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Monday, June 16, 2014

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Moody's assigns (P)B1 ratings to TDBM's GMTN program and B1 to TDBM's proposed drawdown

Hong Kong, June 16, 2014 -- Moody's Investors Service has assigned a (P)B1 rating on the long-term senior unsecured debt under the Trade and Development Bank of Mongolia LLC's (TDBM) $1 billion Global Medium Term Notes (GMTN) Program.

The program carries a letter of support from the Ministry of Finance on behalf of the Government of Mongolia (B1, negative).

At the same time, Moody's has assigned a B1 rating to TDBM's proposed senior unsecured notes, which will be drawn from the GMTN program.

All ratings have a negative outlook.

The program's ratings do not immediately apply to any individual notes issued under the program.

Ratings on individual notes issued under the program will be subject to Moody's satisfactory review of the terms and conditions set forth in the final base and supplemental offering circular and pricing supplements of the notes to be issued.


The letter of support to the GMTN program includes the indemnity provided -- on behalf of the Government of Mongolia -- by the Ministry of Finance. But there is not any expressed or implied government guarantee intended.

Accordingly, as the letter is not an explicit guarantee, Moody's does not apply credit substitution when assessing the program's rating.

Therefore, the ratings rationale of the program is not underpinned by the letter of support from the government, but by TDBM's own ratings, which are the same as the B1 debt ratings of the government.

However, Moody's does incorporate one notch of systemic support in the B1 rating of TDBM and the willingness of the Government of Mongolia to issue the letter of support is evidence of the high probability of support that is assumed in the rating. TDBM is a systemically important bank as it is the largest in the country by assets.

TDBM's baseline credit assessment (bca) of b2 reflects its: (1) solid market position as a leading corporate lender in foreign exchange and trade-related businesses; (2) sound profitability and good operating efficiency; and (3) diversified funding sources from both domestic depositors and foreign financial institutions.

However, the ratings are constrained by the bank's: (1) high concentration risk, against the backdrop of the limited diversity of Mongolia's economy, and which renders the economy vulnerable to external factors; (2) substantial capital needs, assuming that the Mongolian economy and the availability of credit continue to grow at a rapid pace; and (3) potential challenges related to corporate governance that could arise from its narrow shareholding structure.

Moody's changed the rating outlooks of all rated Mongolia banks to negative from stable in January 2014, reflecting their vulnerability to the intensification of adverse developments in the operating environment.

In addition, TDBM is vulnerable to a deterioration in asset quality, given its high loan concentration and portfolio of corporate loans.

Moody's notes that TDBM's top 20 group borrower exposures were equivalent to 45.5% of its total loans at end-2013. More than 50% of these borrowers were also in risky sectors, such as mining and construction. The latter accounted for 21.7% and 16.7% of the bank's total loans at end-2013.

An upgrade of the bank's ratings is unlikely, given that the B1 ratings assigned to TDBM are at the same rating level as the sovereign rating and the fact that outlooks on the ratings of both the bank and the government are negative.

Nonetheless, the bca could be raised if the bank substantially reduces its borrower concentration and exposure to risky sectors.

On the other hand, the following factors could exert negative pressure on TDBM's ratings: (1) corporate governance-related problems that cause a loss of depositor confidence, therefore increasing the threat of deposit flight; (2) a significant deterioration in asset quality; for example new non-performing loans to gross loans exceed 4.0%; (3) a rise in concentration, or a rise in exposures to risky sectors, in particular construction; (4) Tier 1 falls below 9%; or (5) a significant deterioration in profitability, such that net income is less than 1.4% of average risk weighted assets.

The bank's other ratings are:

-       Bank financial strength of E+; local currency bank deposit rating of B1; foreign currency bank deposit rating of B2; issuer rating of B1; foreign currency long-term senior unsecured debt/subordinate debt of B1/B2; and foreign currency long-term senior unsecured MTN/subordinate MTN of (P)B1/(P)B2.

-       Local currency/foreign currency short-term deposit rating of NP; local currency/foreign currency short-term issuer rating of NP; and other short-term rating of (P)NP.

Moody's does not intend to assign ratings to individual notes issued under the program with features linked to the performance of another obligor (credit-linked notes).

Nor does it intend to assign ratings to notes for which payment of principal or interest is variable and contractually dependent on the occurrence of a non-credit-linked event or the performance of an index (non-credit-linked notes).

The only exception will be for notes whose principal and coupon payments are affected by standard sources of variation (for more information, please see Moody's Special Comment, "Moody's Update on Rating Debt Obligations with Variable Promises," June 2009).

The principal methodology used in this rating was Global Banks published in May 2013. Please see the Credit Policy page on for a copy of this methodology.

Trade and Development Bank of Mongolia LLC is based in Ulaanbaatar. It is the largest banks in Mongolia by assets. At 31 March 2014, the bank's consolidated assets totaled MNT5.1 trillion ($2.8 billion).

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