The Asian market has been one of the hardest nuts to crack for global IR consultants. The region is home to some of the world’s most renowned family-run companies, which can be almost impossible to persuade of the virtues of IR: often they simply cannot believe that disclosing information to shareholders is in their interest. Indeed, many of Asia’s family-controlled empires have yet to be converted to the modern ways of dealing with capital markets: they prefer to saunter down to the local government official, or ask a banker relation for a hand. If the worst comes to the worst, the family can always open the safe to help out with the need for funds.
Yet even these enterprises are beginning to dip into the global equity till. Take Hopewell’s HK$5.9 bn CEPA offering (see box) and the $150 mn offering of Indonesian pulp and paper maker April. Gordon Wu was able to cash out at a nice premium on CEPA, while the self-made Tanoto brothers were enjoying their introduction to Wall Street on the way to becoming the first emerging market company to sell an issue in 1995. Nor has Li Ka Shing shied away from stock markets. His Cheungkong holding, and other major positions, have made him a liquid billionaire. Still, it would be hard to characterise Li Ka Shing’s precise view of IR.
So far, the consultants have been most successful in convincing Asian governments. Looking for billions of dollars and planning massive privatisations, some of those governments have done better than others: in India, the government is still suffering from the setbacks of its two cancelled privatisations for the Taj Mahal telecom jewel; in Indonesia, on the other hand, the government wowed the capital markets with its clarity in the sale of Indosat. But the Asian IR business is becoming more established among companies, too, as they have begun to understand and accept its role – with a little help from the consultants, of course, many of whom have targeted the region for future expansion.
Taylor Rafferty Associates, handlers of family-owned San Miguel in the Philippines and Gold Peak Industries in Hong Kong, and Technimetrics, which has just opened new offices in China, are offering their research-based approach. Meanwhile, the agency style of Hill & Knowlton and Burson-Marsteller has caught on in some corners, as has the boutique strategy of Dewe Rogerson and Keith Statham Associates.
Though consultants still talk of Chinese fee rip-offs and complain about Asian cheapskates, they all seem to want another kick at the cat. In Southeast Asia, most consultants are taking this kick from the colonial cover of Hong Kong. Though IR expansion is taking place from Singapore to Shanghai, and new offices are popping up across the Rim, financial communications innovation in the region has been driven from Hong Kong, where the fast action and liberal markets have created a freewheeling climate in which to nurture business.
To get a view of where IR is headed in Asia, Investor Relations spoke with leading IR practitioners in Hong Kong, Beijing, Singapore and New York. Their comments were varied, and their gaze somewhat cynical, but smiles still tended to appear on their faces when asked about the potential for future business there.
Just Stay Away
From her office in midtown New York, Carol Ruth muses: ‘There is no business out there. There is no potential. And I suggest that everyone just stay away. You got that…just stay away.’ But most IR professionals will know better than to heed this advice from Ruth, who has built a name for Dewe Rogerson in Asia by winning ADR mandates from China to Indonesia.
In fact, Ruth is both overwhelmed and excited by what she sees in Asia. ‘IR is embryonic,’ she exclaims. ‘IR consultants are not doing financial communications, they’re advertising results, doing brochures, annuals and interims. They don’t understand why people hold stocks and how one can impact that.’ Ruth sees a niche Dewe can fill, and she wants to fill it quickly. ‘The capital formation process will develop faster in Asia. It’s a bigger, faster moving market than any place in the world. There is a great need to communicate both globally and locally. Dealing with the international markets versus dealing with the insular Hong Kong market is a different game,’ Ruth adds. ‘Sure, some of these Hong Kong investor relations consultants are brilliant, but do they know what US investors want? Have they ever seen one, or even been on a US roadshow? I don’t think so.’
Dewe landed PT Telecom’s privatisation, pitting its team from New York and London against Asian-based contenders, in part because of its international capacity. ‘New York and London is where they were going to sell the stock, not Singapore,’ she says. ‘Selling stock globally needs a global approach to communications rather than an island mentality.’
John Russell, group director of financial communications at Hill & Knowlton in Hong Kong, agrees that IR companies offering basic services like press releases, launches and interim reports are not doing their job properly.
