There has been considerable comment on social media recently about the positive work being done by PNGX to develop the public capital markets in Papua New Guinea and the need for more to be done.
The development of a market is complex and requires many moving parts to be working in harmony with appropriate government policy to assist development. PNGX Markets, with its new ownership and board, has globally recognised capital markets management and technology. In spite of this, the market has some way to go to reach its full potential. Government recognises the importance of a functioning domestic capital market and can broaden the use of its policies and legislative powers to nurture and grow it.
The government’s powers to influence the capital markets is broad for example. The government could seek to commercialise all or part of the state-owned enterprises. This would bring liquidity, enhanced transparency and accountability and the opportunity of new capital for those business. In addition to supporting the development market infrastructure, these listings would promote national savings giving domestic investors the opportunity to participate in the success of the domestic economy. All this will, in turn, attract more private sector companies to the market and increase the tax revenue to government.
PNGX is keen to ensure that the role and function of the stock exchange is understood by parliamentarians and to work with parliament on the continued development of PNG’s capital markets framework.
To address some of the other key points raised on social media and directly with PNGX, in no particular order:
– It would be beneficial for Papua New Guinea to have better legislation for venture capitalists to invest in PNG businesses. The Asian Development Bank Private Sector Development Initiative (PSDI) and the Securities Commission of PNG (SeCom) have recently announced that they are working to develop that. PNGX Markets is working with both of them to implement the outcome of that work.
– There are many parts of the current law for the capital markets generally which are poor and need rectification. Again, PSDI has recently announced that it is working with SeCom to address those issues, but it will need political support for law reform.
– Amending the prospectus requirements to make it easier to raise capital without unnecessarily reducing investor protection would also help. That is a matter for law reform.
– Listed Property Trusts (REITS) represent a significant opportunity in Papua New Guinea. They would bring pathways for new investment both domestically and internationally into the real estate sector (which then has a multiplier effect throughout the economy), add liquidity to the property market, provide a liquidity and valuation mechanism for superannuation funds which hold property assets, and give investors access to a lower risk, long term investment product. The key barriers to the development of REITS are stamp duty and the taxation laws applicable to trusts, but they should be resolvable.
– PNGX can easily, and would if permitted, provide a secondary market for government bills and bonds of both long and short term maturities. The Bank of Papua New Guinea decided to operate that market itself rather than trade on the public market. Other products could be developed to provide indirect access to government bills and bonds but, again, the tax structure applicable to trusts is a barrier.
– As an alternative to the government bills and bonds market, PNGX is working towards the launch of a corporate bond market. Ideally, because of their differing risk profiles, both the government and corporate bond markets would be available on PNGX.
– The current PNGX Listing Rules were very closely based on the old ASX rules. PNGX is in the process of rewriting its Listing Rules, which should be released for comment in coming months. Given the number of companies dual listed on PNGX and ASX the new rules must be carefully constructed. The objectives of the rewrite are to:
o Update the Listing Rules to reflect the Capital Market Act 2015; and
o Introduce Listing Rules which are “fit for purpose” for the nature and scale of the PNG capital market; whilst
o Aligning the proposed rules with contemporary ASX Listing Rules, but not replicating the ASX Listing Rules, in recognition of the significant portion of the PNGX market which is dual listed on ASX, thereby minimizing compliance costs which would arise from significant variance between the rules.
– Local entities need to improve administratively. Good governance is essential for confidence in listed companies. Companies and their advisers need to do that improved governance work before coming to PNGX to be listed. The role of the director’s institutes is important in that regard. PNGX will also be addressing governance in the new listing rules.
– A key aspect of good corporate governance is the continuous disclosure of information which can have an impact upon price or value. This is essential for investor confidence, as is timely release of annual reports and other periodic reports. Companies which fail to comply are suspended to protect investors.
– To address the need for markets and rules to govern private investments which can be made at lower costs without excessive risk PNGX is working on new platforms to cater to the middle and smaller sized companies. The PSDI work is important to this. However, it needs to be recognised that the expectations and behaviours of companies and investors on a small and medium sized company market is very different to that in the larger company market. Market and regulation design in that regard is not simple. The DEFINE Initiative (www.define.pngx.com.pg), of which PNGX is a primary driver, is a key component of developing this mid-tier market sector.
– There is a lack of knowledge about how the market operates and how people can participate. PNGX used to conduct first time investor seminars but those events were paused several years ago. PNGX is working towards redeveloping its education programs. The weekly articles published by the Post Courier are also a starting point. Word of mouth is also a very powerful driver of building knowledge and liquidity.
A strong Securities Commission of Papua New Guinea is also required to support the market. That is now rapidly evolving under the guidance of Acting Chairman Mr Robert Salmon-Minak.
Change is needed but it takes time and, as the above highlights, the policy and technology issues are many and complex. Change also takes funding, and the low volumes on the PNGX market constrain the funding and commercial viability of development which is why listing SOEs and REITs becomes so important.
The information in this article is general in nature and you should take care to inform yourself about the specific characteristics of a particular investment before making a decision to invest in it. PNGX recommends discussing your investment objectives and needs with a stockbroker or qualified financial adviser. In PNG, you can either contact JMP Securities Limited (enquiries@jmpmarkets.com) or Kina Securities Limited (wealth@kinabank.com.pg).
By following these articles and reading the information available on the PNGX website (www.pngx.com.pg) or following PNGX on LinkedIn or Facebook you can learn more and build your wealth by investing in PNG.
