MRDC issue

DO NOT shoot a messenger as Sir Mekere Morauta.
It is with some degree of interest that I read both the statement by Chris Haiveta, in his capacity as a director of Petroleum Resources Kutubu Ltd (PRK) and Petroleum Resources Gobe Ltd (PRG), by virtue of his position as Gulf Governor and the advertorial taken out by the PRK board chairman.
In principle, when you over qualify something, more often than not, the opposite is more the case.
Investment analysts would always pay attention to those aspects of the accounts or matters that they consider accountants appeared to be over qualifying.
In the case of the PRK operations, there is no doubt that they are very profitable due to their very significant shareholding in Bank South Pacific shares.
The investment in hotels might prove a bit of a challenge.
It would be interesting to find out what the occupancy rates are for the hotels.
In Port Moresby, the occupancy rates might be on average 60 per cent and for the Star Mountains Hilton Hotel, the management fee would be quite significant, perhaps around 30 per cent of the operating margin.
The investment would have to be measured by what is called the ‘payback period’ – that is the number of years it would take for the investor to recoup its investment outlay.
The investment analysis and investigations would by necessity have to start with the price it paid for the land etc.
A payback period of 7 years at the high end would be considered a reasonable investment.
As for intercompany loans, the PRK Board chairman says it was all legal which is okay.
A couple of questions need to be posed for him to answer.
Did the PRK Board authorise the short term borrowing? If so, is this recorded in the minutes of the PRK board meeting which considered the matter of asking PRG for the bridging loan of K10m?
PRK is a very substantial shareholder of Bank South Pacific so why did PRK not consider requesting the loan from BSP? Did PRK really have cash flow problems?
Finally, whatever interest was paid by PRK would have to be at the Banks Indicator (Prime) Lending Rate.
The penalty margin, since the ‘cost of breaking the deposit’ with BSP, would be calculated at some margin above its lending rate and not the deposit rates of 2/3 per cent, unless this was waived by BSP which would not be prudent and could be against its own operating rules.

Mack Bolan
Pom