The sovereign risk factor is undoubtedly present, and the market...

The sovereign risk factor is undoubtedly present, and the market has priced it in excess. KSL is over 60% of my portfolio due to markets tendency to extrapolate the past to the future with the tendency to overexaggerate the risk factors out fear and underprice the security as a result. The price that KSL was trading for recently compared to the risk factors is a case of "it's too bad to be true". Price was too low for the real risk the company is exposed to. I would argue that KSL is at a lower risk than similar market cap Australian based lenders who make up less than ~2% of the overall lending pool in Australia. KSL on the other hand is the largest wealth management business and leading stockbroker in PNG. KSL is also part of the big 4 and holds about 25% of banking market share in PNG.

With the above in mind, is KSL at more risk than a small lender in Australia who is valued the same as KSL? The former is integral to the financial foundation of a nation, whereas the departure of the latter would be inconsequential. PNG politicians would quiver at the sight of the mob that banks with Kina if they allowed Kina to collapse in light of some turmoil. Australian government would feel no such need given the tiny market share that many ASX listed lenders hold. Their departure would not shake the economic foundation, Kinas would!

Think back to 2008/2009. The US government bailed out banks which were integral to the financial foundation of the US economy. Superfluous insolvent lenders were allowed to fall. Kina is integral to PNG. PNG is integral to Australia and the broader West given its strategic location. Ignorance en masse has allowed KSL to be mispriced relative to the real risk that is present.