September 4, 2018 / 6:18 AM / 2 months ago

Papua New Guinea seeks second chance for dollar sovereign bond

HONG KONG/SYDNEY (Reuters) - Officials from Papua New Guinea (PNG) will meet investors this week to promote a dollar bond offering of at least $500 million, its second attempt in two years to tap international markets.

PNG has picked Credit Suisse [CSAG.UL] as global coordinator and Citigroup (C.N) and Credit Suisse as joint lead managers and bookrunners, people familiar with the bond offer said.

PNG plans to sell five- and 10-year notes rated a sub-investment grade B by Standard & Poor’s and expected to be rated B2 by Moody’s.

S&P said in a statement its rating reflected “structural constraints inherent in a lower-middle-income economy dependent on extractive industries and served by weak institutions, restricted monetary policy flexibility, and increased government debt”.

Meetings with investors will begin in Singapore on Wednesday before continuing to Hong Kong, London and the United States.

The Pacific island nation has one of the largest economies in its region, based on significant natural resources that include large oil and gas reserves.

But the country’s finances have come under considerable pressure in recent years as revenues from resource projects and taxes failed to meet forecasts.

PNG sought to drum up investor interest in a sovereign bond two years ago but it never got off the ground.

“They previously found the market was not responsive,” said Paul Barker, executive director of the Institute of National Affairs, a Port Moresby-based think-tank.

“Then late last year both Nigeria and Mongolia, two other resource-based economies, found they were able to issue sovereign bonds at a relatively competitive rate and the market welcomed it – so they are moving on the back of that.”

Domestically, PNG has put in place foreign exchange controls, leading to a backlog of foreign currency orders from businesses looking to convert the kina currency.

Papua New Guinea has total foreign debt of US$2.5 billion, with almost US$590 million owed to China, making it China’s biggest debtor in the Pacific.

Reporting by Julia Fioretti in Hong Kong and Jonathan Barrett in Sydney; Editing by Jennifer Hughes and Eric Meijer

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