POMSoX Making A Small Headway

Nearly five years of being launched, the Port Moresby Stock Exchange (POMSoX) is making a slow headway.

Twelve companies have listed on it so far, an indication of the reservation Papua New Guinea's small investors have about buying shares after being mauled by scams that had national implications, according to the exchange's listings manager, Teup Goledu.

Unlike the region's other bourse, the South Pacific Stock Exchange in Suva, all of POMSoX's business is done electronically.

A trading board on a wall in a room on Defens Haus, where the exchange is located, hangs unused since transactions are made with computers. It's all done with computers, he explains.

"There is no trading floor; it is an electronic system. Our stockbrokers have their own websites and we provide facilities," Goledu says.

Vincent Ivosa, POMSoX's market controller and administration manager, adds: We see all the trades on our screen. Settlement must be done within three days.

"At the moment, we are only listing ordinary shares. We hope to progress into other classes."

POMSoX is surely one of the world's smallest stock exchanges with, by September, just 12 public companies registered. Trading began on June 4, 1999.

"Steamships wanted to be the first company to be listed, so they got the glory of that as one of PNG's pioneer companies," Goledu says. It was the first postal address and is number one in the Papua New Guinea company register.

It was anticipated that there would be a lot of activity, but it never turned out that way probably because of the ignorance of investors on one side, and companies on the other.

"It has been slower than anticipated. POMSoX has yet to be fully grasped as an option by the companies. We have to develop a cultural attitude."

Talk of opening a stock exchange for Papua New Guinea began in the 1980s, and an informal infant market was already operating by then, Goledu says. "The PNG Stock Exchange was incorporated but did not materialise, perhaps for the reasons that there was no regulatory mechanism in place for a securities market. The proposal arose again in 1994 because the government wanted to reform the financial sector and open up the capital market."

A Securities Act was passed in 1997 along with a new Companies Act. The regulatory Securities Commission of Papua New Guinea was also established. A steering committee comprising the private sector and government officials was appointed and from January 26, 1998 all its responsibilities and duties were transferred to POMSoX.

"POMSoX was left to decide whether to come up with its own rules or adapt from existing exchanges. The easiest way was to adopt, so we asked the Australian Stock Exchange if we could adopt their rules."

Peter Marshman, a former managing director of the Australian exchange, made frequent trips to Port Moresby to help POMSoX through its early days. A licensing agreement with the Australian exchange allows POMSoX to modify its procedures to suit local needs and processes.

The exchange operates on revenue from listing, transaction and other fees. The five members of its board are chairman Sir Anthony Siaguru; Wilson Kamit, Governor of the Reserve Bank of PNG; Syd Yates, managing director of Kina Securities; Paul McLaren, managing director of Capital Stock Brokers; and Gerea Aopi, country manager for Oil Search.

"We wanted to call it the PNG Stock Exchange. But the government already has a company of that name in place," Goledu says. "We still hope to make the change. During the establishment stage, we thought we would have more trading but people are more protective and cautious about where they put their money. It will take some time. There have been scams that became national issues and had a very bad effect on the minds of the people."

Currently, the exchange records about 40 trades daily, which is, "not too bad," Goledu says. "In the last two or three years daily trading has increased. After some publicity the attitude of our people is changing very slowly."

The market opens at 10am and closes 4.30pm five days a week. Shares can be traded only through a broker and at present only two, Kina Securities and Capital Stock Brokers, are licensed to operate.

Prospectuses from public companies intending to market their shares need the prior approval of the Securities Services Commission.

"We discussed the possibility of changing listing rules because some may be considered too stringent or not possible for PNG companies," Goledu says. One example is the minimum requirement for the numbers of shareholders. We want the government to encourage investors to buy shares by removing withholding tax on capital gains and allowing other incentives.

" We are having discussions with some companies who have the required qualifications to list and, hopefully we will get five or six more listed soon."

The latest listing was that of the Bank of South Pacific, Papua New Guinea's largest bank.

Ramu Sugar was oversubscribed when it was floated last year, and Credit Corporation did well, Goledu says. Shares of InterOil Corporation has gone from 7 kina to 75 Kina a share in three years. "In terms of raising capital, companies should not have a problem because it has been demonstrated," Goledu says.

"We don't have an index yet but Kina Securities has undertaken to prepare one by the end of next year."

Apart from the link with the Australian exchange, POMSoX could have other ties in future, Goledu says.

"Fiji indicated an interest in establishing a working relationship and looking at the possibility of amalgamation in the future. Our board has not really sat down to look at it in detail. We note the interest of the Suva-based exchange and it is still open for discussion."