Gold mining companies with nonperforming loans:

The Development Bank has provided financing of MNT 63.3 billion to 13 gold companies to increase gold reserves within the framework of the “Gold – 2” program, as per the government’s 2017 resolution No. 20. Three of them have been classified as borrowers with non-performing assets and have been brought into court for settlement. Some serious problems are under review, such as their loan expenditures are not clear, the loan investments had been put into projects ineligible for loans, and companies lacked financial discipline in their businesses, resulting in a substantial amount of fruitless expenses. In particular, “Songold” and “Erd Khul” LLC failed to fulfill their obligations in loan agreements and the Development Bank has turned to court, making them sell their properties to pay off the loans. The Supreme Court has previously reviewed a civil lawsuit involving the “Songold”, with the Development Bank acting as plaintiff. The company had received MNT 17.3 billion from the Development Bank, however, exceeded its repayment period by 46 months, and the loan principal, interest, and accrued interests almost reached MNT 20 billion. The higher the company’s debts are, the greater the potential risks become for both sides, according to the acting director of the Development Bank’s Business, Development Department Batyrbek.B. Putting up its gold license as collateral, “Songold” took out MNT 19.7 billion in loan from the Development Bank to launch its projects. But a decision was made in May 2020 to take areas around the Noyon Uul Mountain natural reserves located across Mandal soum of Selenge province and Bornuur and Batsumber soums of Tuv province under the state special protection, expanding its protection category to Strictly Protected. As a result of the decision, special licenses granted on this territory are considered revoked, including the licenses held by the “Songold” company, who therefore became unable to start their project and the Development Bank’s loan quality was affected. Both “Songold” and “Erd Khul” have suspended their operations, and as for “Erd Khul”, it appears that the company’s executives cannot be found. The Bank has mentioned a few times that the executives may have fled the country. “Erd Khul” has taken MNT 0.7 billion of loan and has paid back MNT 0.3 billion, and the Bank brought a debt claim for the outstanding sum of MNT 0.6 billion. Another company whose loan repayment caused an issue is “Mondulaan Trade”. The company had to cease its operation because the mine area where the company was extracting on was flooded and the groundwater could not be tackled. After taking MNT 13.7 billion loan from the Development Bank in 2018, the company repaid MNT 3.3 billion and the outstanding loan is now at MNT 18 billion. The De velopment Bank has brought this matter to the First District Court of Civil Matters of Sukhbaatar District in Ulaanbaatar city for the fulfillment of the obligations in their loan agreement. Among gold projects, “Imperial Gold Mining” has started repaying its loan. The company has a total of MNT 16.5 billion in loan principal and accrued interests, out of which, MNT 2 billion has been paid off. After negotiation with the Development Bank, “Imperial Gold Mining” has brought a mine operator company, with whom they had worked before, into its licensed-mine field in Bayankhongor province. A deal was made by the company with the Development Bank to mine around 50 kg gold this year and pay back its loan with their sales revenue. With a view to take its money back from the company, the Development Bank concluded this strict deal with the operator and has been taking part in and overseeing their daily activities. Since 2019 when the “Imperial Gold Mining” has taken out a loan, they have made a repayment of MNT 86 million. In 2019, a professional inspection agency conducted several inspections in their gold mine activities located in Sumber bagh, Galuut soum of Bayankhongor province, and ordered to stop until violations are corrected. However, they were later caught engaged in concealed mining operations. Munkhbayar.T, who served as Executive Director of Erdenes Silver Resources LLC, took out the MNT 16.5 billion of loan from the Development Bank of Mongolia, while he was the director of “Imperial Gold Mining”. He was awarded Hero of Labor of Mongolia by the former President of Mongolia Battulga.Kh right before his presidential term of office ended. “Investigations show that some companies who have taken loans to carry out their gold mining projects neglect their responsibilities to pay back or are not willing to spend the loan investment as intended purposes. The situation has become deteriorated to this level. Despite good market conditions and the high price of gold, loan repayments were not made. Some companies are just not able to launch their projects due to unclear situations or circumstances beyond their control” says Manduul.N, who is about to mark his first year in office as Development Bank CEO.

