Plans are under way to focus on the potential of local firms

Although the Port Moresby Stock Exchange (POMSoX) witnessed two new initial public offerings (IPOs) in 2013, the market of 20 stocks, 13 of which are dual listed offshore and one of which is inactive, remains dominated by 12 listed firms in the mining and oil and gas sectors. Financial services, retail, aviation and agroindustry are also featured on the exchange, but remain marginal. Local listings have been driven by compliance requirements for firms moving towards production on their assets in Papua New Guinea; however, POMSoX management hopes to drive new IPOs, having simplified business and listing rules in 2012, highlighting the significant scope for new supply from the agricultural sector and state-owned enterprises (SOEs).

Track Record

Of the four IPOs brought to market since 2010, the largest in value was Newcrest Mining, raising PGK76bn ($30.89bn) in September 2010. The listing came as a result of Newcrest’s acquisition of POMSoX-listed Lihir Gold earlier in 2010. The two indexes, Kina Securities Index (KSi) and Kina Securities Home Index (KSHi), both have disproportionate exposure to fluctuations in a handful of stocks, with Newcrest weighted 56.17% on the KSi and Bank of South Pacific accounting for 52.2% of the KSHi. The two listings that took place in 2013, Indochine Mining in September and Niuminco Group in October, are both listed in Australia and were underwritten by BSP Capital, but have not been traded as of March 2014.

Management of POMSoX has sought to attract more firms by simplifying its listing and business rules in 2012. However, high profitability and abundant liquidity have made other sources of funding significantly more attractive than a public listing. Brokers see potentially more demand for IPOs in coming years, although the appetite for local companies will largely depend on their ability to grow. Another avenue for promoting new listings would come from closer synergies with the South Pacific Stock Exchange in Fiji, with 16 stocks and two convertible notes listed, although the two exchanges have not yet established an official relationship.

Issuance Pipeline

Although the market is still far from flooded with new listings, increased supply could come from both core investors seeking to divest themselves from an unlisted equity or from the government’s announced privatisation programme. “We are always looking for ways to unlock the real value of unlisted holdings and get the best value for members, maybe via an IPO if appropriate, although this could take some time,” Michael Block, chief investment officer at Nambawan Super, told OBG. PNG’s largest superannuation fund holds high minority stakes in key unlisted firms, including beverage producer SP Breweries (owned by Heineken), food manufacturer Paradise Foods and utility Water PNG, among others. Brokers expect several of these to come to market over the medium term. “Some tightly-held private companies are unlikely to list on POMSoX and some other trade sales are more likely to take place through private placements,” said Block. “Some firms, which are household names and have solid earnings and high dividends, could fetch a higher price on a listed market than their unlisted valuation.”

The outlook for privatisation is more clouded. In February 2014 Prime Minister Peter O’Neill announced plans for the government to sell stakes in key SOEs, including 50% of Air Niugini and, potentially, a stake in PNG Power. Yet the success of the government’s SOE restructuring programme will be key to determining the realisation of any such listing, with Air Niugini recording -1.2% return on equity for 2010, while PNG Power achieved 5.7%, according to an Asian Development Bank 2012 survey of SOEs in PNG.

While the outlook for publicly listing minority stakes in key SOEs remains tied to larger efforts to restructure and corporatise them, brokers and investors applaud the goal and would welcome a new supply of shares on the market. A pipeline of privately held issuers should also diversify the supply of shares on the local market away from the dominant natural resource plays. Commercial banks’ expansion in PNG’s corporate market should also support a pipeline of new issuances.