Miga has issued US$20mn in guarantees to Gerald Metals of the US (GMI) and Banca Commerciale Lugano of Switzerland (BCL) covering their US$22.23mn equity investments and future retained earnings in the Trade and Development Bank of Mongolia (TDB).
The coverage, which is up to 10 years, protects against the risks of transfer restriction, expropriation, and breach of contract.
Initially, GMI and BCL formed a joint venture to purchase a 76% stake in the privatised TDB. Local Mongolian investors – including TDB employees – bought the remaining 24% stake. The project was later financed by the International Finance Corporation (IFC) and Asian Development Bank (ADB), who became shareholders of the TDB.
The project will support the Mongolian government’s privatization efforts and the development of the country’s financial markets. Already, TDB has built strong brand awareness among Mongolian consumers and businesses. The new owners will infuse both cash and expertise, thereby helping TDB diversify into a broader range of financial products to meet growing demand. The bank has increased staff, raised staff salaries and continues to expend significant amounts on training and education for its employees, making TDB one of the country’s top employers in terms of compensation and training.
This project is helping expand the country’s fledgling private banking sector, while bringing in a much-needed dose of foreign direct investment to this isolated nation.
Mongolia, with a relatively small economy and difficult investment climate, has struggled to attract new FDI since its independence following the break up of the former Soviet Union. The election of a new coalition government in 2004 has paved the way for a wide range of reforms, including privatisation of the financial sector and new laws that are improving the business climate.
The bank’s success should spur new growth and additional competition, as foreign investors see that such projects can reap a strong investment return and as Mongolian authorities build the kind of legislative and regulatory infrastructure that encourages business development and new investment.
The guarantees complement Mongolia’s new country assistance strategy, which focuses on economic restructuring, improvements in the financial and banking sector, and encouraging private development. Miga’s effort in Mongolia is part of a cross-agency collaboration that includes work of the IFC and ADB with other Mongolian banks. The project is Miga’s first in the country, and reflects a key agency goal of bringing new foreign investment into IDA (the world’s poorest) countries.