The rapid spread of the coronavirus (COVID-19) has disrupted global economic activity and led to a fall of financial markets. But the story is very different for big companies in Papua New Guinea, although there will be some adverse impacts, especially in the oil and gas sector.

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The stock market performance of PNG’s biggest domestic companies is in stark contrast to what is happening elsewhere in the world. At a time when the share prices of most big companies in developed markets have been cratering, Bank South Pacific’s share price has risen by 1.9 per cent over the month, according to Kina Securities.

PNG’s largest bank is less likely to suffer pressure on its accounts because of its exceptionally high level of reserves. Its Tier 1 capital stands at 14.7 per cent, well above the minimum global requirement of eight per cent.

Credit Corporation’s share price has been even stronger, rising by 6.9 per cent over the month.

These two PNG financial institutions stand in stark contrast to Australia’s banks, which have fallen by at least a third over the last month.

‘The KSi Home Index, which includes stocks only listed in PNG rose over the last month by 2.2 per cent.’

The share prices of most other large listed PNG companies have not moved over the last month, according to Kina. This is attributable to thin or no trading, which in a time of global crisis is one way to stop share prices collapsing. (At a time when many are calling for temporary closure of stock markets to stabilise prices, PNG arguably partially achieves the same effect by default.)

Domestic and international listing

The crisis has underlined the risks associated with dual listing on the Australian Securities Exchange. The KSi Home Index, which includes stocks only listed in PNG rose over the last month by 2.2 per cent, according to Kina.

‘The kina has been strong – further evidence that PNG’s economy has been to some extent thus far quarantined from global influences.’

By contrast, the KSi Index, which includes dual-listed stocks, fell by 10.7 per cent over the month. Although this is a much better performance than the stock exchange in Australia (the All Ordinaries fell by 30 per cent in a month) and America (the S&P fell by 29.4 per cent over the same period), it does show that PNG companies that list on the Australian market will be subject to negative sentiment in global markets even when the PNG markets they serve are relatively less affected.

The dual-listed Kina Bank, whose share price had over the last year been strong, was especially hard hit. Its stock price was down by 40.3 per cent in a month.

Oil Search’s share price, which has been harmed by a falling oil price, has fallen by 22 per cent in a month, according to Kina.

The company has responded by announcing a major cut in its planned capital expenditure for 2020. Forecast capital expenditure going forward from April will be been reduced from US$400–US$500 million (K1.37–K1.71 billion) to between US$200 million (K684 million) and US$300 million (K1.03 billion).

In spite of gold’s status as a ‘safe haven’ investment, shares in Newcrest Mining have also fallen in the past month.

LNG pull back

ExxonMobil’s Darren Woods. Credit: Exxon

Meanwhile, ExxonMobil issued a statement that it is ‘evaluating significant near-term capital and operating expense reductions’. This raises the possibility that new investments in PNG – including the P’nyang expansion – are less likely.

Citing the COVID-19 pandemic and commodity price decreases, Darren Woods, Chairman and CEO of ExxonMobil Corporation, said the company is ‘evaluating all appropriate steps to significantly reduce capital and operating expenses in the near term.’

According to Kina Securities, the plummeting oil prices – West Texas Intermediate prices are down by more than half this year – will result in a K1.3 billion loss in resource tax and dividends. This will put further pressure on already weak government finances and raises the likelihood of the government needing another Supplementary Budget to make further cuts.

On a more positive note, it is reported that the Independent Consumer and Competition Commission announced that from March 8, retail prices for petrol, diesel and kerosene will fall. Fuel prices in Port Moresby are expected to drop by five per cent, diesel by 9.6 per cent and kerosene by 11 per cent.

PNG’s largest trading partner, Australia, has also announced a AUD$17.6 billion (K36 billion) economic stimulus package to keep business going, with more measures likely.

Currency and commodities

The kina has been strong – further evidence that PNG’s economy has been to some extent thus far quarantined from global influences. Over the month it has fallen by just 0.3 per cent against the US dollar. In the same period, it rose by 8.8 per cent against the Australian dollar, 5.3 per cent against the British pound and 6.1 per cent against the New Zealand dollar. The only currency against which the kina was weak was the Japanese yen; it fell by 3.3 per cent over the month.