The government of Mongolia on October 26 officially launched a $650mn bond offering by releasing its price guidance. The five and a half year bond is expected to price at around 6.125%, as announced by joint bookrunners Credit Suisse, Deutsche Bank and J.P. Morgan.

The anticipated yield is roughly at the same level that the yields of Mongolia’s existing dollar bonds due in 2022 and 2024 are trading at. Mongolia’s government has also announced plans to buy back $500mn of its dollar and yuan-denominated bonds due in 2018, which means the country will have no major foreign debt maturities due until 2021.

Part of the proceeds from the new bond issuance will be used to back a tender offer for the aforementioned bonds. It will also come as welcome assistance to the country as Mongolia is recovering from its economic crisis in 2016 caused by a commodity prices slump.

The issuance will mark the second time in 2017 that Mongolia has visited the offshore dollar bond market - the country raised $600mn from an 8.75% seven-year “Khuraldai bond” sale in March. Junk-rated bonds issued by sovereigns have been performing well on credit markets this year with Mongolian bonds securing double-digit returns to investors.

Credit Suisse, Deutsche Bank and J.P. Morgan will be the joint lead managers and bookrunners for both the bond buyback tender offer and the planned bond sale.

Despite warnings from credit agencies about the vulnerability of “frontier markets” to rising global interests rates, investors have shown a willingness to fund governments with lower credit ratings borrowing in foreign currencies this year.

A boom in FDI helped Mongolia rack up astronomical GDP growth of 17.5% back in 2011. Since then, the economy has been on a downwards trajectory - it grew by only 1% in 2016, down from the 2.3% seen in 2015.

Mongolia’s economy grew by 5.3% y/y in the first half of 2017. The recovery was largely down to soaring coal exports driven by newfound demand for Mongolian coal in China - which can no longer buy North Korean coal due to sanctions - as well as the $5.5bn bailout agreement led by the International Monetary Fund (IMF).

Under the bailout deal, Mongolia now finds itself receiving support from a number of sources including the IMF, the World Bank, the Asian Development Bank and the International Investment Bank.