Offshore investment by Papua New Guinea companies remains comparatively small, but there are opportunities. One banking executive suggests it as an important way local financial institutions can diversify.

Kina’s Deepak Gupta. Source: BAI

Superannuation funds in PNG hold portfolio investments of K1.6 billion offshore, according to Deepak Gupta, Executive General Manager Wealth at Kina Securities, which provides funds management services to PNG superannuation funds.

This represents about 12 per cent of total PNG super fund assets—an amount that he believes could ‘easily double’.

Gupta believes that the current level is much lower than ‘strategic asset allocation dictates’ (funds try to diversify geographically to get the right mix of risj and reward). But, he says, the situation is not likely to change in the short term.

‘Foreign investment provides diversification and liquidity.’

‘I suspect that direct investment offshore is something that is some way down the track for PNG funds, in terms of doing it in a meaningful way.’

Financial assets

Gupta said investing offshore provides diversification and liquidity.

Most of the PNG super funds’ current investments are predominantly held in Australian-based collective investment vehicles: trusts and managed investment schemes.

‘Any increase in outward foreign direct investment will largely be in financial assets. However, opportunities are available for direct investment’: that is, investments in individual businesses, rather than in financial vehicles such as the stock market or trusts.

Gupta noted that investments in publicly-listed companies are safer, because with direct investments  it is necessary to conduct due diligence.

‘It is not just superannuation companies that invest offshore.’

‘Listed company boards and management are held to account and the rules are enforced. Witness the Royal Commission (in Australia) that is under way in respect of the financial services industry.

‘The penalties are severe. In the unlisted world you are, to a degree, on your own because these layers lack protection.

‘Accordingly, the unlisted space is not available to direct investors.’

He said there are ‘arguably negligible differences with long-term return outcomes between listed and direct (not publicly listed) investments.’

PNG’s Balance of Payments showing a large trade surplus and large financial deficit. Source: BAPNG

Other investors

Gupta observed that it is not just superannuation companies that invest offshore.

He said MRL Capital, a portfolio investor, has an extensive property portfolio in Cairns and Brisbane.

‘A significant impediment is the availability of foreign exchange.’

Mapai Transport has invested into transport and logistics in New Zealand to gain knowledge, generate foreign exchange and diversify away from the Highlands region.

Anitua, which receives royalties from the Lihir goldmine, has invested in property and a joint venture fishing entity in North Queensland. The purpose is to provide food supply to supply its catering business in PNG, National Catering Services.

The Mineral Resources Development Company (MRDC) is a portfolio investor in Fiji Hotels.

Inward looking

Overall, PNG is more focused in inward foreign investment, observes Gupta. ‘The current difficult economic times are leading to an inward focus.’

He said there are, however, opportunities for PNG to invest, especially in Australia, and for PNG and Australian investors to partner in pursuing ‘win/win outcomes’ that can lead to future investment relationships.

A significant impediment, said Gupta, is the availability of foreign exchange.

‘At the moment, access to foreign exchange is not easy. It is a reason why the super funds cannot have a high proportion of their funds offshore.

‘This inability to gain access to foreign exchange for foreign investment has been an opportunity cost to the funds.

‘We do not see the situation changing markedly in the short-to-medium term.’