Crowdfunding and a new listed fund are in the pipeline at Papua New Guinea’s stock exchange, PNGX, as it looks at new ways of grow the country’s capital markets and encourage SMEs.

Credit: Burak K/Pexels

PNGX’s Chairman David Lawrence describes SMEs (small and medium enterprises) as ‘the lifeblood’ of the PNG economy. So, how can the Papua New Guinea’s stock exchange help their development?

‘From our perspective, the SMEs of today are the listed companies of tomorrow. So, we have a real interest in assisting the SME sector and helping them to grow into sustainable, long term companies,’ he told the recent 2021 Business Advantage Papua New Guinea Investment Conference.

Crowdfunding – funding a business venture by raising small amounts of money from a large number of people – is one way that PNGX can help SMEs get access to new forms of capital.

Lawrence sees developing a PNG-based crowdfunding platform as a key part of ‘developing that life cycle’ for SMEs so they can make the transition into larger businesses.

‘If we see somewhere between two and six listings come to the market, that is a 50 per cent growth in the number of listings, admittedly from a low base.’

‘We are working with a partner and are hoping to be able to announce something later this year. It will be local companies accessing it and we are expecting to fund it [with capital from] local retail and institutional investors.’

New listed fund

Lawrence said PNGX was also looking to create an investment fund to be listed on the PNGX itself.

‘The role of that fund will be to provide access to capital, either directly to SMEs or indirectly by working with some of the financial institutions that provide finance to small enterprises,’ he said.

‘We are trying to build a whole ecosystem along the value chain: from crowd funding, SME finance, through to expanding the offerings of listed products on the exchange.

In order to build the fund, Lawrence said ‘we will be looking at investors offshore, local institutions and high net worth investors – and also retail investors.’

Lawrence added the PNGX-listed fund is intended to provide investors with access to a diversified portfolio.

IPOs

PNGX’s David Lawrence

The main way a stock exchange brings in new capital is through Initial Public Offerings (IPOs). While these have been thin on the ground in recent years (PNGX’s last new listing was Kina Securities in 2015), Lawrence said progress is being made.

‘We are seeing the green shoots of growth in that part of the market. We have had more inquiries about new listings in the last 12 months than we have had for years.’

There are currently between two and six companies working on listing ‘in due course’ he said. These companies are expected to come on to the exchange within the next two years.

‘If we see somewhere between two and six listings come to the market, that is a 50 per cent growth in the number of listings, admittedly from a low base. It starts building some local and international interest in the market. That brings new capital to the market, which brings new opportunities of growth and new jobs.’

A challenge facing PNGX comes from Santos’ $A21 billion (K53.4 billion) merger with Oil Search. Lawrence said that losing Oil Search will cause the market capitalisation (value) of the PNGX to fall by about 30 per cent. But if Santos can be persuaded to dual-list in both PNG and Australia that would lift PNGX’s market size by 30 per cent, increasing the exchange’s visibility and attracting more international interest. He noted that there are about 5000 Oil Search investors in PNG.

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