Randolph S. Koppa, Director, Trade and Development Bank of Mongolia

1. Institute of Finance and Economics
February 22, 2013
Randolph S. Koppa
President, TDB

2. Consider this:
 TDB has issued USD300 million in three year senior
notes under its USD700 million EMTN Programme.
 Bank of America Merrill Lynch and ING were the Lead
Managers, Arrangers and Book Runners of this Reg S
transaction.
 Reissue price 99.68
 Coupon 8.5% p.a.

3. Company Highlights
The “International Face of Mongolia”
Only Mongolian Repeat Issuer with Proven Track
Record of Debt Repayment in the International Market
2007
US$75 mm
3-yr Senior
Notes
Fully Repaid
in 2010
2010
US$150 mm
3-yr Senior
Notes
2010
US$25 mm
5-yr
Subordinated
Notes
First Mongolian issuer in the international
capital market
2012
US$ 300million 8.5% Unsecured Senior Notes
Under US$ 700 million EMNT Program
Banks
and
Others
15%
Asset
Manag
ers, 60
%
Private
Banks,
25%
Investor profile
Asia
, 60%
Europe
, 35%
Offshor
e
US, 5%
Geographic demand
Joint Arrangers /
Joint Book
Runners /
Joint Lead
Managers
Listing Stock Exchange Rated by

4. Consider also:
 Government of Mongolia has issued USD 1.5 billion in
5 and 10 year notes under its USD 5 billion GMTN
programme.
 Bank of America Merrll Lynch, Deutsche Bank, HSBC,
J.P.Morgan and TDB Capital were Joint Lead Managers
and the first four banks were the joint bookrunners of
this Reg S/ 144A transaction
 Reissue rates: 99.996 for the 5 year; 100 for the 10 year
 Coupon 4.125% on USD 500 million of 5 year notes ,
and 5.125% on USD 1 billion of 10 year notes

5. Terms and meanings
 Bonds
 Notes
 Euro Medium Term Note
 Reg S
 144A
 Book Runner
 Listing

6. Discussion points
 Background
 History
 Development of the market
 Analysis of TDB’s transaction
 Analysis of the GoM sovereign transaction
 Current conditions
 Relevance for Mongolia

7. Origins
 Hungary 1956
 USSR concerned about its USD in US banks
 Soviet dollar holdings moved to Moscow Narodny
Bank, a London, UK, chartered bank.
 Telex address: “EURBANK”
 MNB re-deposited funds in USA
 Became known as Eurodollars
 Loans in Eurodollars became Euroloans
 Bonds in Eurodollars became Eurobonds
 Other offshore currencies became Eurocurrencies

8. The Eurobond Market
 The Eurobond market is the market for long-term debt
instruments issued and traded in the offshore market.
 Like the Eurocurrency market, differences in national
regulation helped developed the Eurobond
market, while increasing capital mobility and greater
ease in telecommunications enabled it to flourish.

9. The Eurobond Market
 A Eurobond is offered for sale simultaneously in a
number of countries.
 A domestic bond is an obligation of a domestic
issuer, underwritten by a syndicate of domestic
investment banks, denominated in domestic
currency, and offered for sale in the domestic market.
 A foreign bond is similar to a domestic bond except
that the issuer is a foreign entity.

10. Historical Overview and Dimensions of the
Eurobond Market
 The Interest Equalization Tax (IET) of 1963 taxed
purchases of foreign stocks and bonds issued or
trading in the United States.
 The IET was proposed as a temporary measure to
reduce U.S. capital outflows and take pressure off the
U.S. balance of payments.
 However, it effectively closed down the Yankee bond
market, and induced foreign borrowers to migrate
offshore and set up a US$-bond market in London and
Luxembourg.

11. Historical Overview and Dimensions of the
Eurobond Market
 In 1965 and 1968, further policy measures were taken
to limit the direct foreign investments made by U.S.
corporations.
 These programs effectively forced U.S. multinationals
offshore to meet the financing needs for their foreign
projects.
 When the stimulating U.S. regulations were scrapped
in 1974, the Eurobond market volume first collapsed
and then grew steadily, before surging during the
1980s.

12. Growth of the market
 UK controls on lending Sterling offshore 1957
 US controls on interest rates, Reg Q, 1960s
 US capital outflow controls 1960s
 US trade deficits in 1970s and thereafter
 Lack of reserve requirements and deposit insurance
 Controls by Germany and other countries led to
Euromarks, Euroyen,etc.

