The Fund’s domestic cash allocation (Domestic Cash Portfolio) comprises deposits in banks and finance companies at call accounts and term deposits, with a term less than 182 days to maturity at the time of issue. As at 31 December 2019, the Fund had around 12.% of the portfolio in cash.
Although showing a reduction in its composition relative to the prior year as the Fund looked to move excess cash into fixed interest to capture better yields, cash levels remained high for the following reasons: (i) ongoing funding of pre-approved property development during the year. The Fund is also investigating some larger unlisted equity investments, which if they come to fruition would also absorb a component of the cash held, (ii) an inability to obtain adequate foreign exchange to further diversify the Fund’s investment into international assets as noted elsewhere.
The domestic fixed interest allocation, or the Domestic Fixed Interest Portfolio, consists of short and long term bonds. As at 31 December 2019, the Fund’s allocation to this asset class was 46.0% of the total portfolio, a significant increase from the prior year due to the Trustees of the Fund and KFM’s conscious effort to improved overall yields of domestic fixed income by moving excess cash into this asset class.
Domestic Fixed Income – Short Term
The Fund’s domestic short term fixed income allocation comprises of PNG Treasury Bills, Interest Bearing Deposits (IBD) with approved PNG Banks and Financial Institutions, loans in PNG Kina and other PGK interest-earning investments with a fixed rate of return and term to maturity of more than one day and less than or equal to 365 days at inception.
As of 31 December 2019, the Fund had 23.2% of the portfolio in domestic short term fixed income. This compares with the SAA target of 7% and can be described as a significantly overweight investment in this asset class. This is explained by continued systemic constraints in accessing foreign currency to meet the SAA together with no long term government securities being offered in the first half of 2019 which triggered the Fund to invest
more in this asset class.
Short term government securities offered during the year had favourable yield and the Fund remains a regular participant in BPNG auctions. During the 2019 calendar year, the Fund invested most of its excess cash together with maturities from both the long and short term fixed income into short term government securities. The effect of this was to improve the overall yield for the Fund’s investment. The Trustee of the Fund, in conjunction with KFM,
managed the Fund’s Treasury Bills auction process proactively during the year
Domestic Fixed Income – Long Term
The Fund’s domestic long term fixed interest allocation, or fixed interest portfolio, comprises Government Inscribed Stock (GIS), IBD with approved PNG Banks and Financial institutions, loans in PNG Kina (PGK) and other PGK interest-earning investments with a fixed rate of return and term to maturity of more than one year at inception. As of 31 December 2019, the value of Fixed Interest Portfolio was 22.8% of the total investment portfolio, an increase
from the prior year due to a conscious effort to improve overall yields by moving excess cash into this asset class.
This asset class is made up mostly of government securities and the Fund continues to monitor the market for opportunities to acquire government bonds at suitable yield levels. The Fund remains a regular participant in auctions of long term government securities, subject to the yield on offer being suitable to the Funds requirements and view of risk. In addition to government securities, the asset class also includes commercial loans for subsidiary companies for construction projects.
The domestic equities allocation, or the Domestic Equities Portfolio, consists of listed and unlisted equities. As of 31 December 2019, the Fund’s allocation to this asset class was 22.1% of the Fund value, a significant decrease from the prior year due to downward revaluations of a number of the unlisted equities consistent with the challenging domestic market environment
As of 31 December 2019, domestic listed equity was 10.4% of the Fund’s total portfolio. The increase in value was primarily due to a significant increase in Bank of South Pacific Limited (BSP), Credit Corporation Limited (CCP) and CPL Limited (CPL) share values. BSP continues to provide a strong return to the Fund through good dividend and capital growth reflecting its strong financial performance during the year. CCP is back on track under the
guidance of the new board and management and the company reported a sold 2019 financial results.
The figure below shows the holdings of the Fund in domestic listed equities.
|Bank South Pacific Ltd||POMSoX||Banking/Finance|
|Credit Corporation Ltd||POMSoX||Finance/Property|
|City Pharmacy Limited||POMSoX||Health/Retail|
As of 31 December 2019, domestic unlisted equity was 11.7% of the Fund’s total portfolio. This compares with the SAA target of 16% and can be described as an underweight investment in this asset class. This is explained by revaluation losses on a number of the unlisted equities consistent with the challenging domestic market environment. The theme of slow growth and weak consumer demand continues in 2019 as PNG’s economy struggles to cope with the decline in prices of key export commodities. Although there was some improvement in 2019, foreign currency shortage still remains a key hindrance to the performance of domestic unlisted companies as the delivery
of goods and services to consumers face delays which had a negative impact on their underlining performance. This has impacted dividend payment and valuation for the Fund’s major unlisted equities.
During the year the Fund reviewed a number of investment proposals. Lead times for unlisted investments tend to be quite long and information-intensive and as such many other investment proposals remained work in progress at the end of the year. The Fund continues to work closely with its investees to assist the growth of those businesses through strategies to finance opportunities through activity such as mergers and acquisitions, which in turn will be of benefit to the Fund.
Domestic Unlisted Equities as at 31 December 2019
|Unquoted Ordinary Shares
|Alotau International Hotel Ltd||Hotel|
|Capital Life Insurance Company Ltd||Insurance|
|Gazelle International Hotel Ltd||Hotel|
|Kumul Hotels Ltd||Hotel|
|Pacific Management Services Ltd||Building Maintenance|
|Paradise Foods Ltd||Food & Snacks/Manufacturing|
|PNG Water Ltd||Utilities|
|Post Courier Ltd||Media|
|SP Brewery Ltd||Manufacturing|
|Toyota Tsusho (PNG) Ltd||Motor Vehicle|
|Westpac Banking Corporation (PNG) Ltd||Banking /Finance|
The domestic properties portfolio is comprised of commercial, residential, industrial properties and unimproved land. As of 31 December 2019, this asset class was approximately 15.3% of the Fund showing an increase from last year due to revaluation gains during the year.
