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Mongolia Growth Group Issues June Shareholder Update

Jul. 22, 2013 10:38 AM ETMNGGF
John Polomny profile picture
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Contrarian, Long-Term Horizon, Value, Special Situations

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John Polomny writes the Actionable Intelligence Alert. The Actionable Intelligence Alert provides unique, overlooked, and well researched opporutunities and speculations from all over the world.

According to the CEO, Harris Kupperman, business activity in the retail and restaurant sector is really taking off. This appears to be the result of the government sponsored residential refinancing scheme that has been put into place and that is lowering mortgage payments by 50-70%.

The big news this month is the newly created government program to issue 8% residential mortgages with 20 year duration. For a point of reference, previously most Mongolian Togrog denominated mortgages were at rates of around 20% annually with amortization schedules of 5-15 years. The reduced interest rates and substantially elongated principal repayment structure of these new 8% mortgages means that most borrowers will see their monthly mortgage payments drop by 50% to 70%.

This reduced monthly payment now allows families that previously could not afford a mortgage to enter the property market. It will also allow families with existing mortgages to be able to pay down their mortgages and build up equity. Of all of the news stories thus far during 2013, this is probably the biggest one for Mongolia-yet it has gotten very little attention from the foreign media. Here at MGG, we are watching this 8% mortgage plan closely as we believe that a liquid and functioning residential mortgage market is a harbinger of the creation of a sizable middle class in Mongolia. In addition, in the shorter term, it has unleashed quite a lot of capital into the consumer economy-which is good for everybody, particularly our retail tenants.

The company has also recently announced plans to divest its insurance company and sell off its apartments in UB. In addition, the company expects rental income to surge nearly 50% by yearend which should get the company to a cash flow positive position. Things really appear to be setting up for a big move higher in the near future. I have been taking advantage of drops in the share price down to $3.00 in some cases and will continue to add to my position. In addition, I have now become fully invested in MSE account as I expect an acceleration in GDP and FDI going forward.

Disclosure: I am long OTCPK:MNGGF.

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