Fitch Ratings - Hong Kong - 21 Jun 2021: Fitch Ratings has assigned Mongolia's (B/Stable) proposed US dollar bonds a 'B' rating.

Proceeds from the proposed bonds will be used to repurchase a portion of the existing bonds maturing in 2022 and 2023 through a cash tender offer.

KEY RATING DRIVERS

The rating is in line with Mongolia's Long-Term Foreign-Currency Issuer Default Rating (IDR) of 'B' with a Stable Outlook.

Fitch affirmed Mongolia's Long-Term Foreign- and Local-Currency IDRs on 25 May 2021.

RATING SENSITIVITIES

FACTORS THAT COULD, INDIVIDUALLY OR COLLECTIVELY, LEAD TO NEGATIVE RATING ACTION/DOWNGRADE:

- External Finances: Evidence of heightened external stress, for example as a result of restricted access to external financing sources or a marked decline in foreign reserves.

- Public Finances: Failure to reduce the budget deficit and stabilise the government debt/GDP ratio.

- Structural Features: Political instability sufficient to significantly disrupt strategic mining projects or FDI inflows.

FACTORS THAT COULD, INDIVIDUALLY OR COLLECTIVELY, LEAD TO POSITIVE RATING ACTION/UPGRADE:

- Public Finances: Narrowing of the budget deficit consistent with putting government debt/GDP on a firm downward path.

- External Finances: The accumulation of larger foreign-currency reserve buffers and the implementation of a debt-management strategy that lowers refinancing risks and improves external debt sustainability.

- Macroeconomic: A resumption of stronger economic growth and export trends without the emergence of imbalances, and the maintenance of a favourable business environment conducive to robust FDI inflows.

BEST/WORST CASE RATING SCENARIO

International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.