York and others, in order to introduce our bank and proposed issuance. Many institutional buyers or investors attend these meetings, including prominent investment funds, large commercial banks and asset managers that oversee multibillion, even multitrillion dollars of assets.

vestors, obviously are interested to know about our financials, operations, management, financial strength and risk factors. But these aside, they give somewhat more importance to the macroeconomic factors. Especially, what is happening around the so called Mega projects,  including Oyu Tolgoi and Tavan Tolgoi, plus the Government’s position and support to these projects, and the sustainability and continuity of the Government’s policies.
Moreover, the legal and business environment for FDI, public sentiment over foreign investors and foreign investment, efficiency of Monetary and Fiscal Policies, et cetera are also considered. Their decision on whether or not to buy the proposed notes depends on all these and of course, many other thorough considerations.

Lately, it looks like Mongolia is being considered a risky country to take additional exposure on. This must have something to do with the sovereign downgrades which have occurred last few years, and the potential risk that could arise from the upcoming repayments of the bonds issued by the Government and the Development Bank of Mongolia.  


Generally, people consider issuing bonds as adding more debts and it seems that they take bonds to a negative perspective.  What is your opinion on this?

It seems to be common that people consider bonds just as debts. I wish to shed some light to the other side. For example, the business of a commercial bank is first to collect and pool moneys in the hands of people by offering savings and/or other products and services which allows people to earn interest income and/or other benefits, and then utilize the pool of funds to finance other customers who are in need of financing, by extending loans and other services. This enables the borrowers to run their business continually, as well as expand and innovate their businesses.

But savings and other deposits by the customers with the bank are usually up to 1 year, whereas the need of borrowers who obtain loans from bank would be at least 1 year and longer; 3 years, 5 years and 10 years for instance. The question here is, how a bank would finance a loan with 3 years tenor, with a one year deposit. On the other hand, deposit interest rate in Mongolia is relatively higher than that of other countries. For instance, 1 year term deposit interest rate is approximately 16% annually. Since deposits as a funding is a costly choice, loan interest rate is surcharged by operational expense and other risks on the deposit interest rate. Thus, proceeds of bond issuances allow us to offer loans with lower interest rate and longer tenor to our customers.

We have proven that whatever sort of funding including bonds, deposits, commercial papers, etc., when utilized efficiently, could be repaid in a timely manner with no issue. Commercial banks are able to turn bonds into benefits, not into risky debt, as we adapt international standards on all aspects of our operational areas such as business, governance, risk management and information technology and as a professional financial intermediary leveraging on its highly skilled professionals.


People obviously do not know enough about bonds. Could you please explain the benefits of bonds in simple terms, providing a few examples?

As I mentioned previously, funding through bonds have a number of benefits; however, the most important advantage is that it allows the bank to provide loans with longer tenor and lower interest to our customers through our operations. Another important advantage is that Trade and Development Bank’s successful issuances of RMB 700 million and USD 500 million bonds were a significant support to build up FX reserves of the country, consequently they helped maintain the stability of the national currency and support Mongolian economic growth during the rough years of 2014 and 2015, when the country’s Balance of Payment deficit had surged due to significantly dropped FDI and declined price of main export commodities, which also slowed economic growth. The issuances also supported the economy by enabling us to provide necessary financing to our small, medium  as well as large enterprises.

Moreover, the bond issuance process itself promotes Mongolia to prominent investors as it provides correct and most up to date information about Mongolia and the bank at the time of issuance. To the date we have issued five bondss and have been repaying the notes at the maturity, which is also a way to represent Mongolia positively to the world.

This is not only a promotion for Trade and Development of Mongolia and the Mongolian Government, but also a paving of the road for other commercial banks or corporates which are willing to issue bonds in the international market and lessen their burdens. Our track record will be a foundation for their success.


Mongolian government issued a guarantee to your 500 million U.S. dollar bond. The question is “Why Mongolian government issued a guarantee for TDBM? Also, it is understood that issuing guarantee would increase the government’s debt. What would you say about this?

The relations regarding the Government’s issuance of guarentee is regulated by the Debt Management Law. According to this law, any Mongolian bank and/or any entity is able to get a guarantee from the Mongolian government. Of course they must satisfy some requirements. For commercial banks, if a bank has an existing receivable from the government, such as a portfolio of government bonds the bank could get a guarantee by agreeing to maintain their  receivable from the government. In other words, entities that are the holders of the Government’s domestic bonds are eligible for a guarantee.

Pursuant to this law, Trade and Development Bank requested a guarantee as the bank was holding a portfolio of the Government’s domestic bonds with an amount of over MNT 1 trillion.
As for the debt ceiling of the government, since the guarantee is backed by the existing debt of the Government, it is not considered as additional debt. Such guarantee is available for any government bond holder entity.


Sometimes, it is criticized that proceeds from Mongolian Government issued bonds are inefficient. Does TDBM not have such an issue? 1 billion U.S. dollars is a significant amount of money for not only one entity, but also it is significant for even a country.

We conduct our operations basing on our knowledge and experience. Of course, if you inefficiently utilize such a significant amount of money, there could be a risk of non-payment at the maturity as you highlighted.
Well, in our case, from our track record of repayments, you can see that we have not wasted any of the funds raised. We never have faced an issue of how we should utilize the significant amount of funds which has been drawn with a single disbursement, because the use of proceeds is always carefully planned and utilized efficiently.

On the other hand, for developing countries like Mongolia, there are always new developments, new projects which take place. Not only are there new developments, but also there is a need for innovating and expanding existing businesses. Such necessities lead to high demand for credit. Commercial banks, being the major part of the financial market in Mongolia, should always meet such high demands. This is the engine of prosperity of the country and growth of the economy.
As we realize our responsibility, Trade and Development Bank of Mongolia has been continually financing numerous small, medium and large scale businesses in all major economic sectors. As I mentioned, we aim to turn bonds into benefits not into just debt. 


Have you faced any issues with previous bond repayments? What is the current financial situation of Trade and Development Bank of Mongolia?

We have fully repaid our 700 million CHY bond by our own funds without refinancing or exercising our swap agreement with Bank of Mongolia. It was paid by our own funds. Also it is worth to mention that the payment was made without impacting the official foreign exchange reserves of the country. Our financials are sound as always, we are liquid enough and we have no significant repayment of bonds or and other types of funding obtained from international markets due until 2020.
If commodity prices remain at current levels and continue to positively impact  local companies to increase exports, with positive economic outlook expected in 2017, I would like to highlight that we have sufficient unutilized funding sources to finance our customers.

If this positive outlook has a positive impact on the Mongolian sovereign rating, which in turn changes the foreign investors’ sentiment toward Mongolia, Trade and Development Bank of Mongolia will become the first issuer to tap the market again.
We will continue to contribute to our country’s social and economic development, attracting funds from international markets, leveraging on our recognition on the international capital markets and our vast experience.


Thank you for the interview. I wish you success on your endeavors.

Thank you for this opportunity. Good luck to you too.

Interview by Khulan. A

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