Papua New Guinea took a step closer to resolving a significant governance issue related to its stock exchange, PNGX, following a National Court ruling late last month. However, uncertainty continues to hold back PNG’s capital markets, reports David James.

Oil Search shares were suspended from trading in PNGX for three days in June 2020.

On 29 March, Papua New Guinea’s National Court handed down a significant ruling on a case brought before it by PNG’s largest company, Oil Search Ltd.

The case related to events on 3 June 2020, when Oil Search shares were suspended from trading on the PNGX for three days after allegations by the Acting Chairman of the Securities Commission (SCPNG), Alex Tongayu, that Oil Search breached the PNG Capital Market Act by failing to obtain approval for the retail component of its important capital raising.

Oil Search countered that at all times it ‘acted properly and complied with all its legal obligations’ by seeking approvals from another party entirely: Christopher Hnanguie, Executive Chairman of the Securities Commission.

Clearly, the PNGX couldn’t have two regulators, but somehow it did.

It was hoped that Oil Search’s legal action to confirm ‘the validity of the approvals it received from the Executive Chairman’ (Hnanguie) would resolve the confusion over who was running the Commission and who had the authority to issue approvals related to trading on PNGX.

Clear ruling

In its ruling, the court found that Christopher Hnanguie was the legitimate Chairman of the Securities Commission as of March and April 2020, and so his authorisations for the sale of Oil Search capital raising in 2020 were, and are, valid.

The court issued an injunction against Alex Tongayu claiming otherwise and further ruled that Tongayu’s claim that he was Acting Chairman at the time has ‘no legal basis’.

Indeed, the court suggested Tongayu’s appointment of 13 November 2018 was in breach of PNG’s Securities Commission Act, which ‘does not endorse such Acting appointments’ and appeared ‘to be in defiance of a valid Court order’.

A permanent injunction is now in place to allow PNGX to continue to operate a market for Oil Search shares ‘in the usual way’.

Last week, Hnanguie confirmed to Business Advantage PNG that he remains Chairman.

The matter is not over, however. Tongayu has given notice of intent to appeal and there remains a separate and ongoing 2018 case involving Hnanguie and Tongayu regarding Chairmanship of the Securities Commission.

Certainty

David Lawrence. Credit: BAI

‘The ongoing uncertainty at the Securities Commission is damaging to the country, especially as it tries to recover from the COVID-19 pandemic,’ David Lawrence, Chairman of PNGX, tells Business Advantage PNG. ‘It is not helping companies, including SMEs, to raise equity [share] capital. It is a bottleneck to the growth of PNG.’

‘We know there is demand but we can’t bring the opportunities to the market.’

The uncertainty is not just affecting trading on the stock exchange. Lawrence says PNGX is ready to launch a corporate debt market in PNG, which would enable PNG companies to issue their own bonds to investors.

‘We have drafted rules for that. We have the systems in place. The ongoing uncertainty increases the risks until the Securities Commission issues are resolved. We know there is demand but we can’t bring the opportunities to the market.

Lawrence’s Pacific Capital Markets Development became the owner of Papua New Guinea’s stock exchange in December 2018, subsequently rebranding it PNGX.

‘We, along with the financial services industry, await the completion of the restructure of the Securities Commission announced by Government on 30 October last year.’

According to the Investment Promotion Authority, the matter rests with the Department of Treasury, as the government department responsible for the Securities Commission, and therefore Treasurer Ian Ling-Stuckey.