Trade & Development Bank (TDB) recently raised USD25 million from its lower tier two bond, becoming the first Mongolian bank to sell subordinated bonds, returning to investors only weeks after issuing a senior international deal that was a rarity in its own right. This was also the third bond of any type from Mongolia — the previous two were also sold by TDB.

“This transaction brings Mongolia a little bit further forward on investors’ radar screens,” said Florian Schmidt, head of Debt Capital Markets Asia at ING, the sole bookrunner of the transaction. “We have now seen within the Mongolian context a big senior bond, an IPO and a subordinated issue, all within a short period of time.”

TDB’s latest deal is set to mature in five years and one day, the lowest maturity that qualifies as lower tier two under Mongolian rules. ING priced the deal at 99.999 with a 12.5% coupon, around 1.5 times the yield on the issuer’s October 2013 bonds, which were yielding 8.1% this week. The subordinated bond came with a conversion option, also necessary for it to qualify as lower tier two under Mongolian rules, according to  Schmidt. The conversion price has not been set, and will not be decided until the deal is near maturity.

TDB has previously raised capital in the loan markets, including borrowing money from multilaterals such as Asian Development Bank and International Finance Corp. But it has now boosted its capital adequacy ratio to 19.5% from 13.8% in July, and opened up a source of capital that could be tapped by other banks. “Mongolian banks need to bolster the capital base if they want to participate in the commodity-induced growth story that is in store,” said Schmidt. “Against this backdrop this product is definitely something that can be pitched to other banks.”

ING bankers first approached investors with the idea of a subordinated deal when they were pitching TDB’s USD150-million 2013 deal in the middle of last month — only the second ever deal from the country following an issue from TDB three years earlier. The lead manager approached a handful of investors with the deal, and five accounts participated.