Mongolia, like so many other countries in the world, Mongolia constantly needs to find sources of income to help it pay the bills and to put it in a more favorable financial position. Enter the “Chinggis” bond.
At the end of 2012, Mongolia offered world bond traders a new investment bond to purchase. Mongolia issued the bond with the goal of raising 1.5 billion dollars for the government. As it turned out however, the Mongolian’s really missed the boat on this one.
Brian White wrote an article for the on-line blog called, “The Mongolist” (
www.themongolist.com
) on January 13, 2013 entitled, “The Name is Bond, Chinggis Bond”. In his article Mr. White tells a tale of “opportunity lost”, Mongolian politics, and the international bond market. Here are a few excerpts from White’s article.
Mongolia’s international debt-instrument of mystery made its debut at the end of 2012 raising USD 1.5 billion for the government without even breaking a sweat. The “Chinggis bonds,” which bond traders and the media dubbed the initial offering, appeared to be a tremendous success by not only reaching its targeted revenue amount but also for being “10 times oversubscribed,” which simply means there was 10 times more demand than supply for the bonds. There seems to be a rather dubious implication that springs from that last point which is that if there was 10 times more demand, that in theory the government could have raised as much as USD 15 billion if additional bonds had been available. Although I have a mild sense of pride in the Mongolian government’s achievement, as an observer I am still trying to unravel the mystery and understand the real implications of the Chinggis bonds.
“The sheer size of the international market for stocks and bonds is hard to fathom. One measure put the value of the world’s equity market capitalization and outstanding bonds and loans at USD 212 trillion in 2010.
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That is truly an astounding number (212,000,000,000,000), and when you compare it to the USD 1.5 billion the Mongolian government raised (1,500,000,000), the Chinggis bond could easily be a rounding error. The numbers are hard to truly comprehend, and it makes it easy to overlook how difficult it is in practice to successfully manage large amounts of capital. Plopping the funds into a savings account at your local bank is really not an option, and the people who are responsible for maintaining these funds have to be able to consistently find relatively low-risk, high-return ways to invest them.
The Mongolian government made its own high stakes gamble with the Chinggis bond offering, and the fly by the seat of the pants approach the government seems to be taking with the bond offering gives the impression that we’re all supposed suspend our disbelief and have similar confidence in the Chinggis bonds as we do in James Bond. The government’s track record with managing large investment projects is not encouraging thus far (consider Tavan Tolgoi and the “100 Thousand Neighbors” project just to name two), and it is not entirely clear there are nerds competent enough back in Ulaanbaatar to establish effective plans and clean up if things go terribly wrong.
I am left wondering if the success of Mongolia’s initial offering is true success or it carries a healthy portion of delusion along with a sprinkle of Bond-esque bravado. In other words, I am trying to understand whether Mongolia is a good bet because the government and bond traders have faith in Mongolia’s ability to get the fundamentals right or whether the government and traders have more faith in their own ability to outmaneuver the suckers at the table and to be holding a winning hand when the game ends. As long as Mongolia’s economy continues to grow, then it seems to be a game too tempting for both sides not to play. But, what about the country of Mongolia? There is no doubt that Mongolia has the mineral wealth in theory to make good on its loans, but there is still considerable doubt it has the institutions and leadership to leverage that wealth effectively. It’s great in theory that the government could raise so much money in one go, but whether it is great in practice remains to be seen.
The one thing that is essential is for the public and opposition parties to keep the pressure on the government to get things right. The government has decided to play a risky game, and they shouldn’t be allowed to forget about their responsibility to make good policy. After all, it isn’t really a game but rather people’s lives and livelihoods they are responsible for.”
While it would seem that Mongolia could be a country with a very bright future ahead of it, its governmental policies seem uncertain and downright self destructive sometimes. After years of suffering in poverty the Mongolian people deserve better from their leaders. Stay tuned for future developments.
For more information about “Chinggis Bonds” visit the “Infomongolia” website at,
www.infomongolia.com
).
Hawkeye in China
– Lex Smith