April 26, 2018|source: Post Courier|
PNG to launch $500 million 10-year Eurobond in 2018
BY CLEMENT KAUPA
ckaupa@spp.com.pg
Papua New Guinea will launch its first Eurobond this year.
Prime Minister Peter O’Neill (pictured) confirmed this in London, England, yesterday following a report by news agency Reuters on Tuesday.
A Eurobond is a bond denominated in a currency not native to the issuer’s home country, in this case, PNG.
They are commonly issued by governments, corporations, and international organisations because it gives issuers (PNG) the opportunity to take advantage of favourable regulatory and lending conditions in other countries and are not usually subject to taxes or regulations of any one government, which can make it cheaper to borrow in comparison to other debt markets. Borrowing in foreign currencies also present risks in addition to the standard credit risk and interest rate risks.
Eurobonds are exposed to exchange rate risk, and because exchange rates can change quickly and dramatically, the total return on a Eurobond can be affected dramatically in a very short time.
Mr O’Neill attributed the move to the appreciating energy prices and a recovery in liquefied natural gas production to pre-earthquake levels that had eased the strains on its public finances.
He reportedly told Reuters on the sidelines of an investment conference in London that LNG production would be fully restored by next month, May.
He reportedly said: “We loaded one shipment … and production will be in full swing before the end of the month.”
This announcement confirms reports from PNG LNG developer ExxonbMobil that it had resumed extraction and production of LNG.
The magnitude 7.5 earthquake that rocked Hela and Southern Highlands on February 26, killing at least 100 people, destroyed roads and disrupted LNG production, PNG’s major source of foreign revenue.
Fiscal pressures were already high as a result of the collapse in oil prices to $27 a barrel in early 2016, considering gas prices are closely linked to oil.
Crude markets have since recovered, incredibly breaking above $75 a barrel for the first time in nearly three and a half years on Tuesday. That will help make up the revenue shortfall sustained because of the devastating quake, Mr O’Neill said. “It certainly will affect the last couple of months, we received no revenue because of the earthquake,” he added.
Mr O’Neill, who stayed in London to rustle up investment following last week’s meeting of Commonwealth leaders, also said the country was preparing to launch its debut Eurobond.
“In the next few weeks we will be announcing the lead managers,” he said, adding that a shortlist had been drawn up for the planned US$500 million 10-year bond to be sold before yearend.
Papua New Guinea’s total debt stood at 31 per cent of GDP, of which almost two-thirds are domestic debt, Mr O’Neill said.
“In terms of our debt management, we are comfortable,” said Mr O’Neill, adding PNG had no plans to talk to the International Monetary Fund about assistance.
But recent pressures have cast a shadow over the economic and fiscal outlook. Earlier this year, ratings agency S&P Global lowered PNG’s credit rating to B from B+, while Moody’s downgraded its outlook to negative from stable. Both cited a deteriorating debt profile, lower economic growth and rising liquidity risk.
When production is fully restored at ExxonMobil Corp’s Papua New Guinea LNG project, Mr O’Neill said there were plans to add three LNG trains to the existing two and details would be announced before November’s Asia-Pacific Economic Cooperation Leaders’ Summit.
