KFM Weekly Investment Update: Friday, 09 January 2015

Local Market Summary

• The government has declared a state of emergency over a 2 month period in an attempt to salvage the debt riddled PNG Power. It is owed over K130.0m by individuals and various creditors and this measure is expected to assist its operations.

• Bank PNG (BPNG) Governor Mr Loi Bakani indicated that the government has had positive cash flow position to meet its commitments at the end of last year. Level of gross FX reserve was K6,011.1m as of 31/12/14 or 8.2 months of total import cover.

• BPNG says that while lower oil prices will lead to lower domestic fuel prices, it could also adversely affect oil export revenue and taxes paid to the government this year. Governor Bakani indicated that 2015 National Budget assumed a price of US$89.7 per barrel for oil while the current price has tracked below US$50.0 per barrel. He has urged the government to closely monitor the trend and its impact on the budget.

• The Independent Consumer and Competition Commission CEO Dr Billy Manoka notified the public that the domestic retail fuel prices have continued the downward trend as the prices of petrol, diesel and kerosene fell by 49.9t, 28.9t and 30.8t respectively.

• National Petroleum Company of PNG brought to close a transaction costing US$1.3b (K3.5b) that enabled the company to secure the State’s 149,390,244 Oil Search (OSH) shares purchased in March 2014. The financing of the transaction apart from the UBS loan was financed through a loan of US$500.0m (K1.4b) from syndicate comprised of ANZ Bank, Bank South Pacific and Westpac Bank.

• The Gulf provincial government is in discussions with Sime Darby Ltd to develop 40,000 hectares of oil palm plantation in the Ihu district, Gulf Governor Hon Havila Kavo has announced. Sime Darby technical personnel have visited the project sites on several occasions and talked with the landowners showing a strong desire to develop the land.

• The planned 51.0% share takeover New Britain Palm Oil Ltd by Malaysia based Sime Darby Plantation was postponed from 20/01/15 to 20/03/15. This delay is to enable section 12.1 (d) of the offer, the EU Merger Filling condition to be satisfied.

• The drop in global oil prices will affect the overall revenue for OSH, as was predicted by the company. Weaker oil prices, which have fallen more than 50.0% over the past 6 months in 2015, but managing director Mr Peter Botten pointed out that the company’s oil and gas fields in PNG remain profitable.

• This week’s BPNG auctions Treasury Bills were oversubscribed by K26.0m for 182 days with a weighted average yield of 4.7% and undersubscribed by K3.8m for 364 days with a weighted average yield of 7.4%.

• The KSi index was down 1.3% to 3,449.42 from 3,496.26 and KSi Home Index was up for the week 0.1% at 9,549.94 from 9,544.63.

International Market Summary

• US stocks closed the week on a solid note fuelled by expectations that the US economy will continue to accelerate and the dollar weakened from a 10-year high after a second US Fed official cautioned against raising interest rates this year.

• A new-year selloff in global equities reversed in recent days after US Fed meeting minutes indicated the bank hadn’t altered its view on rates and on the prospect of further European Central Bank stimulus.

• US Treasury debt prices declined as Wall Street rallied and US oil prices steadied relative to the free fall of the last few weeks, amid the expectations for an ECB bond buying program.

• US job cuts fell in 2015 to the lowest level since 1997, and claims for unemployment benefits declined by 4,000 last week, strengthening evidence of a solid job market underpinning the nation’s economy.

• The Asian stocks closed the week rising, paring a weekly drop, as US crude oil headed for its longest streak of gains since August.

• The Euro fell to $1.1754, its lowest since December 2005, on the EBS trading platform, and last traded at $1.1789, a 0.4% decline.

• European Central Bank (ECB) Governor Mario Drahgi said that the ECB would take more aggressive measures to stem the prolonged period of low inflation.

• OPEC stressed a dozen times in the past six weeks that the group won’t curb output to halt the biggest drop in crude since 2008.

• Gold stopped two days of losses to head for the biggest weekly gain in month, in anticipation of the monthly US employment data.

• To close the week PNG/USD declined by 0.3% 0.3844 while PGK/AUD deppreciated by 0.9% to 0.4728.

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pdfKFM Weekly Investment Update: Friday, 09 Jamuary 2015

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