It was understood that the capital raised by the sale of bond would be used to finance projects that can bring economic benefits in the long run. What would those projects be?
We define economically viable projects as the ones that can bring in high economic returns, are capable of repaying the loan, and can bring strong impact on the well being of the overall economy. First of all, I would like to mention the railway projects. We need to reach to ocean via using rail road. And, railway is a profitable business. The government plans to build 1,800 kilometers of rail road within the territory of Mongolia. This project will be financed.
Second of all, there are projects in the energy sector. These would include the fifth power station, creation of additional heat production sources, building reliable energy supplier for the mining projects, and developing sources to replace the importation of electricity from abroad. Also, projects that aim to produce gasoline by processing coal and oil are of critical importance. In addition, metallurgy factory, copper concentrator, and metalworking industry projects are considered to be highly valuable. Some of these projects are already developed and are ready to implement. And, the government is going to discuss the projects for potential financing.
They say that if bond yield is more than 3.5%, it is not profitable for Mongolia? Is this true?
Three percent would be ideal. Previously, the government used loans to finance projects mostly in social sector, infrastructure, and budget related programs. However, we plan to use the funds raised from the current sale of bond on economically feasible projects. Therefore, spending of the money will be different at this time. It cannot be compared to the loans provided to hospital, school and kindergartens. It would be good if the loans have minimal interest rate.
We can look at the bonds sales by other governments too. Sri Lanka sold its five-year bond at price of 5.88% yield. Ukraine’s $1 Billion bond had an interest rate of 7.8%. We sold $1.5 Billion bond at a rate of 4.125%. China is going to issue a bond with 3.8%. China is a powerful economy with many years of experience in issuing bonds. The fact that the rates of our bond are comparable to those of Çhina can be said as a success.
In selling the bond, we have established two working groups headed by Ministers for Finance and Economic Development, and had them worked in Asian and European countries. The working group members included the Bank of Mongolia President, and representatives from Development Bank, Trade and Development Bank, and other relevant Ministries. They were conducting 50-60 meetings, and ten investor discussions on a daily basis during the two weeks.
It was notable that investors have well studied of Mongolia. Discussions were held at highly professional level. It was a great lesson learnt for us, and laid the foundation of future programs. If we can spend the capital wisely with high returns, we can sell bond at more favorable terms in the years ahead. If we fail here, we will not be able to issue more bonds. In some countries, selling bonds cannot succeed always. For instance, Russian Federation recently attempted to sell its bonds with no success. Political stability, economy and financial capacity are all very important factors.
How do we receive the funds from the sale of bonds?
It will be transferred and executed via the Treasury Fund and Development Bank. Trade and Development Bank, which was a member in the working group, has previous experience of working with top level investors. It has worked with large, international banks such as Bank of America, Deutsche Bank and Hong Kong and Shaghai Banking Corporation.
Mongolian language source: www.news.mn