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Mongolia Business Owner and CFO Survey Result Mongoliabusinessandcfosurveyresults
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Mongolia Business Owner and CFO Survey Result
We are publishing the results of a survey where we look to gauge the overall health of the local economy and what role credit is playing in hir-ing and business decisions. While much is written about Mongolia in a macro sense, little if anything is known about the challenges and oppor-WXQLWLHV�IDFLQJ�GRPHVWLF�FRPSDQLHV��:KLOH�WKH�UHVXOWV�JHQHUDOO\�UHÀHFW�D�robust economic climate, it is clear to us that a lack of available credit is affecting long term planning and future growth.
Our survey focused on medium and large sized companies with 100% of their assets in Mongolia. We had a total of 42 respondents, both public and private and include some of the largest companies in Mongolia.
As a preface to the results of the survey, we also called the Top 5 local banks to obtain stated deposit and loan rates.
The questions and answers are as follows:
MNT USD1 Year Savings Rate (average) 15.3% 7.2%1 Year Loan Rate (average) 18.4% 15.3%
1. Compared to 2011, this year (2012) your company’s business is…?
11.9%
52.4%
35.7%
Worse
The same
Better
Sales and Research Team, BDSec Joint Stock Company at www.bdsec.mn
October 30, 2012
1
Nick Cousyn&KLHI�2SHUDWLQJ�2I¿FHU�[email protected]
Undram Soyolkhuu Research [email protected]
3. Do you plan on hiring new people in 2013?
4. Is credit from local banks more available now compared to 2011
5. If you could borrow money for a longer period of time, would that help you grow your business and hire more people?
6. How much debt does your company have?
7.1%
38.1%
35.7%
19.1%
A lot
A moderate amount
A small amount
None
2. Have you been hiring new people in 2012?
Institutional Sales & Research Department
2
35.7%
64.3%
No
Yes
16.7%
83.3%
No
Yes
81.0%
19.0%
No
Yes
14.3%
85.7%
No
Yes
7. Is your company planning on raising capital in the near future?
8. If you do plan to raise capital, which instrument would you prefer?
24.3%
59.4%
13.5%
2.8%
A credit from an international bank
A credit from local bank
Stock issuance
Corporate bond
9. When raising capital using staed instrument, what is the biggest GLI¿FXOW\�WKDW�\RX�IDFH"�
14.6%
58.5%
17.0%
9.9%
Regulatory situation
High requirements for getting credit
General market outlook
Other
Institutional Sales & Research Department
3
23.8%
76.2%
No
Yes
Respondent Comments:
“Banks require large collateral and undervalue them.”“The biggest hurdle is that we do not know many ways to raise capital.”³:H�DUH�SODQQLQJ�WR�UDLVH�FDSLWDO�E\�¿QGLQJ�LQYHVWRUV�´“We can’t afford the rates the banks charge, I borrow money from relatives when I need it.”
Institutional Sales & Research Department
Biggest takeaway’s in our view:
Local companies appear to be bullish about 2013 prospects, as 83% plan on hiring in 2013 and 76% plan on raising capital, presumably to fund growth and hire more people. We have been saying for some time that Mongolian DVVHWV�DUH�ODUJHO\�XQHQFXPEHUHG��ZKLFK�LV�UHÀHFWHG�LQ�WKLV�VXUYH\��DV�RQO\�7% of respondents indicate they have “a lot” of debt, with 55% saying they have “little” or “no” debt. Despite high demand for capital and low levels of indebtedness, 81% said credit from local banks is less available in 2012 vs. 2011. So we think this presents an opportunity, as business conditions re-main favorable and debt levels are mostly low or non-existent. Since 76% of respondents say they intend to raise capital in 2013 and 8/10 indicate credit LV�OHVV�DYDLODEOH��WKLV�FRXOG�EH�D�FDWDO\VW�IRU�D�FRUSRUDWH�ERQG�PDUNHW�WR�¿QDOO\�emerge in Mongolia.In summary, we feel the results are generally supportive of a robust local economy, which is beginning to react to an environment of tighter credit and liquidity. Given the disparity of the availability and cost of credit relative to their foreign peers, we fear local companies will be increasingly at a compet-itive disadvantage. Given the 1 year risk free rate of return in Mongolia is ap-proximately 15%, companies need to maintain high margins to justify putting capital to risk. We think the answer to this problem is the use of convertible bonds in the local market, whereby borrowing rates could in some cases be cut in half, duration extended and debt repayments made in equity. This way ¿[HG� LQFRPH� LQYHVWRUV�JHW� HTXLW\�OLNH� UHWXUQV��ZLWKRXW� WDNLQJ�RQ�DGGLWLRQDO�credit risk. For equity investors, they keep equity-like returns, get downside protection from a ~10% coupon and move up in the capital structure. It is noteworthy that many companies we talk to are willing to allow the conver-sion of equity at or near current share prices.