Apart from gold companies, loans by iron ore companies borrowed from the Development Bank are classified as non-performing. Debts by “Mon Laa” company who borrowed to build iron ore wet processing plant have already reached MNT 7.5 billion by now. The situation has become severe, according to the Development Bank executives, and the bank has turned to the court as well. Negotiations are underway between the Development Bank and “Mon Laa” company that owns the iron ore mine in Khatanbulag soum of Dornogobi province on paying back the loans from its iron ore sales. Another company of iron ore mining “Gan Khuder Ord” has received a loan of MNT 5.9 billion in 2017 for its iron ire processing plant project. Out of this, the company has repaid MNT 1.2 billion and they have now left with MNT 5.6 billion of debts. The loan repayment was delayed by two years, appropriate measures were taken by the court decision made with the Development Bank’s claim. A legal action was also brought against “Zest Undur” company, who also took out loan of JPY 439 million for its iron ore open pit mining of Shiren-Ovoo and the court resolved to reassess the company’s properties and repay the outstanding debts. Since the company is classified as non-performing loan borrower, the Development Bank brought a claim at the court of civil matters under Supreme Court review and ordered the company to pay MNT 12 billion.

” The fact that one-third of loans issued by Development Bank are accrued debts held by state-owned companies now causes headache to the Bank as well as the government. For instance, “Erdenes Mongol” LLC holds project loan debts totaling MNT 155.5 billion, and Manduul.N, Development Bank CEO, informed that a decision was made to pay off these debts with dividends for shares owned by the government in “Erdenes Mongol’s subsidiary “Erdenes Tavantolgoi”. To be specific, the repayment structure does not concern the 14.5 percent of total shares of “Erdenes Tavantolgoi” held by citizens of Mongolia, and only the accrued dividends for 81.5 percent shares owned by the stateowned, holding company “Erdenes Mongol” will be used for the repayment. On top of that, the Development Bank has issued a loan to a project by the Ministry of Energy on building a 400 MW power plant by Tavantolgoi coal plant. Its repayment has not been made as the power plant project was not carried out. The government made a decision to repay the outstanding debts as expenses to the construction project of the Tavantolgoi power plant once the project’s contractor is selected. There is also an outstanding loan of MNT 48.7 billion debts registered under Eg River Hydro Power Plant state-owned entity. The Development Bank of Mongolia was established 11 years ago with a mission and objectives to award loan financing for projects aimed at advancing the country’s development and economic growth and supporting exports and enhancing competitiveness, and for longer-term projects requiring a great amount of funding that commercial banks’ assets may fall short of. However, the Bank’s past activities that deviated from its core missions, in particular playing the role of a government special fund or a second state budget, now have become a source of present difficulties.

Since its founding in 2011, the Development Bank has raised funds equal to MNT 9.8 trillion in total from international financial markets and MNT 7.5 trillion of them have become loans in MNT 7.5 trillion to finance projects by companies. The Bank has financed a total of 3,000 projects and programs and its loan assets have reached MNT 3.1 trillion. Two-third of the abovementioned MNT 7.5 trillion has been already repaid or closed. Only five months ago, the Central Bank’s investigation announced that MNT 1.8 trillion of the current loan assets had become outstanding loans. Following public criticism, investigations by law enforcement agencies, parliamentarian public hearings, arrests of some large borrowers, and several times of statements by the Development Bank since the beginning of this year, loan repayment has reached MNT 274 billion as of June 24, 2022. Around 80 percent of the companies paying back their loans are private entities, while state-owned companies only make up 8 percent of the total loan repayment. The Development Bank has issued Tugrug currency bonds on the over-the-counter market twice, which totaled MNT 225 billion. To raise funds for investment into the “Erdenes Tavantolgoi” bonds, the Development Bank offered a 3-year currency bond with 9.6 percent annual interest to South Korean investors. Foreign investors have to bear the currency risk. This interest rate is considered lower since the policy rate by the central bank is now at 10 percent. The Development Bank works to provide financial mediation by raising funds from international financial markets at a low cost and allocating the fund to the country’s essential development projects. But the Bank now has to get involved even in the mining extraction activities and appoint its representatives to look after extraction processes only to ensure the repayment of the loans it has provided.