OBG talks to Ian Mason, General Manager, BSP Capital

Interview: Ian Mason

What challenges do you foresee with the development of the stock exchange?

MASON: We can look at it from two angles, by analysing either the share market price performance or its internal mechanisms and how the Port Moresby Stock Exchange (POMSoX) is evolving. The bourse was formed 13 years ago and currently lists 18 companies, half of which are dually listed mainly in Australia but also in London and Toronto. The market is relatively illiquid because we have a limited number of institutions that have sufficient investment capital, namely the three major superannuation funds, which in many ways act as pseudo banks. However, these funds are already fully invested in some of the key stocks, so their ability to actively participate in the market is also limited. Expanding the market is reliant on our market becoming more attractive to overseas investors, reducing some of these institutional concentration limits, which in turn will lead to more active trading.

How did you find the bourse’s performance in 2011?

MASON: POMSoX’s performance in 2011 was the best we could have hoped for; the index ended 2010 with 7431 points and finished the next year at 5781.39, declining 22.1%. There are only two brokers in PNG, and BSP Capital performs the vast majority of the daily transactions put through POMSoX. PNG is increasingly being seen as an attractive emerging market, and much work is now being done to promote POMSoX at the various conferences in Australia and Asia, showcasing global investment opportunities.

Which economic segments are the most promising in terms of IPOs and investment opportunities?

MASON: The most promising sectors are where the current boom is: the principal areas of energy, mining and oil and gas. The spinoff activity supporting this growth is coming from the service industries that supply these sectors, including construction, both commercial and civil, quarrying, medical services and education. We had many approaches for possible listings, but converting this into reality is a challenge, due to the illiquidity in the local market. In terms of corporate governance and transparency, the prospectuses and information memoranda issued all have to meet stringent deliverability standards. The Securities Commission controls all IPO issues. Again, the limitations are principally limited to the presence of only a few major institutional capital market participants and the ability to get the required investor spread numbers.

What products and reforms will help increase liquidity and sophistication of the exchange?

MASON: There is more than enough liquidity in the banking system; the challenge is finding a way to channel it into the capital markets. One particular change we would welcome is the listing and trading of government securities in the marketplace. Currently, we have a tender system with registered participants who bid for government securities from the Bank of PNG, but if these tenders were converted into listed securities, it would give birth to a much needed secondary fixed interest market with the prospect of a more active trading platform. We hope with time this can become a reality.

Building sophistication is a gradual process; it involves a lot of work and commitment by the government to assist and promote fluid and viable capital markets.

What can be done to increase awareness of and interest in the capital markets in PNG?

MASON: If we look at PNG’s demographics, 80% or more of the population live in rural areas, meaning isolation is a major factor in terms of information availability. Communication limitations inhibit awareness through traditional information methods such as the internet. We believe the education process has to start at schools and universities, ensuring that our future business leaders have understanding of the sophisticated markets they are growing up in. Market awareness is a gradual process that will not happen overnight.