Papua New Guinea deserves credit for its dogged determination.
The country has been flirting with a dollar bond since 1999, but after two serious attempts — and plenty of watching and waiting — it has still not managed to make its debut in the market.
That is something finance officials in Papua New Guinea plan to change this year. The country is now eyeing $500 million of fund-raising from the bond market, finance minister Loi Martin Bakani said at Credit Suisse’s Asian Investment Conference in March.
That would complete an impressive double. Papua New Guinea turned to the international loan market for the first time last August, getting a $200 million loan from Credit Suisse that could be increased to $500 million.
But Papua New Guinea only had to deal with one creditor to complete the loan. Is a bond once again a step too far?
There is reason to be optimistic.
Asia’s bond market is off to a record-breaking start to 2017. Asia Pacific issuers had raised $163.5 billion from dollar bond issuance by April 25, a 51% rise on the same period last year, according to Dealogic. In fact, it took issuers seven months in 2016 to sell the same volume of deals that have closed already.
This has led to plenty of liquidity for the usual suspects. But the deluge of issuers also included one frontier market sovereign deal that should reassure Papua New Guinea’s government. Mongolia tapped the bond market in March, closing a debt exchange that included $124 million of new issuance.
That deal was closed against a much more harrowing climate than Papua New Guinea faces. Mongolia had spent the previous year grappling with a balance of payments crisis that was only forestalled by a loan from the International Monetary Fund. Yet the tiny new issue portion was covered many times over. Investors placed around $3.3 billion of orders.
Papua New Guinea is in better shape than Mongolia, and can point to the success of a liquefied natural gas project as evidence it has its house in order. But the country certainly has its problems.
These include roller-coaster economic growth. Papua New Guinea’s economy grew 12% in 2015. But last year, growth fell to 2% and it will bounce back only to around 2.5% in 2017, according to Asian Development Bank estimates. The country’s growth has been hurt by tumbling commodity export revenues and reduced government spending.
Papua New Guinea will also face challenges simply because it is making its debut. Mongolia’s bond swap worked in part because it naturally returned to old investors, having sold a $500 million deal in March 2016. Sri Lanka, which returned with its own successful deal after this story was first published, has also already done the hard work to build a curve. Papua New Guinea will be pitching a whole new investor base.
Still, the country could hardly ask for a better time to tap the global bond investor base. US interest rates may be rising, but they’re still low enough to ensure a rampant search for yield. Asia’s bond markets are growing rapidly. Renewed interest from European and US funds will help.
There is no guarantee that in 10 years time, we will not still be waiting for Papua New Guinea’s debut. If the market takes a turn for the worse, or if funding officials in the country get too aggressive on pricing, there is little even the most capable bankers can do.
But the time appears ripe for Papua New Guinea to put old ghosts to rest. Eighteen years after first attempting a dollar bond, the country is much closer to making that dream a reality.