The Fund has continued the implementation of the property strategy, which involves the following activities: (i) divesting non-core and underperforming assets while providing adequate
maintenance to all properties, and (ii) upgrading existing key assets. During the year, the construction of the Penthouse Apartment and Crowne Plaza Residence (also known as Nambawan Super Plaza) was completed and offered to the market for lease. The precinct consists of a world-class mixed-use office, residential, entertainment and retail complex with green areas for outdoor entertainment and recreation. Leasing of the two properties progressed well during the year. The building was approximately 50% leased at the end of December 2019 and the Fund expects it to be close to fully leased during 2020. These buildings will be providing excellent levels of income to the Fund going forward.
The Rangeview Heights development, which was approved by the Fund in 2016, has made progress during the year. Civil works have begun and construction is progressing smoothly.
During the 2019 calendar year, the Trustee of the Fund engaged Napier Blakeley to undertake a detailed review of the Fund’s overall property portfolio. Napier Blakeley is a leading independent property, development, and sustainability consultancy firm, who provided valuable review comments and recommendations with respect to each property.
The Fund remains focussed on optimizing profitability on core property asset holdings. The ‘divestment’ initiative is expected to further streamline and improve the composition of this asset class.
In turn, this will lead to an improved risk-return profile for the Fund, and a diminished exposure to sub-optimal holdings. Therefore, the Fund divested Pacific Vista, a residential apartment containing 7×3 bedrooms situated on Allotment 14 of Section 42, on the South Western Side of Ogoa Street during the year.
Property Portfolio as at 31 December 2019
(S20 L12 Champion Parade)
|Port Moresby||7 Level Commercial Office Complex in the CBD|
(S20 L13 Champion Parade)
|Port Moresby||9 Level Commercial Office Complex in the CBD|
(S405 L15 Waigani Drive)
|Port Moresby||A 6 Level Twin Tower Office Complex on Waigani Drive.|
(S390 L12,13&14 Waigani Drive)
|Port Moresby||6 Level Commercial Office Complex in Waigani|
(S20 L11 Champion Parade)
|Port Moresby||9 Level Commercial Office Complex in the CBD|
(S20 L3,4&5 Champion Parade)
|Port Moresby||4 Level Mixed Office & Retail Space in the CBD|
(S3 L21 Hunter Street)
|Port Moresby||9 level Mixed Use Commercial/ Residential Complex in the CBD|
|Morobe Haus (Vele Rumana)
(S6 L47 4th Street, Top Town)
|Lae||6 Level Commercial Office Complex in the CBD.|
|Nambawan Super Haus (S49 L3,4,5,6 & 7)||Lae||7 level Mixed Use Commercial/Residential Complex in CBD.|
|S15, 16& 17 L64 (Bowmans and Gordons Warehouse)||Port Moresby||Partly, NSL Data Storage & archive facility|
|Voco point S42 L5 &6||Lae||Industrial Wharehouse.|
|Bayside Apartments (Portion 178)||Port Moresby||42 x 2&3 Bedroom Residential Units|
|Koki Staff Housing Compound (portion 176)||Port Moresby||Staff Housing|
|Pacific Vista (S42 L14)||Port Moresby||7 x 3 Bedroom Executive Apartments|
|Portion 212 (Portion 212, Boundary Road)||Lae||40x 2&3 bedroom residential units|
|Pinnacle Apartments (Touaguba Apts) (S63 L22 Daugo Drive)||Port Moresby||Residential apartment with 8 levels containing, 11 apartments and a penthouse apartment|
|9 Mile Land (portion 2156,2157 & 2159)||Port Moresby||Vacant undeveloped Agricultural Land|
|Ex-Angco (L1 S6, L2, 3 & 5 S6 and L1 S5||Banz||The properties are located on L1 S5, Banz, L 1 S6, Banz and L 2, 3 & 5 S 6, Banz. Vacant undeveloped land|
|Ex-post PNG (4 mile, Boroko) (S387 L20))||Port Moresby||Vacant undeveloped land|
|Malolo Estate (S22 L 7 & 8)||Port Moresby||Housing Estate|
|PROPERTIES IN HOLDING COMPANIES|
|Coastwatchers Court Limited||Port Moresby||Holding company that owns 31 constructed apartments on Touaguba Hill. NSL owns 65% of the company.|
|Waigani Asset Limited||Port Moresby||Holding company that owns two multi-level commercial properties, Eda Tano HausLands Department Building and The Treasury buildings. NSL owns 65% of the company.|
|Old Parliament House Limited||Port Moresby||Holding company that owns Nambawan Plaza a multi-level commercial development including Deloitte Haus) and additional structures still under construction and anticipated to be completion in 2018. NSL owns 65% of the company|
|Moki Ltd||Port Moresby||Vacant Land between TISA Haus & Telikom Rumana.|
|Morobe Front Holdings Ltd||Lae||Holding company that owns Lae Waterfront Land as its sole asset.|
|Rangeview Heights Limited||Port Moresby||Rangeview is a joint venture company between Lamana, Nambawan Super Limited (NSL) and National Capital District Commission (NCDC) that proposes to bring to market a mixed use commercial and apartment’s development on 6,009 sqm of vacant land situated between NCDC City Hall and Savannah Heights along Waigani drive.|