13. Historical Overview and Dimensions of the
Eurobond Market
 Now, the annual volume of new issues often nears or
surpasses the annual volume of new U.S. corporate
bond issues.
 Increasingly too, Eurobonds have been issued in
currencies other than the US$, and then combined
with a currency swap to achieve lower cost funds in
US$, etc.
 At the same time, the market has grown in terms of
bond maturities, issue size, and secondary market
trading.
 USD 70 trillion in funds available to invest

14. Full menu of bonds
 Eurobond
 Yankee
 Global
 Samurai, Shogun
 Bulldog
 Kangaroo
 Dim Sum, Panda
 Airang, Kimchi
 Matrioska
 Kauri

15. Chinggis, Gobi, Takhi, Buuz ?
 USD by Mongolia issuer into the US and Euro markets
 USD by non Mongolian issuer into Mongolia
 MNT by non Mongolian issuer into Mongolian market
 Maybe a first: Buuz Bonds: MNT bonds by Mongolian
entity into investors outside Mongolia

16. Options for USD bond issuers
 Reg S
U.S concern over investor sophistication
Investors outside the U.S.
U.S. offshore investors accepted
 Rule 144A
Issue may be sold to U.S onshore investors
Higher level of due diligence

17. Comparative Characteristics of Bond Issues in the
International Bond Market
Regulatory
Bodies
Securities
and Exchange
Commission
Official agency
approval
Minimum regulatory
control
U.S. Market Non-U.S. Market Eurobond Market
Disclosure
requirements
More detailed
• High initial and
ongoing expense
• Onerous to non-US
firms
Variable Determined by
market practices
Issuing costs 0.50-1.00% Variable to 4.0% 0.50-2.0%
Rating
requirements
Yes Usually not No, but commonly
done

18. Comparative Characteristics of Bond Issues in the
International Bond Market
Exchange
listing
Usually not listed Listing is usual Listing is usual
U.S. Market Non-U.S. Market Eurobond Market
Queuing No queue Queuing is common No queue
Currency of
denomination
restrictions
United States does
not restrict the use of
US$
Part of queuing
• Many countries
have in the past or
now restrict use of
currency
No restrictions on
use of US$ or C$
Speed of
issuance
Relatively slow until
Rule 415 on shelf
registration
Variable Usually fast - bought
deal leads to fast
issuance

19. Comparative Characteristics of Bond Issues in the
International Bond Market
Borrower /
Issuer
incentives
+ Large market,
great depth
– Disclosure is
costly to
foreigners,
speed
+ Local visibility,
diversification of
funding sources
– Markets may be
small, queuing
may prevail
+ Lower annual
interest expense,
speed of placement
– Cannot sell issue
in U.S. until
seasoned
U.S. Market Non-U.S. Market Eurobond Market
Lender /
Investor
incentives
+ Great depth &
liquidity, appeal
of standardized
information
– Reporting to tax
authorities,
withholding tax
prior to 1984
+ Diversified
currency
portfolio
– Reporting to
tax authorities,
withholding
tax may apply
+ Diversified
currency portfolio,
bearer bonds, no
withholding tax
– Less liquidity &
information
disclosures

20. Bond Investor
Bond Issuer
Structure of a Eurobond Syndication
Selling Group
Fiscal Agent
or Trustee
& Principal
Paying AgentUnderwriters
A Eurobond offering brings together the bond issuer and investor.
Intermediaries
The process is facilitated by intermediaries.
and then assembles
other firms to share in
the underwriting risks of
the issue.
Finally, the management group organizes a
group of firms to place the bonds with the
ultimate investors.
Management
Group
The lead management group meets with the issuer to design the issue
size, currency, maturity,
coupon, etc...

21. More terms and jargon
 T+
 Tighter
 Syndicate
 Sales
 Trading
 Guidance
 Book building
 Book subject
 Oversubscribed

22. Revisiting TDB’s transactions
 Benchmark considerations
 Type of investors
 Depth of market
 Liquidity

23. Revisiting the GoM transaction
 Maiden issue
 Benchmark considerations
 Depth of market
 Liquidity

24. Considerations for Mongolia
 Non investment grade
 Concerns over Foreign Investment Law
 Concerns over China slowdown
 Drop in commodity prices
 Fiscal discipline
 Exciting story with high growth economy
 Democratic government
 Improving rule of law

25. Current market conditions
 High volume of funds to invest
 Low interest rates in U.S. and Europe
 Risk free versus yield considerations
 Market is fragile
 Eurozone concerns
 US economy
 Record level of emerging market issues

26. Access to Markets; which ones?
 Sovereign
 Mining
 Infrastructure
 Corporates
 Banks

27. Questions?

28. Thank you!