The information contained in this report is for general information purposes only. This report and its content is copyright of BDSe-curities and all rights reserved. This report- in whole or in part- may not, except with the express written permission of BDSecurities be reproduced or distributed or commercially exploited in any material form by any means whether graphic, electronic, mechanical or any means. Nor may you transmit it or store it in any other website or other form of electronic retrieval system. Any unauthorised use of this report will result in immediate proceedings.
The report has been prepared by BDSecurities Joint Stock Company. The information and opinions contained herein has been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith. Such information KDV�QRW�EHHQ�LQGHSHQGHQWO\�YHUL¿HG�DQG�QR�JXDUDQW\��UHSUHVHQWDWLRQ�RU�ZDUUDQW\��H[SUHVV�RU�LPSOLHG�LV�PDGH�DV�WR�LWV�DFFXUDF\��completeness or correctness, reliability or suitability. All such information and opinions are subject to change without notice. This document is for information purposes only, descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as, an offer, or solicitation of an offer, to buy or VHOO�DQ\�VHFXULWLHV�RU�RWKHU�¿QDQFLDO�LQVWUXPHQWV��,Q�QR�HYHQW�ZLOO�%'6HFXULWLHV�EH�OLDEOH�IRU�DQ\�ORVV�RU�GDPDJH�LQFOXGLQJ�ZLWKRXW�limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising out of, or in connection with the use of this report and any reliance you place on such information is therefore strictly at your own risk.
This publication contains forward-looking statements that involve known and unknown risks and uncertainties. These statements are based on our own information and on information from other sources we believe to be reliable and generally indicated by the use of forward-looking terminology such as “believe”, “expect”, “estimate”, “plan”, “project”, “may”, “will”, “should” or other similar words that express an indication of actions or results of actions that may or are expected to occur in the future. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this publication. Any opinions or estimates KHUHLQ�UHÀHFW�WKH�MXGJPHQW�RI�%'6HF�DW�WKH�GDWH�RI�WKH�SXEOLFDWLRQ�DQG�DUH�VXEMHFW�WR�FKDQJH�DW�DQ\WLPH�ZLWKRXW�QRWLFH��
BDSecurities may, to the extent permissible by applicable law or regulation, use the above material, conclusions, research or anal-ysis in which they are based before the material is disseminated to their customers. Not all customers will receive the material at WKH�VDPH�WLPH��%'6HFXULWLHV��WKHLU�UHVSHFWLYH�GLUHFWRUV��RI¿FHUV��UHSUHVHQWDWLYHV��HPSOR\HHV��UHODWHG�SHUVRQV�DQG�RU�%'6HFXULWLHV��PD\�KDYH�D�ORQJ�RU�VKRUW�SRVLWLRQ�LQ�DQ\�RI�WKH�VHFXULWLHV�RU�RWKHU�¿QDQFLDO�LQVWUXPHQWV�PHQWLRQHG�RU�LVVXHUV�GHVFULEHG�KHUHLQ�DW�DQ\�WLPH�DQG�PD\�PDNH�D�SXUFKDVH�DQG�RU�VDOH��RU�RIIHU�WR�PDNH�D�SXUFKDVH�DQG�RU�VDOH�RI�DQ\�VXFK�VHFXULWLHV�RU�RWKHU�¿QDQFLDO�LQVWUX-ments from time to time in the open market or otherwise, in each case either as principal or agent. BDSecurities may make markets LQ�VHFXULWLHV�RU�RWKHU�¿QDQFLDO�LQVWUXPHQWV�GHVFULEHG�LQ�WKLV�SXEOLFDWLRQ��LQ�VHFXULWLHV�RI�LVVXHUV�GHVFULEHG�KHUHLQ�RU�LQ�VHFXULWLHV�underlying or related to such securities. BDSecurities may have recently underwritten the securities of an issuer mentioned herein.
Disclaimer
BDSec Headquarter BDSec Express BranchZaluuchuud Avenue 27-18th Khoroo, Sukhbaatar DistrictUlaanbaatar, MongoliaPhone/Fax: 976-11313108Website: www.bdsec.mn
Express TowerPeace AvenueUlaanbaatar, MongoliaPhone/Fax: 976-11311128Email: [email protected]
Institutional Sales & Research Departmentphone/fax: 976-11323411 mail: [email protected] [email protected]
Dagiijanchiv ChuluunbaatarResearchemail: [email protected]
Odbayar OyunbaatarResearchemail: [email protected]
Sainbayar JadambaInstitutional Salesemail: [email protected]
Undram Soyolkhuu Research email: [email protected]
Munkhtulga GanboldHead of Institutional Salesemail: [email protected]
Nick Cousyn&KLHI�2SHUDWLQJ�2I¿FHU�email: [email protected]