Formerly an investment banker, Russell is recruiting a team that will be as at home in the treasurer’s office as in the marketing department. ‘The auditors, lawyers and underwriters are all in the loop, but IR companies are always the last to know when a company is going to list in Asia,’ Russell says. ‘Our financial experience elevates us to the same level as other experts. It saves time for our clients if we come in at the start with a fundamental understanding of the numbers,’ he adds.
Not surprisingly, Russell also agrees with Ruth on another point. ‘There is definitely an IR boom brewing as Asian markets, led by the potential of China, extend their reach towards international capital,’ Russell says. ‘But, as IR consultants, we have found that basic programmes are not enough. We have to create a strategic alliance with clients, adding value by dealing with market problems in tandem. There is huge competition for capital, and more companies are recognising that in tough times, IR should not be the first cut from the budget.’
Like other IR consultants, Russell is transfixed by China. ‘If there are failures in Chinese capital raising, it’s not the fault of the Chinese, their legal system or the economics,’ Russell adds. ‘The problem is everyone is jumping in thinking it’s easy to make money. It’s not easy anywhere. If companies don’t do their homework beforehand, they’re liable to get into trouble. That’s where IR is a benefit.’
Jeff Schultz, managing director of Burson-Marsteller for Hong Kong and China, is in a China groove – sometimes. ‘It is the biggest potential market for financial communications in the region,’ Schultz enthuses. ‘Asian IR means tapping into very deep pockets that companies have never been able to tap into. But China needs to know the rules of the game. It’s simply a function of imaginative bankers and willing companies to go through the communications meat grinder. They may not enjoy it, but the pay-off is big.’
Schultz notes that the need for Chinese IR is greater than ever now that the initial enthusiasm has worn off. Two years ago, PRC companies had their PEs bumped up to 20 to 25 times simply because they had the word ‘China’ in their name. Now investors are being selective. ‘How does a company dig itself out of that hole?’ asks Schultz. ‘IR is one way, and it’s the cheapest way. If a company has the story, the earnings and the operations, it doesn’t cost much to tell it.’
Judith Li is leading up the charge for Technimetrics in China. Now owned by Knight Ridder, her firm has made China a priority of its growing IR business, and has opened offices in the PRC. In the past, Technimetrics has been known for its mailing lists; now the firm wants to win IR business. ‘We see China as a difficult market, but one in which our analytical and research-based style can do very well,’ says Li. ‘They are just learning what IR means, but they are learning fast, and are beginning to understand the need for communications.’
Hong Kong and China may be IR favourites, but Singapore is looming in the wings. Not long ago, less than 10 per cent of Singapore adults owned stocks. Now, following the Singapore Telecom privatisation two years ago, that figure has risen to 50 per cent, giving Singapore one of the highest rates of shareholders per capita. That sell-off was heralded by a huge investment education programme; with a retail investor base clamouring for information, the company has been a driver in the budding concept of IR.
‘Singapore companies are taking IR more seriously than ever,’ says Jackie Koh, managing director of Burson-Marsteller in Singapore. ‘And investors are more sophisticated, and demand more information. Technology, communications and press coverage have all helped drive the development of IR, and companies are more open.’
Singapore IR is also being boosted by a growing openness among family enterprises. Historically, the free float of many family owned or tightly held public companies was small. In Singapore, as in Hong Kong, only 25 per cent of shares need to be on the market for a listing and this minimised need for shareholder communications. Now the free float is growing and companies are reacting.
As an IR practitioner, Koh is looking beyond IPOs and privatisations. ‘I’m more concerned about the secondary market,’ Koh says. ‘There is a lot of IPO razzamatazz to attract shareholders, followed by a complete shut down of IR, and a lack of management accessibility and disclosure. We try to educate clients that the secondary market is the most important stage – their shares have to be fairly valued and they must have investor interest. It’s not just a matter of meeting disclosure requirements, but creating a continuous dialogue with shareholders, both institutional and retail.’
A Whirlwind Tour of Asian IR
Asia in July is no picnic but that didn’t put off one indomatable traveller from braving the monsoon to spread the IR gospel: Virginia P’an, managing partner of KCSA, made a whirlwind tour of Southeast Asian financial capitals, taking care of the old business and drumming up the new. P’an sums up her trip as follows.
