Four years ago, Mongolia’s economy was the fastest growing in the world, the stock market was booming and the future looked very bright. This year, the consensus is for growth at no more than 1 per cent and all of the rating agencies have sovereign risk at speculative grade, while warning of possible default on debt obligations in 2017. Even within a troubled emerging market asset class, the case for Mongolia looks grim.
But, while accepting that Mongolia is certainly not for the risk averse, the investment case is worth a second look. Even the rating agencies concede that although the outlook is bad, based on what we assume today, the situation could “change on a dime” this year, and that would send debt yields sharply lower and equities higher. Read more
By Lee Cashell, Asia Pacific Investment Partners
Mongolia’s economy had a bruising year in 2014 with barely a week passing without the currency hitting a new low against the US dollar and foreign investment dropping by a precipitous 74 per cent year-on-year. But last month’s announcement that the Mongolian government has broken the deadlock in negotiations with Rio Tinto for the development of the second phase of the Oyu Tolgoi copper mine signals that a new round of foreign investment will begin flowing into the country.
Saikhanbileg Chimed, the prime minister, has been building a clear case that Mongolia’s economic growth will stall without foreign investment, appearing on national television in January to hold an X-factor SMS style vote on the question of whether Mongolians want austerity or prosperity. The majority of the country’s 3m citizens texted “prosperity” which he has taken as a mandate turn the green light back on for foreign investment. Read more
Mongolia is determined to reduce default risks on its international debt by resuming a long-stalled $4.2bn copper mine project by the end of this year, bringing government debt levels to within legal limits and cutting back on welfare payments, a senior government official said.
Risks associated with the north Asian country surged in July after Moody’s, the credit rating agency, downgraded its bonds by one rung to B2, a rating that signifies “high credit risk”. The reasons for the downgrade included plunging foreign exchange reserves, expansionary monetary and fiscal policies and an unpredictable environment for foreign direct investment (FDI). Read more
By Gavin Bowring, Asean Confidential
In November 2012, Mongolia issued US$1.5bn of five and 10-year sovereign debt – cutely called “Chinggis bonds” after the 13th century Mongol conqueror Genghis Khan. These were happily snapped up by yield-hungry investors as Mongolia continued to post one of the world’s fastest GDP growth rates. The government, in theory, should have used this money to invest in commercially viable infrastructure to provide power, transport and logistical infrastructure to support the country’s continued growth.
But with a substantial portion of this debt maturing within the next 3 years, concerns have been mounting about the government’s ability to repay. While some of the US$1.5bn bond was used to build useful social infrastructure within the capital, Ulaanbaatar – including new roads and schools – an equally significant portion was spent on pork-barrel and pump-priming programs. Moreover, the government has little to show in terms of commercially viable investments that generate returns. Read more
It was only an April Fool’s day joke – but when an Ulaanbaatar website suggested that Mongolia go on a Genghis Khan-style “investor roadshow” across several continents on horseback to win back international investors, it hinted at the size of the image deficit the north Asian nation faces.
In Mongolia, the 13th century great Khan is thought to have mythic powers “to make the difficult easy and the distant closer by”. So channelling his spirit to serve investor relations seems natural enough – especially when the task at hand is significant. Read more
A tussle between Mongolia’s authorities and some 60,000 “ninja miners” for control over the country’s gold industry captures in microcosm the broader battles that Ulaanbaatar is waging to shore up its slumping tugrik currency and central bank reserves.
The ninja miners – so named for the green bowls they carry on their backs that resemble the shells of cartoon characters from the 1990s “Teenage Mutant Ninja Turtles” movie – have been wreaking havoc with the nation’s gold production, thus reducing the amount of gold the central bank can buy to bolster its reserves. Read more
Resouce-rich Mongolia is going back to the international bond market in a push to offset a weakening economic cycle.
Government-backed Development Bank of Mongolia (DBM) has placed a ¥30bn ($290m), 10-year samurai bond to invest in much needed infrastructure projects. But the deal is stretching the country’s borrowing rules to the limit. Read more
The vast deposits of copper, coal, gold and silver under Mongolian soil could soon be governed by a radically different regulatory framework — if a new draft of the country’s Minerals Law is passed in its current form. Read more
After a few nervous months, Mongolia has secured a power supply agreement with China for the huge Oyu Tolgoi copper and gold mine. Rio Tinto, the Australian miner developing the $6bn project, confirmed on Monday that it had a binding electricity supply deal.
With that in place, the mine is all set to start commissioning in the next few weeks and begin commercial production next summer. Read more
What do you do if you’re a small country, rich in minerals that went from boom to bust when the bottom fell out of the commodities market? Copy Chile, is the answer.
Chile’s experience as a small, copper-dependent economy that prudently stashed cash during the boom years, allowing it to ride out the 2008-09 world economic crash and uncork anti-cyclical spending, was the perfect case study for Mongolia. Read more