Mongolia Business Owner and CFO Survey Result

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and CFO Survey Result Mongoliabusinessandcfosurveyresults

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Mongolia Business Owner and CFO Survey Result

  1. 1. Mongolia Business Owner and CFO Survey Result October 30, 2012 Sales and Research Team, BDSec Joint Stock Company at www.bdsec.mn Nick Cousyn nick.cousyn@bdsec.mn Undram Soyolkhuu Research analyst undram.s@bdsec.mn 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 hiring and business decisions. While much is written about Mongolia in a macro sense, little if anything is known about the challenges and opporrobust 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. MNT 1 Year Savings Rate (average) 1 Year Loan Rate (average) USD 15.3% 18.4% 7.2% 15.3% The questions and answers are as follows: 1. Compared to 2011, this year (2012) your company’s business is…? Better 35.7% The same Worse 52.4% 11.9% 1
  2. 2. Institutional Sales & Research Department 2. Have you been hiring new people in 2012? Yes 64.3% No 35.7% 3. Do you plan on hiring new people in 2013? Yes No 83.3% 16.7% 4. Is credit from local banks more available now compared to 2011 Yes 19.0% No 81.0% 5. If you could borrow money for a longer period of time, would that help you grow your business and hire more people? Yes No 85.7% 14.3% 6. How much debt does your company have? None 19.1% A small amount 35.7% A moderate amount A lot 38.1% 7.1% 2
  3. 3. Institutional Sales & Research Department 7. Is your company planning on raising capital in the near future? Yes No 76.2% 23.8% 8. If you do plan to raise capital, which instrument would you prefer? Corporate bond 2.8% Stock issuance 13.5% A credit from local bank A credit from an international bank 59.4% 24.3% 9. When raising capital using staed instrument, what is the biggest Other General market outlook 9.9% 17.0% High requirements for getting credit Regulatory situation 58.5% 14.6% Respondent Comments: “Banks require large collateral and undervalue them.” “The biggest hurdle is that we do not know many ways to raise capital.” “We can’t afford the rates the banks charge, I borrow money from relatives when I need it.” 3
  4. 4. 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 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 remain 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 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 competitive disadvantage. Given the 1 year risk free rate of return in Mongolia is approximately 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 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 conversion of equity at or near current share prices.
  5. 5. Institutional Sales & Research Department phone/fax: 976-11323411 mail: research@bdsec.mn traders@bdsec.mn Nick Cousyn email: nick.cousyn@bdsec.mn Munkhtulga Ganbold Head of Institutional Sales email: mganbold@bdsec.mn Dagiijanchiv Chuluunbaatar Research email: dagiijanchiv@bdsec.mn Odbayar Oyunbaatar Research email: od@bdsec.mn BDSec Headquarter Zaluuchuud Avenue 27-1 8th Khoroo, Sukhbaatar District Ulaanbaatar, Mongolia Phone/Fax: 976-11313108 Website: www.bdsec.mn Undram Soyolkhuu Research email: undram.s@bdsec.mn Sainbayar Jadamba Institutional Sales email: sainbayar@bdsec.mn BDSec Express Branch Express Tower Peace Avenue Ulaanbaatar, Mongolia Phone/Fax: 976-11311128 Email: info@bdsec.mn Disclaimer The information contained in this report is for general information purposes only. This report and its content is copyright of BDSecurities 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. 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 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 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 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. BDSecurities may, to the extent permissible by applicable law or regulation, use the above material, conclusions, research or analysis in which they are based before the material is disseminated to their customers. Not all customers will receive the material at ments from time to time in the open market or otherwise, in each case either as principal or agent. BDSecurities may make markets underlying or related to such securities. BDSecurities may have recently underwritten the securities of an issuer mentioned herein.

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