Bond will boost forex funding, says Kina Bank

Kina Bank views sovereign bond issue development positively and as a very good outcome for PNG to diversify sources of debt funding.
In a statement yesterday, Kina Bank said the US dollar funding would boost PNG’s international reserves, currently at US$1.7 billion (K5.6 billion).
Papua New Guinea has successfully tapped the international capital markets by raising US$500 million (K1.6 billion) via a sovereign bond issue.
It said the bond would provide much-needed foreign exchange funding for the Central Bank to provide relief into the domestic foreign currency market, with the backlog of import orders currently estimated to be K1.5 billion (K4.9bil).
“In the view of Kina Bank, the bond may relieve pressure on kina in the short term,” the statement said.
“However, we do see the outlook for the PNG kina as continuing its current rate of depreciation against the US dollar, given the underlying supply and demand situation in the market is largely unchanged. There remains in excess of K2 billion of unremitted capital account transactions still sitting in the corporate sector. The long-term prognosis, which looks more favourable, is linked to the commodity price cycle and initiation of PNG-based commodity.
“Whilst this bond will provide lower-cost funding to government, Kina Bank’s outlook on domestic interest rates remains unchanged as short-term yields are driven by high domestic liquidity.
“Long-term rates will continue to be driven by ongoing need for deficit financing combined with accrued Government debts outside of domestic debt issuance – all of which will conspire to keep rates high. In the view of Kina Bank, although longer-term rates will not necessarily come down, issuance of the sovereign bond provides some relief to building pressures that may have ultimately pushed longer-term rates higher over a period of time.”