KFM Weekly Investment Update: Friday, 06 May 2016

Local Market Summary

• Bank of Papua New Guinea Governor Loi Bakani said approval had been given by International Financial Corporation (IFC) for a US$300.0m (K967.7m) foreign currency loan facility required to alleviate PNG’s foreign exchange shortfalls. Mr Bakani said that the Central Bank pursued the facility as a secondary option subsequent to the failure of the Sovereign Bond issuance, as a result of the perception of increased risk in the emerging markets. The market’s perception of the country’s state of affairs and subsequent “creditworthiness” would inevitably increase debt servicing requirements, and as such the loan option was the preferred short-term solution he said. Furthermore, he said that the resumption of the OK Tedi mine would assist in providing inflows to clear the backlog of orders

• Bank South Pacific (BSP: POMSoX) Chief Executive Officer (CEO) Robin Fleming said that the bank is committed to the loan facility being negotiated between the state and the IFC. Mr Fleming said that whilst the bank was supportive of the solution, any utilization of the facility was at the discretion of the IFC, as the intent was to make available foreign currency to as many businesses as possible

• Oil Search (OSH: POMSoX) Managing Director Peter Botten said despite the low oil price the Company was generating a positive cash flow as strong production and high quality assets drive performance. Further he said that the cash flow break-even inclusive of operating expenditure was forecast U$30.0 taking into account debt obligations and capital expenditure

• Kumul Consolidated Holdings (KCH) identified three potential development partners in phase 1 of the transaction management process for the 180 MW Ramu 2 Hydropower Project. KCH named the top three proponents to be Sinohydro Corp. (China), Shenzen Energy Group (China) and a Korean consortium of engineers. The project is said to commence in 2017

• Ramu Nico Management have voiced concerns regarding discontinued operations following the Mineral Resources Authority (MRA) order to cease operation at the refinery in mid-April when three fatal incidents had been reported. The unplanned shutdown was ordered by MRA to allow for investigation into the three incidents but now management is concerned with that temporary suspension of operations could affect key features and functions in the plant which in turn would affect effective restarting of the project and ability to retain technical manpower

• Kina Asset Management (KAM: POMSoX) released their Q1 results this week, the Company recording a 1.4% investment gain for Q1 2016. Chairman Sir Rabbie Namaliu said that the first two months of the year were tough however, the partial rebound of equity markets in March and a strengthening Australian Dollar had supported the positive performance. KAM also declared a dividend of 3 toea per share for the year 2015 with details to be announced at the Annual General Meeting of Shareholders at the Grand Papua Hotel on the 27th of June 2016

• Melanesian Hotel (Coral Sea) in Lae Morobe Province is to be demolished to make way for a five storey redevelopment on the same site, comprising a new look hotel, restaurant and conference facilities

• This week’s BPNG auctions in Central Banks Bills were offered for 28 and 63 days with an under-subscription of K112.0m out of a total of K475.0m on offer. The weighted average yield was 1.11% and 2.39% for the 28 and 63 day maturities respectively. Auctions in Treasury Bills were also under-subscribed, with a K97.67m shortfall from a total offer size of K196.28m. Weighted average yields were 2.75% for 91 days, 4.75% for 182 days and 7.7% for 364

• The KSi closed 5.1% higher at 4156.07 points on the back of a 13.3% gain in OSH on the POMSoX, whilst the KSHi remained unchanged at 9112.94 points as shares traded at their current levels despite the release of market sensitive announcements.

International Market Summary

• US stock funds have suffered their largest redemptions since the first week of the year ($11.0bn) as investors seek the safety of cash, government debt and gold during a week in which sentiment has continued to sour yet US wage growth shows signs of life (with 200,000 jobs being added in April)

• Reserve Bank of Australia (RBA) reduced the cash rate by 25 bps to 1.75% following the release of CPI data indicating a further slowdown in the economy. The RBA stated that the risk to the housing market had lessened and thus an easing policy was considered effective to return the economy to its target inflation of between 2.0% to 3.0%

• Australian equities inched higher; the S&P ASX 200 index closed the week at 5268.7 points as the market erased losses with a week-end rally to push the index back into the black

• Oil prices retreated for the week off of US Dollar strength despite a stoppage in production in North America and the continued erosion of the overhang of supply brought on by production cuts and disruptions in oil producing countries

• The PNG Kina was weaker against the USD, closing the week 3 basis points lower. The PGK edged higher against the AUD off weakness in the currency subsequent to the rate cut by the RBA

pdfKFM Weekly Investment Update: Friday, 06 May 2016

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