The new 600 million USD Khuraldai bond issued by the government in exchange for the 580 million USD Development Bank of Mongolia (DBM) bond has reached 108 USD per share on secondary markets.
Bondholders of 82 percent of the DBM bonds agreed to exchange their shares for the new Khuraldai bond, at 100 USD per share with a yield of 8.75 percent. The bond has a duration date of seven years. The 82 percent exchange accounted for 475.9 million USD, and the remaining 124 million USD was offered to new investors at 106.16 USD with a yield of 7.625 percent. This offer on secondary markets has increased to 108 USD per share. Analysts have noted that this shows that there is demand for the new Khuraldai bond.
As reported by Reuters, the new notes are rated B-/B- by Standard & Poor’s and Fitch Ratings respectively. Moody’s has a Caa1 rating on Mongolia, but did not rate the new bond. Economists note that the final pricing of the Khuraldai bond was very favorable compared to March 2016, when the government issued a 500 million USD five-year bond with a yield of 10.875 percent, the highest yield on any sovereign bond since 2011. Orders for that deal were low at 750 million USD.
Reuters reports that more than 200 ac-counts placed orders totalling 3.3 billion USD for the new 124 million USD offering. U.S. investors took 76 percent of the offering, with European accounts at 18 percent, and Asian investors taking six percent. Fund managers bought 90 percent of the notes, public institutions bought seven percent, insurers and banks bought a combined two percent, and others bought one percent.
The seven-year term was chosen to avoid conflicting with Mongolia’s other existing bond maturities in 2018, 2021, and 2022. The government’s next challenge will be to refinance a 500 million USD sovereign bond due on January 5, 2018.