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Wednesday, July 6, 2011

Mongolia Briefing is a magazine and daily news service about doing business in Mongolia. We cover topics relating to the Mongolian economy, the market in Mongolia, foreign direct investment and Mongolian law and tax. It is written in-house by the foreign investment professionals at Dezan Shira & Associates

Moody’s Revises Local Currency Country Risk for Mongolia

By Elena Fehrbach

Aug. 10 – Moody’s Investors Services agency has adjusted local currency country risk, foreign currency bond and deposit ceiling for Mongolia. Ceiling changes refers to the highest rating that can be assigned to a domestic issuer. In case of Mongolia, the adjustment was completed as follows:

  • Local currency bond ceiling is now Ba3. Previously it was Baa1;
  • Long-term local currency deposit ceiling was changed to Ba3;
  • Short-term foreign currency bond and deposit ceiling remain unchanged;
  • Long-term currency bond ceiling was changed to Ba3;
  • Long-term foreign currency deposit ceiling didn’t change and stands at B2.

Moody’s has decided to adjust the local currency ceiling for Mongolia due to development and application of the new methodology that has been published at the beginning of 2013. Based on the new methodology, the local currency ceiling is positioned against Mongolia’s Sovereign Bond rating B1 and related Bond scores, three of which are the main influencing components of the ceiling. In particular, three factors include “low” assessment of institutional strength, “low” assessment of economic strength and “high” assessment of susceptibility to economic, political and institutional risks.

Adjustment of the local currency ceiling is also influenced by other specific risks, such as legislation uncertainties related to foreign investments and fast changing economic cycles. As for the foreign currency ceiling, Moody’s has made an adjustment to reflect moratorium risks given Mongolia’s ability to service its private and public cross-border debt obligations. To summarize, the ceiling takes into account Mongolia’s significant financing needs on the one hand and investment opportunities with some capital control on the other hand.

The Sovereign Bond (also known as Chinggis Bond) ratings are not affected by the changes in the ceilings.

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