The government is preparing the groundwork to give securities regulations an overhaul as part of Papua New Guinea’s (PNG) plans to enhance both its investment climate and international credit rating.
In October, the Minister for Trade, Commerce and Industry, Richard Maru, pledged to strengthen the securities market by introducing a comprehensive regulatory framework, which he said would be supported by new legislation.
However, challenges to the market’s expansion, such as a lack of trading and initial public offering (IPO) activity on the Port Moresby Stock Exchange (POMSox), continue to dampen confidence.
Maru told media that a lack of regulation and legislation had stifled growth for securities, investment managers, trustees, and funds managers. POMSox recorded a 22.2% fall in its total market capitalisation at the end of 2011, closing at PGK85.7bn ($41.4bn), down from PGK109.5bn ($52.8bn) in December 2010. Daily transactions also dropped from 24 to nine, although the average daily value rose to PGK689,000 ($332,789) from PGK275,000 ($132,825).
POMSox, which was was set up in June 1999, is served by two licensed stockbrokers, Kina Securities and BSP Capital. The exchange is dominated by multinational and domestic energy firms, with 10 of the 21 companies listed involved in mining or resource exploitation. Closely aligned to the ASX, its nine dual-listed stocks are Cue Resources, Coppermoly, Newcrest Mining, Oil Search, Highlands Pacific, New Guinea Energy, Steamships Trading, Marengo Mining, and Kina Petroleum.
With POMSox now maturing, the government has begun working with the exchange on the introduction of a secondary bond market in a bid to further improve the investment climate. PNG already has a thriving primary bond market, driven by the purchasing of T-bills and C-bills with a short-term maturity by commercial banks.
In comments to reporters, Maru described the Securities Commission of PNG, which regulates POMSox, as “very weak”, saying this was due to lack of support and commitment from the government over the years. The minister added that government plans to introduce legislation would allow the Commission to make policy pronouncements on issues affecting the securities market, paving the way for the country to become the leading securities player in the region.
POMSox hosted just two IPOs between 2010 and 2012. Newcrest Mining’s listing in September 2010 raised some PGK76bn ($36.7bn), while Kina Petroleum’s IPO in December 2011 produced around $12.8m. A number of state-owned firms, including national carrier Air Niugini, PNG Power and PNG Telikom, could point to significant growth in the coming years.
In May, Kina Securities’s CEO, Syd Yates, urged Papua New Guineans to put their money into POMsox, describing the investment climate as never having been better.
“Each day we see in the media and on financial websites the opportunities that are emerging not only for our mining and energy industries, but the fishing and agricultural industries, which are attracting keen international interest and the building of new port facilities, roads and pipelines to make PNG industry grow,” Yates told The National.
The emerging middle class is expected to grow wealthier in the coming years as PNG reaps the rewards of its resource revenues and a major liquefied natural gas (LNG) project. Some expect the $19bn Exxon-backed LNG project alone to transform PNG into a middle-income country by 2030, creating a four-fold increase in per capita income in that period. The project is expected to collect revenue in the form of tax and dividend payments, which are estimated to be between PGK2bn ($954.42m) and PGK13bn ($6.2bn) per year in the 2014-42 period, Loi Martin Bakani, the governor of the Bank of Papua New Guinea (BPNG), the country’s central bank, has said.
In a bid to raise the exchange’s profile, POMSox began operating an awareness programme with the aim of educating locals on the benefits of investing in the share market. The exchange has also stepped up efforts to market the country to overseas investors at foreign trade fairs and conferences.
Attracting more global players to the market will bolster POMSox’s efforts to engage more nationals in trading by giving them increased options, while also helping the bourse to grow. However, to achieve these aims, the exchange will need to collaborate more closely with the government to market PNG’s potential and work on improving its investment environment.