No Asian market has quite the same IR characteristics as Taiwan. Ruled by an investor base that is 90 percent retail, and hurt by its pariah status in the diplomatic world, the financial press tends to focus on other markets in the region. Yet, no other Asian market (ex-Japan) has the size and depth of Taiwan. On some days, only the New York Stock Exchange has greater liquidity than the Taiwan Stock Exchange (TSE). On most days, TSE trading values are greater than the entire southeast Asian stock market combined. To top matters off, Taiwan was the only Asian market to really weather the storm in 1997.
Taiwanese companies have a special sense of IR. On one hand, they must deal with a fickle retail base known for quick-selling tactics. In many cases companies use stock to promote products and services. At the time of annual meetings the streets of Taipei are blocked by investors lining up for gifts as companies curry favor for the coming year. Stocks that lose favor will see a quick exodus and resulting share price collapse as investors search for the next hot play.
On the other hand, Taiwanese companies have attracted billions of dollars of global capital. Taiwan heavily restricts investment in its stock market, yet since the market opened to direct investment in 1995 some $13 bn has been invested in local stocks by foreigners. This does not count large holdings in over 20 GDRs and other financial instruments. In recent years, Taiwanese companies have worked to develop investor relations programs to reach international investors in both Europe and the US.
Here we profile three companies which have risen to the IR challenge in recent times. Two of these – Acer and ASE – were chosen from the electronics sector. Considered the best promoters of stock, the Taiwanese electronics firms are proactive believers in the IR function. A leading industrial group – Far Eastern Textile – was chosen for its prowess in developing a good financial profile across a range of companies.
Acer: changing perceptions
The ability of Taiwan’s electronics industry to weather the Asian storm has been good news for the IR team at PC manufacturer Acer Inc. However, southeast Asia’s largest PC manufacturer must tackle hard questions from investors who are not quite sure about Acer’s rapid expansion.
‘We’re very open with the global investment community,’ comments Yipin Lee, director of corporate finance and investment management at Acer Inc. ‘We’ve been through changes and not all our investors are completely familiar with our new structure. They raise concerns on the efficiency of management and are very closely watching the restructuring of our loss-making US arm. It takes a great effort on our part to convince them all that we’re doing the right thing with our repositioning.’
With problems in America and a listing policy based on diversification, the IR message has become more critical in recent months. For its effort in delivering this message the Acer investor relations team was recently ranked first in Taiwan by AsiaMoney.
Acer Inc’s basic strategy is to create a decentralized and independent franchise of companies linked to the parent holding company. Acer’s chairman envisions ’21 listings in the 21st century’.
Acer Inc is now parent to Acer Computer International listed in Singapore: Acer America involved in sales and marketing in the US; Acer Latin America listed in Mexico City, and another three companies listed on the Taiwan Stock Exchange.
The chairman’s slogan may be catchy but the underlying strategy may have supporters wondering how and where to invest. In an age of consolidation, the IR team works overtime to explain to global investors the reason Acer is headed in the other direction.
International convert
Listed on the Taiwan Stock Exchange since 1988, Acer has a market cap of over $3.4 bn, with foreign investors holding some 5 percent. The company entered the international market in 1991 with a $45 mn Euroconvertible bond. In 1995 it floated a $220 mn GDR, followed by a second $160 mn issue in 1997. Timing for the second GDR was crucial as it came within months of the Asian crisis. Currently, Acer is waiting for approval to float a local NT$8 bn convertible bond for June. More financing is on the agenda as it concludes an acquisition of a Siemens manufacturing facility in Germany.
To promote foreign investment in its TSE listing and raise awareness for international instruments, Acer set up a dedicated IR department. Annual roadshows and quarterly investor meetings are part of the IR effort.
One challenge faced by Acer’s IROs is to deal with varying degrees of knowledge among investors. Some are on top of industry developments; others are not. Lee believes the right approach is to deliver a consistent message to all investors. More savvy investors are then updated about the company structure, recent developments and new strategies.
For those less familiar with the company, the emphasis is on the overall fundamentals. ‘Positioning is a global issue,’ says Lee. ‘Unfortunately we’re located in Taiwan and overseas investors trade Taiwan like any other Asian country. Many investors feel we’re part of the Asian crisis and have a sell on Taiwan. Other investors look at the fundamentals and find we’re a very good choice, but the percentage is not high. It’s difficult. Even though we provide transparency and deliver up-to-date information, the first impression is that Taiwan is an Asian country and exposure should be low. The biggest battle is to change that perception.’
Ase Group: leading the pack
Being first has a nice ring to it in global capital markets. When it comes to the investor relations message, it is a good tool to have in the arsenal. For Ase Group leading the way forward in the Taiwanese market is second nature. While parent company Ase Inc listed a $131 mn GDR in Luxembourg in June 1995, subsidiary Ase Test became the only company with Nasdaq-listed common shares and a local Taiwanese Depositary Receipt (TDR).
Established in 1984 and TSE listed in 1989, Ase Inc is a packager of integrated computer chips. Its market capitalization is around $5.5 bn, and the stock price has followed a rapid upward trend on the back of a business growing at 50 percent per year. Family ownership accounts for 40 percent of Ase Inc, but both local and foreign investors are a critical component of the capital structure.
