One of the most intriguing bond issues in Asia is one that still has not seen the light of day. Papua New Guinea has been considering a US dollar offering for longer than IFR Asia has been in print, but the sovereign debut looks no closer to happening today than it did back then.
The Pacific nation was on the road again in 2016, but its winding path to the bond market began in the late 1990s, when it hired JP Morgan and Warburg Dillon Read to work on its debut. At that point, it was an ongoing dispute with a group of mercenaries that put paid to its capital markets ambitions.
When Prime Minister Sir Julius Chan returned to power in 1994, he attempted to resolve a dispute over the island of Bougainville, where production at a copper mine had been disrupted by revolutionaries. When diplomatic measures failed and Australia and New Zealand refused military support, Chan turned to a private contractor called Sandline International, established by former British army officers Tim Spicer and Simon Mann.
Sandline deployed soldiers to Papua New Guinea in February 1997, but their weapons, including helicopter gunships and small arms, were intercepted en route by the Australian air force and confiscated. By then, news of the plans had spread throughout the newspapers and Chan’s government collapsed, leading to his defeat in a June national election.
The scandal also claimed an assistant director in Jardine Fleming’s capital markets department in Hong Kong, who was fired after he was found to have written cheques to Sandline on behalf of the Papua New Guinea government, IFR reported at the time.
The planned assault may have come to nothing, but Papua New Guinea had agreed to pay Sandline US$36m, with half up front. Chan’s successor, Prime Minister Bill Skate, was unwilling to pay the US$18m, and both parties entered arbitration, with an international tribunal ruling in October 1998 that the government should pay Sandline US$25m, including interest, costs and damages.
The government was still unwilling to pay, claiming that the initial contract was illegal, and Sandline managed to seize US$6m from Papua New Guinea in Belgium, the proceeds of agricultural stabilisation repayments from the European Commission. There was a risk that Sandline might seek to claim the proceeds if the sovereign issued a Eurobond.
In the end, the government agreed not to contest the ruling and paid up after signing an agreement on April 30 1999, allowing it to proceed with investor roadshows the next month. The government, then rated B+ by S&P, formally postponed the deal in July after Skate resigned.
In March 2000, Papua New Guinea turned to the International Monetary Fund, after its international reserves dwindled to US$89m by mid-1999. Following that, there was little sign of an offshore deal being resurrected, although some banks were heard to have pitched a sovereign bond exchangeable into shares of state-controlled oil and gas explorer and developer Oil Search around 2010 onwards.
As the bull market in bonds gathered pace, so too did murmurings that Papua New Guinea might try again. In March 2013 it hired Barclays, BNP Paribas and JP Morgan for a potential US dollar bond, but no deal materialised.
In June 2016, it hit the road again, visiting London, Boston and New York with ANZ, Bank of China, JP Morgan and Societe Generale, but again stopped short of announcing a deal.
Sandline closed in 2004, blaming “the general lack of governmental support for private military companies willing to help end armed conflicts in places like Africa” and Mann was sentenced to 34 years in jail in Equatorial Guinea for trying to stage a coup that was funded by Margaret Thatcher’s son, Mark. Mann was granted a presidential pardon in 2009.
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