Following the successful launch of Papua New Guinea’s first sovereign bond, the International Finance Corporation is intending to issue a AAA bond as part of its efforts to deepen the financial markets in Papua New Guinea. John Vivian, IFC’s Resident Representative for Papua New Guinea, tells Business Advantage PNG that it can also assist corporate funding.

The IFC’s John Vivian says a AAA bond will be issued. Source: BAI

Papua New Guinean government debt has a rating of B2 negative. That means AAA debt is not currently available domestically.

John Vivian tells Business Advantage PNG the IFC (a sister organisation of the World Bank) is looking at issuing bonds that are backed by its own balance sheet as a way of promoting local capital markets.

‘We’re aiming to introduce new instruments beyond governments that allow for the diversification of risk,’ he says.

‘So, in PNG, creating a bond market outside of government securities allows investors to diversify their risk.’

Appetite

Vivian says because of the IFC’s AAA credit rating, it can bring a very low risk product to the capital markets.

Discussions with investors, he notes, have revealed a ‘considerable appetite’.

‘IFC can also potentially act as an anchor investor for issuances of bonds by PNG corporates.’

‘For local investors, IFC issuances introduce a high quality new asset class to the domestic market.’

Other initiatives include laying the groundwork for an international standard bond auction and trading system, and simplifying ways for PNG companies to issue their own bonds.

‘Developing local capital markets is a strategic priority for IFC, as deep, efficient local capital markets create access to long-term, local currency finance—to the benefit of the private sector,’ says Vivian.

In tandem with its own issuances, IFC can also potentially act as an anchor investor for issuances of bonds by PNG corporates.

‘A deeper, efficient and liquid government bond market paves the way for corporate bond market development.’

The IFC has so far issued bonds in 18 emerging-market currencies, including the Armenian dram, Chinese renminbi, Indian rupee, Peruvian soles, and Zambian kwacha.

Capital markets

The IFC is helping PNG’s central bank strengthen the government debt capital markets and to build a secondary market (whereby bonds can be traded before they reach maturity).

The aim is to create an enabling environment to access short and long-term funding.

‘If you want any international investors to come in here, they want to make sure that you have got a state-of-the-art securities registry.’

‘A deeper, efficient and liquid government bond market paves the way for corporate bond market development,’ Vivian says.

As a first step, the IFC completed an evaluation of the systems for issuing and managing primary government debt issuances used by the Bank of Papua New Guinea.

‘With the support of Australia, the aim is to help the BPNG bring the government bond infrastructure market to international standards by providing an internationally recognised automated auction system and a fully integrated securities settlement system to replace the existing system.

‘If you want any international investors to come in here, they want to make sure that you have got a state-of-the-art securities registry and all your collateral is held in a secure place.’

On the corporate bond side, the IFC is also supporting the streamlining of issuance procedures.

The IFC will host a workshop outlining potential options to stimulate the corporate end of the market, drawing on international best practices.