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LONDON Feb 15 Ratings agency Moody's put
Mongolia on review for a downgrade on Wednesday, citing concerns
about the financing of an upcoming $580 million
government-backed bond repayment.
The Development Bank of Mongolia's (DBM) bond falls due on
March 21, but there are worries that it lacks the funds to make
the repayment itself and the government will have to step in.
Ulaanbaatar has been in talks with China and the
International Monetary Fund (IMF) for assistance, but investors
are concerned that any bailouts might not be negotiated in time.
Moody's said the presence of an "irrevocable and
unconditional government guarantee" on the DBM bond meant it
would consider a missed payment a default by the Mongolian
sovereign which is currently rated Caa1, deep into junk.
"The as yet unresolved issue of how that maturity will be
financed poses a near-term threat to Mongolia's credit profile,
notwithstanding ongoing discussions with the IMF," Moody's said
in a statement.
It added that it would downgrade the rating if it thought
actions to support DBM "would damage the Mongolian government's
own credit profile and borrowing capacity, including by
depleting foreign exchange reserves."
On Wednesday the DBM bond was showing a bid
of 97 cents in the dollar, with a yield as high as 34 percent.
The government's own 2021 bond meanwhile
lost 0.6 cents to trade at 107.75 cents, while its 2022 issue
lost 0.5 cents.
Mongolia, a vast country of just three million people, has
been under increasing strain.
Its once booming economy has ground almost to a halt
and its currency, the tugrik, lost nearly a
quarter of its value against the dollar last year, prompting
interest rate hikes and austerity measures.
At the end of last year, it had $1.3 billion of total
reserves, including gold and IMF Special Drawing Rights, but is
estimated to have $1.7 billion in external debt maturing in
2017, excluding a swap line with the People's Bank of China.
Moody's said it would decide whether or not to cut the
rating within three months. It has already cut it twice in less
than six months.
(Reporting by Claire Milhench and Marc Jones; Editing by Gareth
Jones and Ken Ferris)