Mongolia Bank Plans Dollar Bond as Buyers Scrape Credit Junkyard

Trade & Development Bank of Mongolia LLC is joining issuers from Pakistan, Bangladesh and Sri Lanka of dollar-denominated bonds as investors scrape for yield among risky credits.

The Ulaanbaatar-based lender is offering a five-year note at a yield of about 11.25 percent in a sale planned for this week, said a person familiar with the matter, who asked not to be identified because the details are private. Benchmark 10-year yields for U.S. Treasuries have averaged 2.7 percent this year, compared with 3.4 percent for the past decade.

Spreads on dollar junk bonds in Asia narrowed 9 basis points in July after five straight months of declines, the longest period since one ending in January 2013, according to JPMorgan Chase & Co. indexes. Such notes were sold this year by Banglalink Digital Communications Ltd. in the first dollar debt for a Bangladeshi corporate, SriLankan Airlines Ltd. and Pakistan with its first international bond since 2007.

“International liquidity is very high and a little bit of complacency is visible among investors seeking to buy emerging-market debt,” A S Thiyaga Rajan, a senior managing director at Aquarius Investment Advisors Pte in Singapore, said in a phone interview. “Across the globe, there is a hunt for higher dollar yields” as a result of easy monetary policy by central banks in developed economies, Rajan said.

War, Insurgency

Economic activity in Bangladesh was disrupted by political unrest prior to January’s general elections, the International Monetary Fund said in a June report, with growth expected to recover in the second half. Sri Lanka only emerged from civil war in 2009 and Pakistan, Asia’s lowest-rated country, suffers from power shortages and a Taliban insurgency.

Moody’s Investors Service has assigned a B1 rating for Trade & Development Bank of Mongolia’s debt, or four ranks below investment grade, the rating company said on June 16. Moody’s downgraded the bank’s outlook in January to negative from stable, citing the negative impact of the global commodity-market slowdown on the North Asian country.

The lender’s $300 million of 8.5 percent securities priced in September 2012 were trading at a yield of 8.46 percent today, according to prices compiled by Bloomberg.

In other offerings, a unit of China National Gold Group Corp. is selling a three-year dollar debenture at a premium of about 310 basis points more than Treasuries, another person familiar with the matter said. Those bonds may carry a BBB-grade from Standard & Poor’s.

Risk Declines

The cost of insuring corporate and sovereign bonds in the Asia-Pacific region fell today, suggesting deteriorating perceptions of creditworthiness.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan retreated 1 basis point to 103 basis points as of 8:33 a.m. in Singapore, Australia & New Zealand Banking Group Ltd. prices show. The gauge is poised to snap a three-day rising streak, according to data provider CMA.

The Markit iTraxx Australia index fell half a basis point to 84.5 as of 10:43 a.m. in Sydney, Westpac Banking Corp. prices show. The benchmark is falling for the first time this week, according to CMA.

The Markit iTraxx Japan index dropped half a basis point to 64 basis points as of 9:24 a.m. in Tokyo, Mizuho Bank Ltd. prices show. The measure rose to 65 basis points yesterday, the highest since July 3.

The indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality.

To contact the reporters on this story: Tanya Angerer in Singapore at tangerer@bloomberg.net; Anurag Joshi in Mumbai at ajoshi53@bloomberg.net
To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net Chris Bourke, Ken McCallum

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