Changes to capital markets eyed

The National Business

SECURITIES Commission executive chairman Christopher Hnanguie said work has already begun to review the three laws that government Papua New Guinea’s capital markets.
The laws are:

  • Securities Commission Act;
  • Capital Markets Act; and
  • Central Depositories Act.

“Rather than preparing three separate sets of regulations, Secom (Securities Commission) sought legal advice and was informed that Secom can prepare one set of regulations for all threeActs since the three Acts are interlinked and cross-referenced. Also for practical user-friendliness this can be an innovative approach,” he said.
“The gazettal of the regulations would operationalise these three Acts.”
He said drafts have been prepared by their legal consultant and are being reviewed by the commission officers.
“Secom expect to have the draft finalised then go for stakeholder consultations by late (this month), after which the regulations are expected to be gazetted by September.”
He also said that they were in the process of preparing the Takeovers and the Share Repurchase Code after the last Takeovers Code was repealed in December 2017.
“The draft code aims to provide an orderly framework within which takeovers, mergers and acquisitions are conducted.
“Purpose of the Code is to afford fair treatment for shareholders who are affected by takeovers, mergers and share repurchases.
“Fair treatment is realised by way of requiring equality of treatment of shareholders, mandating disclosure of timely and adequate information to enable shareholders to make an informed decision as to the merits of an offer and ensuring that there is a fair and informed market in the shares of companies affected by takeovers, mergers and share repurchases. The code also provides an orderly framework within which takeovers, mergers and share repurchases are to be conducted.”
Hnanguie emphasised that an important aspect of the code was in defining what Papua New Guinea’s national interest was when it came to takeovers, mergers and share repurchases.
“It is Secom’s belief that capital market investments are carefully vetted to ensure they support national interest. Secom is proposing to define national interest in the context of takeovers, mergers and share repurchases as resulting in:

  • Significant monetary or welfare gains for citizens, national corporations, or the government;
  • compliance with the national Competition Act and Policy and will facilitate commercial and consumer competition in the sector;
  • not compromising national security and sovereignty;
  • promoting harmony or well-being of concerned communities/ecosystems;
  • the firm is of sound financial and business standing; and
  • The legal and beneficiary ownership has at least 50 per cent national ownership.

“This test will be screened for an investment that is from a foreign government investor; from a business investment over 10 per cent of the targeted firm and valued at over K10 million; in real estate or in a defined set of sensitive sectors (to be defined by the Amended Investment Promotion Act).
“All other foreign investment applications receive normal approval evaluation tests.”
Hnanguie said the plans for Secom was contained it its Capital Market Development Strategic Masterplan (CMDSM) from 2018-2030.
“It is a framework laying out the development pathway for the capital market over the medium to long-term. It is envisioned to support PNG’s economic growth strategy, create jobs and raise the material standard of living for all citizens. It holds that whilst the capital market creates a substantial public benefit, it is fundamentally a private sector activity, economic development pillar and an investment promotion vehicle.
“To make the CMDSM relevant to PNG, the team worked on the premise that plan must be home-grown and must be developed by Papua New Guineans. The master plan stems from lessons learnt over the past two decades and based on current global best practices”
Hnanguie also said it was part of the commission’s objective to look at restructuring the capital markets including the Port Moresby Stock Exchange (PomSOX) to introduce new securities products.
“Secom will be introducing new products into the PNG capital markets. This means going beyond the current equity and bond products to look at derivatives such as futures, options and commodity market.
“These are in the pipeline and will be initiated as the new Secom organisational structure is in place and as the new regulations come into effect.
“A core aspect of these reforms is to get the fundamentals right and to put in place processes and systems that will enable the market to expand”.
“This would include developing the secondary and the corporate bond markets. It will also involve restructuring the PomSOX.
This will entail a full review of the PomSOX and its business practices since the current arrangement is not facilitating the market liquidation and the growth of the secondary and bond markets. The current ownership arrangement is peculiar in that in normal market economies, it is not proper for the only two licence brokers (BSP Capital and Kina Securities) to own the only stock market in the country. This calls to questions issues of insider trading and price fixing,” he said.
“Also the PomSOX Listing Rules was adopted from the Australian Stock Exchange’s Listing Rules some two decades ago and retains about 85 per cent of Australian Listing Rules.
“This is not conducive to the PNG market structure and not facilitative for PNG market participants to make the market more liquid, expand trading in the secondary market (and to) bring in new participants and products.”
Hnanguie said the main reforms to the PomSOX would include the ownership arrangement, its Listing Rules and the tiering of the market to allow other market participants to enter, especially the small businesses (SME).
“SME’s will be groomed in the third tier until such time they are ready to list in the main listing,” he said. “SECOM will also work more closely with PomSOX to introduce new participants and products (and) make the market more liquid and expand the country’s capital base.”