Trade value drops by 36pc

Papua New Guinea exchange markets Ltd chairman David Lawrence discussed the performance of the country’s capital market during the Covid-19 pandemic and PNGX’s future plans with Business reporter CLARISSA MOI

THE volume of trading in the country’s capital market in the last 12 months remains consistent with the corresponding period however the value has dropped by 36 per cent.
Papua New Guinea Exchange Markets Ltd (PNGX) chairman David Lawrence said there has not been major changes regarding the listed companies since the Covid-19 started. However, companies are starting to understand the market challenges due to the impact of the pandemic on international stocks.

Q. Was there any difference during the pandemic among players in the capital market?
We haven’t seen any major changes among the participants in the stock markets since the Covid-19 pandemic commenced. While the volume of trading for the 12 months from July 1, 2019, to June 30, 2020, remained consistent, we have seen the value of the PNG market fall by 36 per cent over that period. The international stocks on the PNG market fell early in the Covid-19 pandemic and they were followed several months later by local stocks.

Q. What would be some challenges that players in the capital market are currently facing?
The next few weeks will provide an opportunity for the market and investors to better understand the financial challenges being faced by the companies listed on PNGX as they report their results for the six months to June 30, 2020. It would be expected that companies exposed to tourism, exports, oil and gas, in particular, will show the impact of the pandemic.
For example, BSP (Bank South Pacific) has announced that movement restriction measures introduced by all governments in the region to reduce the risk of transmission of Covid-19 has significantly impacted economic activity in all countries in which it operates. As a result, all of its businesses have been affected with lower transactional banking activity, reduced foreign exchange, contractions in net interest income margins and additional lending provisions.
In contrast, Newcrest had earlier announced that the impact of Covid-19 on its operations in the 2019/20 financial year had been minimal.
In the current environment, PNGX has been encouraging listed companies that if they become aware that their earnings for the current reporting period will materially differ (downwards or upwards) from market expectations, they need to consider carefully whether they have an obligation to notify the market of that fact. This obligation will arise if the difference is of such magnitude that a reasonable person would expect it to have a material effect on the price or value of the company’s securities.

Q. What would be one or probably some reasons why there aren’t more businesses listed on the stock exchange market?
This is particularly the case if the company has a history of stable earnings patterns, in which case a material variation would be a situation which could be described as a market sensitive earnings surprise.
The number of companies listed on the stock exchange has remained relatively steady for the last 20 years. It would be ideal if there were more companies listed in PNG. PNGX has identified a variety of high quality investment opportunities in the country which would be ideal for ultimate listing. For example, government bonds, potential privatisation of the various state-owned entities (SOEs) as well as a number of mature privately owned businesses seeking fresh capital or exit for their founders.
The PNG economy is still in a stage of development and unlike more developed countries, currently lacks the depth and breadth of institutional and retail investors that underpin and drive domestic investment opportunities.
The PNGX business is focused on supporting the development of PNG’s capital markets with targeted programmes delivering new investment products, investor education and capacity building amongst PNGs commercial sector. Now under new ownership, PNGX is working closely with the Central Bank, Government, PNG Securities Commission, the national superannuation funds, banks and international agencies to put the building blocks of a solid market place together.
PNGX is in discussion with the Bank of PNG to establish the secondary government bond market. We have also indicated our intent to establish a corporate debt market.
Both of these will help provide a foundation for the market for listed companies. To support this, PNGX is also developing new investor education materials and courses to help people learn how to invest in the stock market and grow their wealth.
As PNG’s commercial and business sector matures and national savings increase, the exchange expects to see an increase in both listings and market volumes.

Q. What is the process like for a business/businesses in order for it to be listed on the stock market?
The process for listing is governed by both the Capital Market Act and the Listing Rules. The Capital Market Act is regulated by the PNG Securities Commission and the Listing Rules are regulated by PNGX.
The process itself requires a company to issue a prospectus which has been approved by the Securities Commission. At the same time, they must demonstrate that they satisfy the Listing Rules by having, in summary, at least 50 shareholders and either total profits over the previous three years of at least K600,000 or net tangible assets of at least K1.5 million. PNGX would be very pleased to discuss listing with any interested company which meets the requirements.

Q. Are there any businesses currently showing interest in the stock market?
We are aware of some companies which are interested in listing.
The Covid-19 pandemic may slow down some of those plans. However, there are also a number of companies listed in Australia with major interests in PNG which we believe should be listed on PNGX to encourage higher levels of local PNG ownership of those interests. This is particularly the case in the mining, oil and gas sectors.
By listing in PNG those companies are demonstrating their commitment to PNG, its economy and its people and demonstrating good corporate citizenship.
We believe the Government should give consideration to requiring that companies listed on other markets which have significant interests in PNG should be required to list in PNG as a condition of their licence to operate in PNG.We also believe there is significant scope for the Government to commercialise a number of SOEs by undertaking an IPO (initial public offering) and listing them. This would assist the financial circumstances of the SOEs, broaden ownership amongst PNG investors and provide increased opportunity for PNG citizens to grow their wealth. If appropriately structured without interfering with the operation of the market, SOEs can be listed while still ensuring PNG majority ownership is retained.
There is also interest in the financial community in establishing listed funds, especially real estate investment trusts, if the regulatory and taxation environment is amended.
These funds can be a considerable source of lower risk wealth generation in PNG.
One area which shows particular potential is the development of new capital sources for small medium enterprises (SMEs). As the development of the SME sector is a focus area for government policy, we believe there is a role which PNGX can play to work with government and the SME sector to develop a pathway for access to capital for SMEs. It is a project which PNGX is currently exploring.
There is considerable scope for the development of the PNG capital market and stock exchange.
PNGX, as the provider of markets infrastructure, can play a significant role. However, as is common in PNG, PNGX needs additional funding to develop the market.
We are planning a capital raising for that purpose and are seeking new shareholders interested in investing in PNGX and supporting PNGX as core infrastructure for the capital market in PNG.