TDB opens subordinated debt market for Mongolian lenders

Trade & Development Bank of Mongolia has become the first Mongolian bank to sell subordinated bonds, returning to investors only weeks after issuing a senior international deal that was a rarity in its own right.

November 11 (Euroweek.com) The issuer raised $25m from its lower tier two bond this week, which was also the third bond of any type from Mongolia — the previous two were also sold by TDB.

"This transaction brings Mongolia a little bit further forward on investors’ radar screens," said Florian Schmidt, head of DCM Asia at ING, the sole bookrunner of the transaction. "We have now seen within the Mongolian context a big senior bond, an IPO and a subordinated issue, all within a short period of time."

The IPO was the $650m equivalent Hong Kong flotation of Mongolian Mining Corp, which priced in October.

TDB’s latest deal is set to mature in five years and one day, the lowest maturity that qualifies as lower tier two under Mongolian rules. ING priced the deal at 99.999 with a 12.5% coupon, around 1.5 times the yield on the issuer’s October 2013 bonds, which were yielding 8.1% this week.

The subordinated bond came with a conversion option, also necessary for it to qualify as lower tier two under Mongolian rules, according to Schmidt. The conversion price has not been set, and will not be decided until the deal is near maturity.

The conversion option would have helped the lead manager pitch the deal, said William Mak, a bank analyst at Nomura in Hong Kong. "The conversion to equity feature is the investors’ option not the issuer’s option, so it’s bondholder friendly."

But the deal was pitched as a pure bond deal, and the conversion to equity is subject to approval by the company.

"Shareholders’ and board of directors’ resolutions with a majority of 66.66% are required to facilitate the conversion of notes into shares," said Schmidt. "This makes the conversion a right but not an obligation, and as such the issue was marketed as debt rather than equity-linked."

ING bankers first approached investors with the idea of a subordinated deal when they were pitching TDB’s $150m 2013 deal in the middle of last month — only the second ever deal from the country following an issue from TDB three years earlier.

The lead manager approached a handful of investors with the deal, and five accounts participated.

TDB has previously raised capital in the loan markets, including borrowing money from multilaterals such as Asian Development Bank and International Finance Corp.

But it has now boosted its capital adequacy ratio to 19.5% from 13.8% in July, according to Mak — and opened up a source of capital that could be tapped by other banks.

"Mongolian banks need to bolster the capital base if they want to participate in the commodity-induced growth story that is in store," said Schmidt. "Against this backdrop this product is definitely something that can be pitched to other banks."

Comments

Popular posts from this blog