Kina Bank sees PNG’s successful debut in Sovereign Bond market a huge plus for the economy.
Investment bankers Citigroup and Credit Suisse were joint lead managers and book runners
for the deal which garnered significant interest with some reports stating demand was
USD3.3 billion mostly from the USA. Nasdaq reported that the bond has a 10 year maturity
and will carry a yield of 8.375%.
Kina Bank views this development positively and as a very good outcome for Papua New
Guinea in beginning to diversify sources of debt funding. The interest rate is better than
generally expected based on the Corporate B Credit Rate yield curve in the USA.
Kina Bank believes PNG remains relatively attractive from an offshore debt provider point
of view. This is due to low foreign debt levels and a large trade surplus which places PNG in
a better position compared to some of the other emerging market economies that have run
into trouble in recent times.
The US dollar funding will boost PNG’s international reserves, currently at USD1.7bn and
will provide much needed foreign exchange funding for the Central Bank to provide relief
into the domestic foreign currency market, with the backlog of import orders currently
estimated to be K1.5bn.
In the view of Kina Bank, the bond may relieve pressure on PGK in the short term, however,
we do see the outlook for the PGK as continuing its current rate of depreciation against the
USD, given the underlying supply and demand situation in the market is largely unchanged
and there remains in excess of PGK2bn of unremitted capital account transactions still
sitting in the corporate sector. The long term prognosis, which looks more favourable, is
linked to the commodity price cycle and initiation of PNG based commodity resource
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