By Sam Vulum

THE desperation by the gov ernment of Papua New Guinea to secure immediate funding for the annual Budget has taken its toll with the announcement of new moves to raise money through bonds issue.

Acting Prime Minister lairo Lasaro, on February 11, announced details of the bonds issue through which it hopes to raise US$25O million (about K 552 million) to finance the budget.

This latest move follows difficulty by the government in securing loans from the World Bank and the interna tional Monetary Fund, as well as a syn dicate of European banks.

Instead of negotiating for money from financial institutions alone, PNG

will now be going out to the international open market to raise money through the sale of redeemable bonds.

It means companies, organisations and even indi viduals can buy shares in PNG and be repaid with interest at the end of a given term - in this case five years.

It also means all the coun try’s assets, including State shares in resource projects, are mortgaged to those who buy bonds.

The government is using

the recent credit rating as the basis to woo potential buyers.

Lasaro said the joint book-runners (lead managers) to prepare and process the bond issue are J P Morgan and Warburg Read Dillon.

These two “outstanding financial institutions” would give PNG’s bond issue the maximum possible credibility and marketability, he said.

New York-based law firm, Sullivan and Cromwell has been engaged as legal advisors. It will be assisted by Australian firm Mallessons Stephen Jacques.

Another firm Investor Resources Limited have been hired as advisors on the issue.

A two-man team would undertake a non-deal (Euro-market) roadshow soon to lay the groundwork for the issue and deliver information about the

Lasaro hopes to raise US$250m front bonds

recent credit ratings. Lasaro said the international investor bankers and lawyers were recommended by Treasury Secretary Brown Bai, Bank of PNG Governor Morea Vele, Attorney General Michael Gene and chief government economist Dr pirouz Hamidian-Rad. The team interviewed bidders in Sydney on January 29.

Meanwhile, acting Opposition leader Chris Haiveta believes the option of raising loan money through a bonds issue is commendable but not appropriate at this time.

He also cautioned that the bonds issue option should not be an alternative to World

Bank/IMF or the European loans but they should all be pursued together.

“Let’s hope it’s a success for the nation, I welcome it with reservations,” he said.

He also urged the government to dis close details of the interest rate at which the bonds will be issued; the kind of security or guarantee the under-writers have; who will receive the surplus in the event of the bonds being over-subscribed; and how the under writers will be paid if the exercise fails.

“We do not really know how much the government stands to pay in the end. They (firms hired) have to be made transparent as

possible, including the background of the advisors... we do not know them,” Haiveta said. He said the proposed bonds issue financing, if successful, would immediately add another K5OO million to PNG’s already high public debt, making it the largest pub lic sector borrowing ever.

“To borrow this money just to fund recurrent costs was economic blunder,” he said, “it’s a long-term bond issue for a short-term gain. In my view going for a bond’s issue now is risky. I would recom mend we go for it in the second year of (credit) rating. It’s a gamble. The markets are unpredictable, it’s like the weather which can be cruel at times. This is a really huge undertaking which has to be properly planned.”

Haiveta also expressed concern about the bonds being issued at a time when domestic interests are high, and when the kina continues to slide against major inter national currencies. ■

The relatively successful Goroka Coffee plant in Madang, Papua New Guinea. The govern[?] is using the country’s recent credit rating to woo more investment