‘Ase Inc talks to local investors and analysts about the company strategy and the macro picture,’ says Jeffrey Chen, an IR convert in the Ase finance department. ‘Foreign investors visit regularly and management is a believer in leading the IR process. They attend at least 15 technology conferences as part of the global investor relations program.’
Ase Test delivers a different message. Testing integrated chips for the likes of Intel, it won approval to list on the local OTC market in 1996. However, due to low valuations Ase Inc brought Ase Test to the US where the testing story is better understood. With the aid of Morgan Stanley, Ase Test performed share swaps and corporate restructuring to make history with a Nasdaq listing worth $200 mn in June 1996. Now the only Taiwan company that can call the US its home market, Ase Test’s share price is evaluated on its own merits.
‘US analysts are not an important element of the Ase Inc IR picture. But the US analyst community is key to US-listed Ase Test. Without their support we would not survive,’ says Chen. ‘There is room for improvement for Ase Test IR. With a 1,000 percent rise in our share price we’ve relied on our performance. Still, we must tell our story accurately to investors. You don’t always need to draw a rosy picture and we make a point of meeting investors in good times and bad.’
The TDR is another first. A goal of any global technology firm is to maintain stability in the management structure and engineering department. To keep its team together, Ase Test granted five-year share options to employees. However, a large portion of the workforce is Taiwanese-speaking.
‘US share prices are rising and Taiwanese employees don’t even know how to trade the stock,’ says Chen. ‘We needed to create something to bring local employees back into the company. As a result, we became the first to apply for a TDR and create a program that consists of 7 percent of the float.’
Chen is satisfied with the finance initiatives of the Ase Group. Based on the work of the last five years, it is primed to finance growth. ‘We can easily raise $1 bn based on our present image in the global capital market,’ says Chen. ‘While we worked hard on the GDR and watched 90 percent flow back to Taiwan as investors took profits, investors will stick with us. They all made lots of money with Ase Inc and Ase Test.’
Far Eastern: split approach
Far Eastern Textile Group, the second largest conglomerate in Taiwan, is another trendsetter in attracting international pools of capital. With a group market capitalization of over $15 bn, some 10 percent of outstanding shares, or over $1.5 bn, are in the hands of foreign investors. Combine this investment with GDRs and Euroconvertible bonds and the amount of foreign investment rises past the $2 bn mark. Given these vast holdings, IR is a key component in the game plan of group CFO Champion Lee.
Lee is a pioneer in Taiwan when it comes to attracting global investment. He was among the first to latch onto GDRs in Taiwan and worked to open the market at a time when regulation was non-existent. In addition, Far Eastern was the first Taiwanese corporate to issue a local convertible bond. As part of the convertible bond flotation Lee worked to refine the existing regulatory framework.
‘I didn’t necessarily want to be a pioneer, but we needed to diversify financing,’ says Lee. ‘Due to size and reputation, investment banks called us first and explained we could attract foreign investors. It was hard to get things going and it took two years to put regulation in place. Now it’s easier. The challenge for IR is to explain the conglomerate nature of the company and the businesses we are in.’
Ranked second after Formosa Plastics in terms of industrial base, Far Eastern comprises five companies that are listed on the Taiwan Stock Exchange: Far Eastern Department Store, the largest department store chain in Taiwan; Asia Cement Corp, the largest cement manufacturer; Uming, one of the largest shipping companies in Taiwan; Ever Rest Textile; and Orient Chemical. A sixth, Far Eastern Commercial Bank, is OTC-listed.
Maintaining the financial health of the conglomerate is a complex business and issuance activity is key. Asia Cement issued a $66 mn GDR, competing with China Steel for the status of being first to come to the market. Issue dates aside, Asia Cement was the first to submit its application papers for the GDR. The rest of the group has come to market from time to time as the profile has increased. Far Eastern Textile does not have a dedicated IR department for the whole group, preferring each individual company to maintain its own program.
At the group level, Lee and his staff meet regularly with fund managers and analysts for briefings on the group’s progress. Lee attends investor forums where he conducts presentations on the group as a whole. Since Far Eastern’s investor base is nearing 500,000, the work on both the international and domestic level is hectic.
‘We are beginning to build a database of investors we meet during our presentations and roadshows,’ says Lee. ‘We promote the whole group, not just one company. We are like a grocery store. If an investor is interested in one listing we reach onto our shelf and explain the dynamics. When there is an issue upcoming, we will proactively promote that company, making sure there is no overlap with other issues.’
Currently, Lee is challenged by market conditions that are making business hard to conduct in Asia and a large part of his time consists of explaining how each company is faring during the Asian crisis.
‘Taiwan has a sound economy and investors do not have to worry about disclosure issues,’ says Lee. ‘Taiwan has one of the highest levels of disclosure and transparency in Asia, and Taiwan Gaap is close to that of America. Our SEC requires high disclosure, more than we can deal with on a monthly basis. This openness and a general interest in IR makes the country a natural for foreign interest.’
