The Port Moresby Stock Exchange has new majority owners. So, who’s behind Pacific Capital Markets Development and what are their plans for Papua New Guinea’s bourse? In this exclusive interview, one of the Principals of Pacific Capital, Frank Dunphy, reveals all to Business Advantage PNG.

Last week, Pacific Capital Markets Development Pty Ltd announced it had reached an agreement to acquire Bank South Pacific 62.5% majority holding in the Port Moresby Stock Exchange (POMSoX).

POMSoX opened for business in June 1999. For most of its life, it has been under the joint ownership of the country’s two licensed stock brokers, BSP Capital (a subsidiary of Bank South Pacific, or BSP) and Kina Securities (part of Kina Bank).

There are currently 14 companies listed on PNG’s exchange, including both BSP and Kina.

‘Next, the exchange badly needs an electronic settlement system.’

The new deal will put the future of the exchange in the hands of two experienced capital markets specialists: Frank Dunphy (a former Chair of the POMSoX) and David Lawrence, former Chief Operating Officer of the Sydney Stock Exchange.

Dunphy says the two have plans to broaden the operations of the exchange.

‘The two banks have done a good job of creating and developing a market,’ Frank Dunphy tells Business Advantage PNG.

The new Capital Markets Act stipulates that a company listed on the exchange cannot also be a member (or owner) of it. While passed in 2015, the Act has not been fully enacted, meaning there is no current obligation for either bank to sell immediately. BSP has decided to sell now, however; Kina has not.

Plans

Pacific Capital Markets Development’s Frank Dunphy

Dunphy says the new majority owner has significant plans to expand POMSoX.

First, the rules of the exchange need to be updated (for the first time since 1996) to allow for the trading of new investment products such as government and corporate bonds, real estate investment trusts, and derivatives such as futures.

Next, the exchange badly needs an electronic settlement system.

‘Dunphy and Lawrence are also keen to see POMSoX have a role in supporting new funding sources for small and medium-sized businesses.’

‘POMSoX’s NASDAQ trade engine is one of the most sophisticated in the world; it has the capacity to accommodate any kind of trading that can be envisaged. However, the settlement system is still paper-based, cumbersome and slow,’ says Dunphy.

The result is that investors, especially those from overseas, cannot easily buy and sell shares listed on POMSoX, and so they don’t: one of the reasons why there is a low volume of trades on the exchange.

Dunphy plans to acquire a leading edge ‘safe, secure and fast’ settlement system based on blockchain—the technology behind new settlements systems being developed by a number of major exchanges.

‘We’re in discussions with several developers of these solutions.’

The institution of a new index for the PNG market is also on the cards.

New income streams

Dunphy would also like to see POMSoX offering financial training: ‘everything from financial literacy for investors to sophisticated courses for company professionals’ as a way of raising confidence in the market and adding new income streams.

‘We’re also keen to create a market on the issuance and trading of government debt.’

‘It is our intention to dilute our shareholding in the exchange over time to facilitate more PNG participation.’

This could lead to PNG’s future sovereign bonds and other government securities being sold on POMSoX and, indeed, corporate bonds (the World Bank is this week running workshops in Port Moresby on how PNG businesses can issue corporate bonds).

Dunphy and Lawrence are also keen to see POMSoX have a role in supporting new funding sources for small and medium-sized businesses.

‘Supporting capital raising and trading for SMEs both fills the short-term gap between microfinance and listing and, in the medium term, provides a pipeline of companies for the growth of PNG’s listings market,’ says Dunphy.

National participation

While having majority ownership of POMSoX is necessary to execute Pacific Capital’s plans, Dunphy says the medium-term plan is to bring in PNG investors to ensure the exchange is once again majority PNG-owned, thus representing the interests of its investing community.

‘It is our intention to dilute our shareholding in the exchange over time to facilitate more PNG participation.’

Both Dunphy and fellow Principal David Lawrence see the exchange playing a key role in leading development of domestic capital markets and helping PNG become more integrated into the global economy.

‘A vibrant national economy needs a well-functioning and efficient equity and debt market,’ says Lawrence.