Mongolia moots asset management company to tackle bad loans www.ft.com

The Mongolian government is considering the establishment of an asset management company before the end of the year to offload onerous non-performing loans from domestic banks’ balance sheets. 

Mongolia secured an International Monetary Fund financial package last month to slash a bulging debt load. That package included a requirement for an audit of the domestic banking sector as part of its fiscal discipline guidelines. 

The IMF’s three-year, $434m loan unlocked financial support from the Asian Development Bank, the World Bank, Japan and South Korea, while the People’s Bank of China extended existing swap lines with the Bank of Mongolia, the central bank. The total financial package amounts to $5.5bn, helping Mongolia service external debt repayments of about $2bn through to 2022. 

The 16 banks serving Mongolia’s $10bn economy are small, pay extraordinarily high deposit rates and are burdened with bad debt built up during the mining industry’s previous boom-and-bust cycle. The asset management company would help banks offload NPLs and release capital that is now held against bad loans, which many banks prefer to roll over rather than recognise.

“Many loans are restructured and we have no idea how big [the issue is],” said Neil Saker, the IMF’s representative in Mongolia. “We only have anecdotal evidence because banks don't really report restructured loans.”

NPLs expanded rapidly after drops in commodity prices and in Chinese demand and the resulting squeeze on the Mongolian economy. Overborrowing and overspending at the height of the commodities cycle meant mining-dependent Mongolia built up debt of 90 per cent of GDP and a chunky fiscal deficit of 17 per cent of GDP.

The parliament, known as the Great Hural, is expected to debate the proposal in its autumn session. “The design of the asset management company has been drawn up already,” said Ayumi Konishi, director-general for East Asia at the Asian Development Bank. 

Estimating the size of Mongolian NPLs is not easy, because of both borrowers’ and lenders’ preference for extending loans rather than categorising them as non-performing. According to Bank of Mongolia, the banking sector’s NPL ratio sits at 8.6 per cent. But some market participants believe the true ratio might be as high as 20 per cent.

What is more, much NPL collateral is in the form of mining certificates calculated on the basis of commodity prices before the recent, multiyear slump. “I am sceptical that 100 per cent of the collateral will ever be recovered,” said Graeme Knowd, managing director, banking, at Moody’s.

More transparent books could help some banks attract interest in the NPLs from foreign investors, with banking sources floating Middle Eastern sovereign wealth funds as potential buyers. Generating capital from Mongolian banks' declining profits “is just not sufficient”, Mr Knowd said.

Meanwhile, newly proposed rules aim to make Bank of Mongolia more independent of parliament while limiting the power of the governor. Those laws could be passed as early as next year, according to the IMF.

In March, Ulan Bator avoided defaulting on a $580m Development Bank of Mongolia bond thanks to an IMF agreement. The country now expects a recovery in the commodities cycle and will receive $1bn in foreign direct investment annually for the next five years for the gold and copper Oyu Tolgoi mine.

New met-coal mine opens in Pennsylvania www.mining.com

Glencore snatches Rio Tinto-owned mines from Yancoal with $2.55B offer www.mining.com

Miner and commodities trader Glencore (LON:GLEN) has performed a coup d'etat on a deal that was practically sealed between Yancoal Australia (ASX:YAL) and Rio Tinto (ASX, LON:RIO) for Rio's coal assets in Australia's Hunter Valley.

Mongolia to earn USD 1.4 billion from copper export in 2017 www.mongolia.gogo.mn

Chili and China are playing key roles in global copper industry. Chili leads the world for copper reserve and production and supplied 23 percent of global copper demand in 2016. Meanwhile, China tops the world for copper import. 
International experts are projected that the copper price will be decreased while prices for per tons of copper will reach USD 5,500 in 2017 due to the rapid growth of copper reserve and China`s economic slowdown. Moreover, the amount of copper supply is expected to be more 160 thousand tons than supply in 2017. 
Mongolia ranks 12th in the world for copper reserve, 17th for copper production and 5th for copper ore exports. 
In 2016, Mongolia`s copper industry exported a total of 1.6 million tons of copper ore which accounted 36 percent of the total export of the country and earned revenue of USD 1.7 billion. Of which 62 percent of copper export was supplied by Oyu Tolgoi while Erdenet mining corporation supplied 30 percent of copper export respectively. 
Due to falling copper prices, Mongolia`s export of copper concentrate is projected to reach 1.3 million and export revenue to amount USD 1.4 billion in 2017.

MAK inaugurates cement factory in Dornogobi www.montsame.mn

Ulaanbaatar /MONTSAME/ On June 9, Friday, Prime Minister J.Erdenebat attended an inauguration ceremony of Mongolyn Alt Corporation’s ‘MAK – Euro cement’ factory, and remarked on its potential to minimize cement import.

Toshiba to pay $3.68bn for 2 nuclear plants after US subsidiary files for bankruptcy www.rt.com

President attends opening ceremony of Astana Expo www.montsame.mn

John Grogan Chairman of Mongolian-British Chamber of Commerce elected as an MP of British Parliament. www.mongolianbusinessdatabase.com

Britain's Prime Minister Theresa May seeks to form a new government despite her Conservative Party's loss of its majority in Thursday's general election.

EBRD approves new country strategy for Mongolia www.ebrd.com

Khukh Tsav cement plant to begin operation www.montsame.mn