Things to know when financing a transaction in the Pacific

By Angela Ipara

Key takeaways:

• Financing transactions in Papua New Guinea require a lifecycle-based approach that considers market entry, structuring, due diligence, operations, and exit from the outset.

• Early regulatory engagement and alignment with PNG’s foreign investment and customary land frameworks are critical to avoiding downstream risks.

• Transaction structures, security packages, and risk allocation must reflect PNG’s practical enforcement realities rather than offshore assumptions.

• Successful outcomes depend on strong local engagement, realistic monitoring, and exit strategies tailored to PNG’s legal and commercial environment.

Financing transactions are a critical enabler of commercial activity in Papua New Guinea (PNG), supporting business establishment, expansion, infrastructure development and investment across key sectors of the economy. While many aspects of financing are familiar to lenders operating in common law jurisdictions, transactions in PNG require an appreciation of local legal, regulatory and operational realities that shape the lifecycle of doing business.

From initial market entry and structuring, through operation and enforcement, PNG presents unique considerations arising from its regulatory framework, institutional capacity, infrastructure constraints and interaction between formal law and customary practice. Understanding these issues at each stage of the transaction lifecycle is essential for financiers seeking to manage risk and achieve enforceable outcomes.

This article outlines key matters financiers should consider when financing a transaction in Papua New Guinea, viewed through the lifecycle of doing business.

1. Market entry and establishment phase

The financing lifecycle in PNG often begins before capital is deployed, at the point where a borrower or sponsor is establishing or formalising its business presence.

Foreign investors and financiers must understand the regulatory requirements governing entry into the PNG market, including foreign investment certification, sector‑specific restrictions and licensing regimes. Financing structures that involve shareholding, control rights or step‑in mechanisms must be aligned with PNG’s foreign investment framework from the outset.

Early engagement with regulators and local advisers is critical during this phase. Delays or errors at the entry stage can cascade into later stages of the financing lifecycle, particularly where financing documentation assumes a level of regulatory certainty that has not been achieved.

Customary considerations may also arise at this stage, especially where land access, community engagement or local participation is fundamental to the underlying business. These issues, while not always reflected in financing

documents, can materially affect project viability and credit risk.

2. Transaction structuring and documentation phase

Once market entry issues are addressed, attention turns to structuring the financing transaction in a way that is legally enforceable and commercially workable in PNG.

While standard offshore financing documentation provides a useful starting point, it often requires modification to reflect PNG‑specific considerations such as:

• foreign exchange controls and currency availability;

• tax and withholding implications;

• regulatory approval requirements; and

• the availability, perfection and enforcement of security.

Security structuring is particularly important. Not all asset classes are easily secured in PNG, and secured transactions frameworks, while improving, are not uniformly tested across all types of collateral. Land, in particular, remains complex due to the distinction between state land and customary land, with customary land generally unavailable for mortgage.

Financiers should ensure that security packages are realistic, properly perfected and supported by local enforcement mechanisms, rather than relying on theoretical rights that may be difficult to exercise in practice.

3. Due diligence and risk allocation phase

   
   

Due diligence in Papua New Guinea often requires a more hands‑on and investigative approach than in more digitised jurisdictions.

Corporate records, land registries and security interests may require manual searches, and information availability can vary significantly. As a result, due diligence timelines are often longer and outcomes more nuanced.

Risk allocation during this phase should reflect the realities of operating in PNG, namely:

• limited public data and credit information;

• infrastructure and logistical constraints;

• reliance on key individuals or government counterparties; and

• exposure to commodity prices, weather events and supply chain disruption.

Financiers should use a combination of contractual protections, covenants and monitoring mechanisms to manage these risks, while remaining mindful of what is realistically enforceable in the local context.

4. Operational and monitoring phase

   
   

Once financing has been deployed, the operational phase presents its own challenges in PNG.

Ongoing compliance with regulatory obligations, reporting requirements and financial covenants must be monitored against a backdrop of variable infrastructure and administrative capacity.

In some cases, borrowers may face genuine constraints in meeting reporting timelines or information standards expected in offshore markets.

From a lender’s perspective, maintaining regular engagement with borrowers and local advisers is essential. Practical oversight often matters more than formal rights, particularly in sectors where operational disruptions can quickly affect cash flow and asset value.

Environmental, social and governance considerations also play a significant role during this phase, particularly where projects interact closely with local communities or operate in remote areas.

5. Enforcement and Exit Phase

The final stage of the financing lifecycle, exit or enforcement requires careful planning from the outset.

Whether the exit occurs through repayment, refinancing or enforcement, financiers should anticipate that processes in PNG may take longer and involve greater regulatory and procedural complexity than in other jurisdictions. Court proceedings, asset realisation and regulatory approvals can all extend timelines and increase costs.

Effective exit planning in PNG involves:

• building flexibility into financing documents;

• considering multiple exit pathways;

• aligning enforcement rights with practical realities; and

• ensuring regulatory requirements are addressed well in advance.

A well‑designed exit strategy is not simply a back‑end consideration but a core component of transaction structuring in PNG.

Financing a transaction in Papua New Guinea requires a lifecycle‑based approach that recognises the interconnected nature of market entry, structuring, due diligence, operations and exit. Each stage presents distinct risks and considerations that, if not addressed early, can undermine the overall success of the transaction.

By understanding PNG’s legal and commercial environment, engaging local expertise, and structuring transactions with enforcement and exit firmly in mind, financiers can navigate the complexities of doing business in Papua New Guinea and support sustainable commercial outcomes.

Need help?

For assistance regarding the facilitation and financing of transactions in Papua New Guinea please contact us.