Hong Kong: Still the number one financial market in Asia, Hong Kong has a broad spectrum of European as well as US investment bankers represented. While market turnover is high, it’s a small place and news travels very quickly. There are few secrets in this city-state. Still, some Hong Kong ADRs have not done well due to a lack of IR and a failure to realise that while their companies may be household names at home, Wall Street has yet to learn about them.Manila, Philippines: The economy of Manila has boomed since market competition was introduced two years ago. Also, some of the old family monopolies are being broken up. Philippine Long Distance’s move from the Amex to the NYSE last fall signifies the coming of age of Filipino financial markets, and the larger companies are starting to enter the IR loop with in-house staff and outside consultants.
Jakarta, Indonesia: The Indonesian economy has been doing well for the last eight years. As in the rest of Asia, family enterprises going multinational are a big part of Indonesia’s story. The market is just starting to deregulate, and the massive Indosat NYSE ADR was only the first of a succession of privatisations.
Singapore: The financial markets here continue to develop strongly. The Barings incident actually enhanced Singapore’s reputation by showing the world it was capable of handling anything. Leeson’s legacy was a huge position to cover over the fateful weekend, and it proved the strength of the Singapore market. A large number of Hong Kong companies are currently applying for registration on the SSE.
Kuala Lumpur, Malaysia: This is boom-town Asia, with 9 per cent a year growth over the last decade: today there is barely a single faade recognisable from seven years ago and the city is replete with the latest in telecommunications and transport. The political brass is keen on developing the Malaysian market, and is already changing securities laws to attract new business from Singapore.
Hopewell’s Wunderkind
An old China hand with years of experience in Southeast Asia, Jeff Schultz of Burson-Marsteller in Hong Kong, is sometimes exasperated, sometimes euphoric about the potential of IR in Asia. ‘It all depends on the day,’ says Schultz, sweating heavily as the Hong Kong humidity takes its toll. ‘Let us say that I have had my share of successes as well as horrors. Successes are the ones that play by the rules, while the horrors try to pull a fast one on the market.’
For examples of the former, Schultz invariably turns to Consolidated Electric Power Asia Ltd. CEPA, the biggest IPO in Hong Kong history at HK$5.9 bn, came to market at a time when international enthusiasm for China concept stocks had reached a peak. Yet, despite the clear appeal for investors, there were several sensitive issues which the company and its financial advisors had to tackle.
The CEPA story began in 1993 when Hopewell Holdings decided to spin off its power plant interests, primarily in China and the Philippines, which had been nurtured and developed since the mid-1980s. At its birth, the new listed company would have a total capitalisation of HK$10.9 bn (US$1.4 bn), and would be one of the largest power companies in Asia.
At a PE of almost 39 times, the new company was set to be both the biggest IPO and the most expensive ever launched in Hong Kong. The communications challenge was to make 39 times look like good value. Moreover, the listing was one of the most complex, with the HKSE IPO only the final step in a series of transactions that included three international placements, a sale of partly-paid shares to the parent company, and an offer to take up 50 per cent of the shares by Gordon Wu.
One thing clear to investors, and a key challenge for B-M, was that Hopewell was getting a better deal than the average investor. Hopewell would initially pay up only 50 per cent of the cost of the 800 mn shares it would buy; it would mark up the cost of the assets sold to CEPA by $700 mn; and it would pay only $10 per CEPA share, versus the $12.50 being asked of the public. Explaining and justifying the preferential treatment was an important B-M task.
Schultz says Burson’s job was to explain the complexity without pulling punches. Along with CEPA, Burson provided analysts and media with an ‘aggressively user-friendly source of clarity.’ For five weeks, there were daily conference calls with directors of the company and its financial adviser, during which B-M monitored media coverage and fine-tuned strategy. Then, with most senior management out of town on the international roadshow for three crucial weeks prior to the Hong Kong listing, B-M found itself more in charge than normal when it came to both media and analyst communications.
CEPA’s end result left company management and B-M exhausted but content. Three successful international placements were followed by a 43 times oversubscription in Hong Kong, and a smooth ride with press and analysts. ‘Aside from the strength of the company, CEPA was successful in delivering its story to shareholders,’ Schultz adds. ‘The market greeted it incredulously because it was so big, pricey and conceptual. But the share price has appreciated steadily, and it has turned out to be a profitable buy.’
