Mongolia's XacBank shelves debut USD deal
HONG KONG, April 16 (IFR) - The enthusiasm that investors showed for two global bond deals from resource-rich Mongolia earlier this year failed to spill over to the banking sector last week, causing private lender XacBank to shelve its debut dollar deal.
XacBank, Mongolia's fourth-largest, was eyeing a 10% coupon for a three-year deal, but investors balked at that level for a bank rated at B by Moody's and Fitch.
"The pricing was wrong," said Harsh Agarwal, desk strategist with Credit Suisse. "I would any day own bonds from (Mongolian Mining Corp) trading at the same yield of 10% that was being offered by XacBank, a small privately owned micro-lender."
Mongolian Mining Corp sold $600 million of five-year notes in late March, attracting a strong orderbook of $5.6 billion that allowed it price at 8.875%, one of the lowest-ever coupons for a single B rated Asian credit.
The deal became a landmark transaction for Mongolia, as the country's largest ever deal, its first corporate deal and first ever 144a issue. In the last few years, Mongolia's rapid economic growth and rich mineral wealth has made it a key frontier market.
MMC's transaction came after the Development Bank of Mongolia in early March sold $580 million of five-year notes, chalking up an impressive orderbook of $6.35 billion with over 300 accounts taking part.
Prior to those two deals, the only Mongolian bank to issue debt in the international capital markets was Trade & Development Bank, the nation's oldest bank.
XacBank's failure to get its deal off the ground is likely to send a clear message to Golomt Bank, the country's largest privately-owned bank, which last week announced its own plans to debut in the dollar market.
XacBank was attempting such tight pricing based on the 5.75% pricing achieved by the Development Bank of Mongolia. However, that was because investors saw it as a sovereign proxy with plenty of scarcity value.
"Mongolian banks which are privately owned will not enjoy the same support as the sovereign backed deals," said New York-based Shamaila Khan, portfolio manager with Alliance Bernstein.
"Mongolian corporate borrowers need to prove themselves with respect to corporate governance and transparency. Technicals are also deteriorating as they are trying to pack in too many transactions in a short period of time without allowing time for investors to digest supply," he said.
Hence, as it wraps roadshows, Golomt can expect a less enthusiastic response.
One European account estimated the fair value for the Golomt bond would be in the neighborhood of 9.75%, while another fund manager said the deal size could be a maximum of $200 million.
"Mongolia is definitely a growth story but if you ask me at the end of the day these deals are about the pricing," said a Hong Kong based fund manager.
GROWTH STORY INTACT
If XacBank's pulled deal has brought an end to the strong run Mongolian credits have enjoyed, investors agree that the country's growth story remains intact.
Last year, Mongolia overtook Qatar to become the world's fastest-growing economy, according to Eurasia Capital, which is forecasting 20% GDP growth in 2012.
The country's $8 billion economy had exports of $4.8 billion in 2011, up 64% from the year earlier.
Minerals account for 88% of all exports, mainly coal, copper and iron ore. The country has overtaken Australia as China's biggest source of coking coal.
The country is in a geographic sweet spot with Russia to the north and China to the south, said the Hong Kong fund manager.
"In our meetings with the Ministry of Finance officials, they did seem to have structured growth plans, calling on investments from both the public and private sector."
Still, for the banking sector, there are risks to consider, not least the rapid pace of loan growth. Like other resource economies, Mongolia is hostage to the volatile commodity sector.
In a recent report, Fitch said loan growth has been rapid even by comparison with other emerging markets and cautioned that Mongolian banks need capital -- capital adequacy ratios are low in comparison to similar-rated entities elsewhere.
(Reporting by Umesh Desai)
XacBank, Mongolia's fourth-largest, was eyeing a 10% coupon for a three-year deal, but investors balked at that level for a bank rated at B by Moody's and Fitch.
"The pricing was wrong," said Harsh Agarwal, desk strategist with Credit Suisse. "I would any day own bonds from (Mongolian Mining Corp) trading at the same yield of 10% that was being offered by XacBank, a small privately owned micro-lender."
Mongolian Mining Corp sold $600 million of five-year notes in late March, attracting a strong orderbook of $5.6 billion that allowed it price at 8.875%, one of the lowest-ever coupons for a single B rated Asian credit.
The deal became a landmark transaction for Mongolia, as the country's largest ever deal, its first corporate deal and first ever 144a issue. In the last few years, Mongolia's rapid economic growth and rich mineral wealth has made it a key frontier market.
MMC's transaction came after the Development Bank of Mongolia in early March sold $580 million of five-year notes, chalking up an impressive orderbook of $6.35 billion with over 300 accounts taking part.
Prior to those two deals, the only Mongolian bank to issue debt in the international capital markets was Trade & Development Bank, the nation's oldest bank.
XacBank's failure to get its deal off the ground is likely to send a clear message to Golomt Bank, the country's largest privately-owned bank, which last week announced its own plans to debut in the dollar market.
XacBank was attempting such tight pricing based on the 5.75% pricing achieved by the Development Bank of Mongolia. However, that was because investors saw it as a sovereign proxy with plenty of scarcity value.
"Mongolian banks which are privately owned will not enjoy the same support as the sovereign backed deals," said New York-based Shamaila Khan, portfolio manager with Alliance Bernstein.
"Mongolian corporate borrowers need to prove themselves with respect to corporate governance and transparency. Technicals are also deteriorating as they are trying to pack in too many transactions in a short period of time without allowing time for investors to digest supply," he said.
Hence, as it wraps roadshows, Golomt can expect a less enthusiastic response.
One European account estimated the fair value for the Golomt bond would be in the neighborhood of 9.75%, while another fund manager said the deal size could be a maximum of $200 million.
"Mongolia is definitely a growth story but if you ask me at the end of the day these deals are about the pricing," said a Hong Kong based fund manager.
GROWTH STORY INTACT
If XacBank's pulled deal has brought an end to the strong run Mongolian credits have enjoyed, investors agree that the country's growth story remains intact.
Last year, Mongolia overtook Qatar to become the world's fastest-growing economy, according to Eurasia Capital, which is forecasting 20% GDP growth in 2012.
The country's $8 billion economy had exports of $4.8 billion in 2011, up 64% from the year earlier.
Minerals account for 88% of all exports, mainly coal, copper and iron ore. The country has overtaken Australia as China's biggest source of coking coal.
The country is in a geographic sweet spot with Russia to the north and China to the south, said the Hong Kong fund manager.
"In our meetings with the Ministry of Finance officials, they did seem to have structured growth plans, calling on investments from both the public and private sector."
Still, for the banking sector, there are risks to consider, not least the rapid pace of loan growth. Like other resource economies, Mongolia is hostage to the volatile commodity sector.
In a recent report, Fitch said loan growth has been rapid even by comparison with other emerging markets and cautioned that Mongolian banks need capital -- capital adequacy ratios are low in comparison to similar-rated entities elsewhere.
(Reporting by Umesh Desai)
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