ULAANBAATAR, June 29 (Reuters) - A Mongolian dairy producer has issued the local stock exchange's largest ever corporate bond, testing market appetite following an economic bailout and the potential election of an unpredictable new president.
Suu, which means milk in Mongolian, sold 6 billion tugrik ($2.55 million) of debt as it aims to boost production and refinance dollar-denominated debt accumulated during the country's short-lived economic boom. The one-year bills have an annual interest rate of 17.5 percent.
Investors were drawn to the bond because of the stability brought to the local currency, the tugrik, following a $5.5 billion rescue package from the International Monetary Fund (IMF), said Dashdorj Bilguun, who worked on the underwriting at Golomt Capital.
"It stabilises the currency," said Bilguun of the IMF deal.
The tugrik was in free fall last year, declining by nearly a quarter as a result of falling investment and weak Chinese demand for commodities.
Coal and copper sold to China were leading drivers of Mongolian growth, but the IMF is now encouraging the landlocked Asian nation to diversify and develop agriculture and tourism in order to protect it from boom-bust cycles.
Suu is eyeing China as a potential customer for its dairy products, but Mongolian agriculture remains underdeveloped because of a lack of infrastructure and the remote location of herders.
About 30 percent of Mongolia's population still practices a traditional nomadic livelihood that can be traced back to the 13th century, when Genghis Khan was building history's largest empire.
Bilguun said the bills were 12.6 percent oversubscribed despite investor concerns about the potential victory of presidential candidate Khaltmaa Battulga from the opposition Democratic Party, who won the most votes in an inconclusive first round of elections this week.
Before the election, Battulga was calling for more state control in mining, including the Oyu Tolgoi copper-gold mine run by Rio Tinto.
Shares in Mongolia-based firms plunged this week after the election, with Turquoise Hill Resources and Aspire Mining falling by around 5 percent and the Mongolian Mining Corp losing 14 percent since Monday.
An analyst with a Hong Kong investment firm familiar with Thursday's bond deal said the government had turned a corner after the IMF agreement was secured.
"The atmosphere has changed," said the analyst, who asked not to be named because he was not authorised to speak to the media. "There will still be pains, but hopefully the worst has passed." (Reporting by Terrence Edwards; Editing by Amrutha Gayathri)