S&P: Ratings On Development Bank of Mongolia Lowered To 'B-' After Sovereign Rating Action; Outlook Stable
This rating action came after we lowered the long-term sovereign credit rating on Mongolia to 'B-' from 'B' (see "Mongolia Long-Term Rating Lowered To 'B-' On Weakening Fiscal And Growth Performance; Outlook Stable," published Aug. 19, 2016). The outlook on Mongolia is stable. At the same time, we affirmed our 'B' short-term rating on Mongolia.
We equalize the ratings on DBM with the sovereign rating because we expect the bank to remain a government-related entity (GRE) with an almost certain likelihood of receiving government support.
In our view, DBM's role will remain critical to the Mongolian government. DBM was established in March 2011 as the sole policy bank to execute strategic government policies. Mongolia's infrastructure is relatively underdeveloped, and the government will need to use DBM to develop major infrastructure projects. We believe the bank will provide efficient medium - to long-term financing for the economic development of Mongolia.
"We expect DBM to maintain its integral link with the Mongolia government," said S&P Global Ratings credit analyst Daehyun Kim. "The government fully owns DBM, and we expect the government to continue to exert significant control and influence over the appointment of the bank's key management and operating decisions. We do not anticipate any significant change in the ownership structure in the medium - to long-term."
The government has a record of providing capital to DBM so that the bank continues to perform its key policy banking roles. We expect the Mongolian government to continue to provide funding and liquidity support to DBM, when necessary.
"The stable outlook on DBM mirrors that on the sovereign rating on Mongolia (B-/Stable/B)," said Mr. Kim. "We equalize the rating on DBM with the sovereign rating because we expect the bank to remain a government-related entity (GRE) with an almost certain likelihood of receiving government support."
The stable outlook on the sovereign rating balances the country's low-income resource-driven economy, emerging policy environment and fiscal performance, high external risk, and limited monetary flexibility with the prospect that large mining projects could quickly reverse Mongolia's sovereign credit profile during the next 12 months. This outlook also assumes that official creditor support is imminent to contain balance-of-payment and fiscal pressures.
We would lower the ratings on DBM if we lower the sovereign ratings on Mongolia. Downward pressure on the sovereign ratings could emerge if Mongolia's external liquidity weakens markedly.
We could upgrade DBM if we were to raise the sovereign ratings on Mongolia. Upward pressure on the sovereign rating could build if the development of the Oyu Tolgoi and Tavan Tolgoi mines accelerates economic growth and improves fiscal and external performances more than we currently expect.
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