Swiss roll to PNG rescue again
Plans by the World Bank to use two Australian banks as a conduit to a $US300 million loan to ease Papua New Guinea's foreign exchange crisis have foundered because of the sovereign security required to secure the funding.
In April, Westpac and ANZ accepted the PNG government's invitation to a crisis solution that would have seen the World Bank's commercial lending arm, the International Finance Corporation, provide funding enough to cover about half of the country's pent up demand for foreign exchange.
But negotiations collapsed because the IFC cannot lend to sovereigns but the Australian banks, along with local lender Bank South Pacific, required sovereign security for the borrowings. That left arrangements outside of the IFC's ken to fulfil.
As a result PNG has returned to familiar geography for the financial succour its economy so urgently requires.
Since plans to tap the World Bank and the sovereign bond market collapsed in through April and May PNG has been working with Credit Suisse on a syndicated loan whose two parts add up to $500 million.
According to documents floating around the internet that purport to be the confidential lending arrangements, the deal involves Credit Suisse advancing $US250 million from its own balance sheet with the second tranche to be raised from a CS syndicate and delivered to PNG's state coffers within two months of the deal being sealed.
Apparently the first tranche would carry a coupon of LIBOR plus 7 per cent while the pricing for the second is not yet settled. This is expensive money. But that is just the price you pay when you sit in the grip of a foreign exchange drought.
Last time PNG needed cash rapidly and in big licks was in March 2014 when it needed $US1.239 billion to acquire a 10.1 per cent stake in Oil Search.
The deal has since proved as big a political and financial burden for PNG Prime Minister Peter O'Neill as it was a fateful boon for Oil Search.
The Australia-listed PNG driller turned that cash into 23.835 per cent share into the PNG exploration permit that hosts mega-gas discoveries, Elk and Antelope. That position of informed influence has since translated into a $3 billion bid for InterOil and success will leave Oil Search and its boss Peter Botten as the shaping force of PNG's longer-term future in liquid natural gas.
Botten's deal took an important but surprisingly fragile toward success overnight Monday at a meeting of InterOil shareholders in New York.
A combined annual general meeting and special shareholders meeting saw InterOil's extant board survive a spill motion launched by 6 per cent shareholder, company founder and former chief executive, Phil Mulacek.
Mulacek reckons the InterOil board and management have failed shareholders and that the Oiol Search deal is billions shy of appropriate value. And it seems a number of other shareholders agree with him, just not enough to unseat the board or deflect Botten.
The owners of 70 per cent of InterOil attended the New York showdown. Some 28 per cent of the shares voted were offered in support of Mulcek's dissidence. That, quite obviously, means that 72 per cent of the vote rested with the existing board. For all that might look a healthy margin, it ain't.
Next month these same owners will vote on the Oil Search takeover. InterOil is a Yukon-registered company and the Yukon rules require that 66.6 per cent of the register support the sort of deal proposed. And that says only that the margin is rather thinner that Team Oil Search might feel comfortable with.
But I figure they can rest easy in the knowledge that the Monday was a vote of protest at less than stellar performance over the past 18 months of the excessively remunerated InterOil management. The next time around, it will be all about business.