The Development Bank of Mongolia (‘DBM’) to look into potential prospects, including an early payment before maturity, to pay off the outstanding bond obligations of the JPY 30 Billion Samurai Bond. The Samurai Bonds are unconditionally and irrevocably guaranteed by the Government of Mongolia and Japan Bank for International Cooperation (JBIC) with a maturity date of December 2023.
In 2013, the Bank issued Mongolia’s first-ever Samurai bond when the Mongolian balance of payments was at stake with foreign trade deficit rising to $1.4 billion and foreign investment falling by 47 percent. But the Government of Mongolia and the Japan Bank for International Cooperation (JBIC) made it possible to secure long-term funding with a lower interest rate.
DBM is steeped in controversies surrounding the credibility of its financial capabilities; being the only policy-oriented financial institution in the country with a mandate to finance large-scale, strategically important development projects in Mongolia. However, despite public questioning of the credibility Mr. Manduul Nyamdeleg, CEO of the DBM, states the bank’s potential to make early payments of the Samurai bond.
Since 2011 DBM has mandated 60% of its loans to finance large-scale domestic industrial projects in Mongolia and facilitate Mongolia’s overall development, and the rest to diversify the Mongolian economy to better insulate the economy against future macroeconomic changes in the demand and price for Mongolia’s commodities exports. Over the past five years, the trade turnover for Mongolia averaged $13.2 billion. Despite the pandemic, the foreign trade turnover has been positive since 2014; the trade balance was negative $2 million in 2013 and increased to $9.25 billion in 2021.
DBM’s issuer credit ratings from Moody’s, S&P, and Fitch are B3, B, and B, respectively, corresponding to Mongolia’s long-term sovereign credit rating outlook. This reflects a vital link to ongoing Government support for the Bank’s critical policy-oriented role in the Mongolian economy. Though the Bank was established 11 years ago, it has successfully issued several notes in the international capital markets and has a healthy risk fund through its 2% origination fees.
Despite the controversy and some non-performing loans, DBM’s performance and allocation of funds to repay the Samurai Bond reflect its perseverance. If the recent turnaround of the bank is anything to go by, stricter measurements on loan processing and the correct allocation of funds enable the bank to fulfill its initial purpose. It seems DBM is set to rebound after some setbacks.