Govt selling off country’s resources with bond deal: Ling-Stuckey

The National Business

THE massive under-pricing of the sovereign bond is like selling off more of the country’s resources too cheaply, says Shadow Treasurer and Finance Minister Ian Ling-Stuckey.
He said in a statement that the Government had cheaply sold off the country’s resources with a deal good for international financiers and bad for the people of Papua New Guinea.
“The resource on this occasion is future tax revenue from hard-working people in PNG through their income taxes and GST payments,” Ling-Stuckey said. “The 600 per cent level of over-subscription simply says that the buyers have got a bargain and the sellers, the people of PNG, have lost out.
“As a business person, if I put a property on the market and I immediately get more than six buyers at the offer price, I know for sure, I have under-priced the property.
“I would have essentially ripped myself off.
“Similarly, the people of PNG have just been ripped off with this huge loan.” Ling-Stuckey said the coupon interest rate on 10-year United States Government bonds was currently 2.88 per cent – nearly a full six per cent lower than the PNG sovereign bond.
“Both bonds are for 10 years and will be repaid in US dollars having the same foreign exchange risk for investors,” he said.
“The difference of six per cent for every year for 10 years means the total risk component of this loan is US$300 million – or K1 billion.”
Ling-Stuckey said this extraordinary amount of extra cost had two parts:

  • Negotiation incompetence of the national Government led by the Treasurer; and,
  • The risk that investors think Papua New Guinea won’t repay its loans in 10 years.

“One would have hoped that with PNG’s strong repayment record and the strength of our exports and future potential over the next 10 years, that this risk would be much lower than K650 million,” he said. “The sovereign bond has proven to be a good deal for foreign financiers.
“The 600 per cent over-subscription confirms this.
“Most of the expensive bond will be used to pay off cheaper domestic debt.
“The likely interest cost will be over 15 per cent after allowing for fees and foreign exchange losses.
“Better concessional loan sources were available if the right economic policies were in place.”