PNG launches US dollar bond

PAPUA New Guinea launched its first US dollar sovereign bond sale at the end of last week, its fourth attempt since 1999 to sell hard-currency debt, and a test of investor appetite toward the world’s riskier borrowers.
PNG launches US dollar bond PNG launches US dollar bond PNG launches US dollar bond PNG launches US dollar bond PNG launches US dollar bond

Charles Abel

Staff Reporter

The Wall Street Journal reports that PNG sold bonds offering a 8.375% coupon, lower than the initial guidance, with an order book at roughly $3.8 billion, according to investors, or nearly 20% of the nation's GDP. The timing surprised some investors, coming soon after the collapse of Turkish lira and the Argentine peso, which rattled other developing countries.
However, governments and companies are eager to raise long-term debt before rising global interest rates further increase their borrowing costs. On Wednesday last week the US Federal Reserve lifted its short-term interest rates by a quarter-percentage point while signalling another increase later this year and more through 2019.
Some investors said the deal was well timed. Emerging markets equities have erased losses posted over the past month and the JPMorgan Emerging Markets Global Diversified benchmark bond index is up 1% this month.
Targeted Chinese stimulus for infrastructure projects is lifting prices for raw materials and oil prices are rising, backstopping emerging market economies that rely on sales of raw materials for growth.
The offering follows extensive roadshows this month where national officials met with investors in Asia, Europe and the US. Papua New Guinea had sought to sell five- and 10-year bonds, according to several investors, but later dropped the plan to sell shorter-term debt.
The deal is large enough to gain entry to a widely tracked JP Morgan bond index.
The Wall Street Journal Papua New Guinea faces many challenges, including a shortage of foreign currency and a sharp slowdown in growth in recent years. It is also hosting the APEC in November this year, which represents a substantial capital outlay for a small country.
Moody's and S&P Global have said they expect to rate the bonds at B2 and B, respectively, both five notches below investment grade.
Deputy Prime Minister and Treasurer Charles Abel and other senior government executives returned to PNG just over a fortnight ago from an international roadshow to market PNG's sovereign bond.
The delegation visited Singapore, Hong Kong, London, New York, Boston and Los Angeles over 10 days.
In a packed schedule arranged by global lead coordinator Credit Suisse and joint bookrunners Citibank the delegation presented to around 100 global banks and fund managers at seven meetings per city.
"Our international partners have done a fantastic job in arranging meeting and providing advice," Abel said.
"The interest has been really good with full meetings including all the major players.
"Everyone is interested in the PNG story.
"The market for emerging market or frontier market bonds has been rattled recently by the Turkey and Argentina economic problems but we believe PNG has a strong case regardless.
"We are looking at a five year or 10-year benchmark minimum issue of $500 million.
"This is the minimum amount to qualify for the Emerging Market Bond Index and facilitate participation in the secondary market after issuance.
"Now that the roadshow is concluded we will field offers for amounts and pricing (interest rates) before making a final decision to sell the bonds.
"Of the potential proceeds, $200 million will go into operation and capital costs and $300 million will convert short-term (less than 12 months) domestic debt into long term debt.
"This will better balance our loan book and bring in foreign exchange.
"PNG will be looking to establish its brand and yield curve in the international market for the future.
"Since the 2017 Supplementary Budget our government through the 25-point plan has put revenue to GDP on an upward path from 12% of GDP to 16%.
"Fiscal deficits are in a downward trajectory from 6% to 2.4%.
"Debt to GDP is a prudent level of 32%. International reserves are stabilised at $1.7 billion, being 10 months of non-mining import cover, and the forex market is coming back to balance. 
"We are working on constraining our wage bill and interest costs. Oil prices are recovering well and we are negotiating the Papua LNG, Pynyang LNG and Wafi Golpu projects. There are good times ahead for PNG if we remained focused and work hard," Abel said.
Abel was accompanied by Governor of the Central Bank Loi Bakani, Secretary for Treasury Dairi Vele, Vice Minister and Tambul Nebilyer MP Win Daki and Finschhafen MP Rainbo Paita.