Could Papua New Guinea Government bonds and Treasury bills soon be purchased anywhere in the world with the click of a button? A new working group aims to look at ways to modernise the way the country raises money through its capital markets.
Buying government securities in PNG is currently a manual process.
A new cross-industry working group has been established with the goal of opening up Papua New Guinea’s capital markets, including devising a new trading platform for government bonds.
The group, which met for the first time last month in Port Moresby, is being supported by the PNG-Australia Governance Partnership.
The group includes representatives from the Bank of Papua New Guinea, the Securities Commission and the country’s two major super funds, as well as fund managers such as PacWealth Capital and Kina Securities, and potential international donors such as the Asian Development Bank, the IFC and Japan International Cooperation Agency.
‘Currently, central bank bills, inscribed stock and Treasury bills are bought and sold at auction in PNG using a manual process.’
The working group will consider the best way to move PNG’s capital markets on to a modern, Bloomberg-style trading platform.
Manual process
Currently, central bank bills, inscribed stock and Treasury bills are bought and sold at auction in PNG using a manual process involving written bids from a small pool of pre-registered participants.
‘We need to step into the 21st century and put the system on a platform that would reach an investor in Delaware.’
Moving to a trading platform would potentially not only reduce the costs of trading, but could open up trade in government securities to overseas investors who currently don’t have easy access to PNG’s capital markets.
PacWealth’s Eric Kramer Source: Business Advantage International
A trading platform has been discussed for many years but working group member Eric Kramer, Chief Executive Officer of PacWealth Capital, believes this time there is momentum behind the move.
‘This is being in part by frustration at the high servicing costs of government debt,’ he tells Business Advantage PNG.
‘We need to step into the 21st century and put the system on a platform that would reach an investor in Delaware who might be interested in buying bonds or bills.
‘I can’t think of a single stakeholder who wouldn’t benefit from getting the infrastructure in place.’
Attracting overseas investors
‘One of the challenges is to have external people come and invest in PNG,’ explains Paul Sayer, Chief Executive Officer of PNG’s largest super fund, Nambawan Super. ‘If those other fund managers come in, then it provides another party for us to actually trade and deal with.
‘When you sit in an Australian Super Fund and they say “you know, we’ve got Government Bonds in countries all around the world”, but then they say PNG doesn’t come up except they might buy Oil Search shares or other mining stocks on the stock exchange, but that’s probably about it.’
The working group will be examining four key requirement of any move: possible trading platforms, the required regulatory framework, approvals from Treasury, and finally a communication strategy to get stakeholders on board and attract international investors to PNG.
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IFC and BPNG just signed a MOU on Capital Market yesterday 14 August 2018. Good news for the financial sector in PNG. These means IFC will provide advice to BPNG on issues relating to capital market and ease the burden of government bonds. The signing is also important in that it is a precondition for corporate bond markets.
This is an important milestone in the development of PNG’s capital market, as part of the Financial Sector Development Strategy. The creation of the working group/committee is the first step proposed in the recent work organised by BPNG and Treasury in 2016. With the Government support of K1.5m in the 2018 National Budget, traction is possible as alluded to in the article. There are numerous papers and commentaries on this topic, culminating in the strategic targets of the committee as highlighted in the article. Just some comments (you already know!) to assist in this initiate;
• Need for the project committee to work with its partners and the Government to set guidelines and strategic targets to meet from 2018 to 2025 and beyond. Proper long term- planning and timely M&E will assist in developing our capital markets. The Government should also make commitment to continually fund this initiative.
• Continued co-operation and dialogue with industry participants is paramount. It’s good to see this being one of the focus areas. Stakeholder engagement and participation is critical, hence cannot be stressed more. In a similar vein, coordination and smooth running of other supporting programs and projects is important. Conflicting goals and over-laps should be minimized.
The notion that the Government is serious with its capital market development is a plus in its endeavor to issue Sovereign Bonds, as part of its Debt Management Strategy. Timing is of essence, hence work should commence on both fronts given the fiscal challenges faced and the ultimate need for a more efficient capital market. Thank you.