Oil Search, Papua New Guinea’s biggest company, has been suspended from trading on PNGX, the country’s stock exchange, amidst claims that it did not follow proper procedure in its recent capital raising – claims the company is refuting.

Oil Search shares have been suspended in Papua New Guinea.

In May, Oil Search successfully raised US$700 million (K2.4 billion) to strengthen its balance sheet in response to declining oil prices. The offer closed oversubscribed, due to demand from Australian institutional investors. A separate capital raising exercise was also conducted in Papua New Guinea, aimed at PNG investors.

But on the PNGX, PNG’s national stock exchange, shares in the company have been suspended ‘until further notice’ at the direction of the market regulator, the Securities Commission of Papua New Guinea.

A statement from the Commission says Oil Search ‘has not complied’ with provisions in the Capital Market Act 2015 with its fundraising proposal. ‘The issuer decided to proceed with the issue under an illegal and legally flawed approval undermining the Securities Commission.’

The statement from the Commission was signed by Alex Tongayu, Acting Chairman of the Securities Commission.

However, the approvals sought by and received Oil Search for its capital raising in PNG were provided by another person entirely: Christopher Hnanguie, Executive Chairman of the Securities Commission of PNG. Hnanguie is also an ex-offico member of the board of the Bank of Papua New Guinea, PNG’s central bank.

Legal standing

Alex Tongayu  Credit: BAI

Exactly who has the authority to grant regulatory approvals appears to be at the centre of the current Oil Search trading halt.

Speaking exclusively to Business Advantage PNG, Tongayu contended that on June 21 last year, PNG’s National Court ruled that Hnanguie has ‘no standing in law’ to claim himself as the Chairman of the Commission. Tongayu claimed his own appointment ‘under National Gazette NO. G741 of 2018’ is still current.

‘While the Commission was occupied with the discussions with Oil Search team, Oil Search went behind the back of the Commission and took through the process, breaching the Orders of 20 April 2020 and completing the Offer.

‘The Commission only realised that Oil Search had been playing double standard all along only after the Commission saw Oil Search’s market release on 27 May 2020 on the ASX announcing the completion of the PNG Offer.’

Business Advantage PNG has approached Mr Hnanguie for a response.

Oil Search denies wrongdoing

Oil Search responded to the suspension in a statement saying that the company had ‘sought and obtained valid approvals for its recent capital raise, completed on 28 May 2020, from the Executive Chairman of the Securities Commission of Papua New Guinea.’ It has published the documentation, as signed by Hnanguie.

‘Oil Search disputes the validity of the orders issued by the Acting Chairman and will vigorously defend its position.’

The Oil Search statement noted that it was the Acting Chairman of the Securities Commission (Tongayu) who issued the order to suspend trading from 2 June 2020.

‘The order is based on allegations that Oil Search breached the PNG Capital Market Act by failing to obtain approval from the Securities Commission for the PNG Retail component of its recent capital raising,’ the company says.

‘Oil Search has at all times acted properly and complied with all its legal obligations. Oil Search disputes the validity of the orders issued by the Acting Chairman and will vigorously defend its position by challenging the lawfulness of the orders in the National Court of Papua New Guinea. Oil Search remains confident that the approvals that it received are valid.’

Oil Search is dual listed on the Australian Securities Exchange and PNGX. The Australian capital markets are much deeper than the PNG equivalent.

‘Over the past 90 trading days, the average daily trading volume on the Australian Securities Exchange (ASX) was 22.3 million shares while the average daily volume traded on the PNGX was 148 shares,’ the Oil Search statement says. ‘Trading of Oil Search shares on ASX will continue as normal.’

International reputation at stake

The controversy may have ramifications for PNG’s reputation as an investment destination, as well as the regulation of PNGX.

David Lennox, Resource Analyst for funds management company Fat Prophets, says Oil Search raised only a small amount from PNG investors.

‘I think they are going to be a little more circumspect as to how they deal with PNG,’ he tells Business Advantage PNG. ‘Up until now, although there have been few rocky moments, from a corporate perspective it has been very successful. From a country point of view, maybe not quite so, but it is still better to be there and generate something rather than have nothing at all.’

Update: As of 9 June 2020, Oil Search has been reinstated to trading. Read the market announcement here.