With some $3 bn invested in China through a number of companies and a growing team of listed vehicles, Douglas Chan watches over one of Hong Kong’s most prominent family enterprises from his perch in Central Hong Kong. In recognition of his financial wizardry, the executive director of New World Development (China) was recently annointed as a CFO Superstar by Global Finance magazine. Boasting that he does more face-to-face meetings with bankers and investors than anyone in the company, Chan has built a presence in the global market on the strong belief that IR is a key component of finance strategy.
Having been disappointed by the efforts of local IR boutiques who just ‘sold New World investor mailing lists and events management rather than strategic advice,’ Chan has set up his own investor relations Swat team to reach investors. In this way, Chan controls his capital raising campaigns and delivers his message with pinpoint accuracy. Led by finance manager Johnny Chiu and supported by a staff of four, New World prefers to handle its own roadshows, press releases and as much of the IR function as possible. In fact, on the day of Chan’s interview, Chiu and crew were putting the final touches to their kit for a Standard & Poor’s credit rating presentation.
A worldly 47-year old educated in Canada, Chan has a keen eye for raising capital and a great enthusiasm for coming up with new financing twists and twirls. Over the years, Chan’s career has taken him from the world of fashion to television and infrastructure development. Having started with New World in the mid-1980s, Chan has worked in all areas of the company. In addition to his current finance role at NWD (China), Chan is the managing director of New World Infrastructure (NWI) and an assistant to the managing director of holding company New World Development Co (NWD).
New World is one of Hong Kong’s premier bluechips. Public since 1972, property development has been its core business since its genesis. Over the years, the company has expanded its activities to hotels, infrastructure and telecoms. Outside these core competencies, New World identifies strategic investments in sectors like security services as well as construction and engineering.
Named as one of the world’s top 500 companies by Business Week, Hong Kong Stock Exchange-listed New World has a market capitalization of around $12 bn. The infrastructure development arm (NWI), is a 56.9 percent-owned subsidiary of NWD, and is listed separately on the HKSE with a market capitalization of $2.76 bn. Both NWD and NWI have consistently outperformed the Hang Seng Index.
Target Practice
‘We have identified the universe of investors with interest in China and Hong Kong, and we target them with specially designed IR initiatives,’ says Chan. ‘We know who our investors are and we know who may be thinking of putting money into an Asian company with our kind of profile. By controlling the levers of delivery and handling the IR function internally we build the links with investors. In this way we can maintain a proprietary database that is constantly being updated and used in innovative ways to inform investors.’
Chan’s dedication to IR has paid off well in the fickle and volatile landscape that is the Chinese market. Clearly, Chan has become an expert in packaging China risk and making it palatable to a broad spectrum of investors. He does it for his listed vehicles, massive private placements and jumbo loans. He does it as well – if not better – than anyone in the world. In fact, Chan and his IR team are so confident in their ability to design IR programs for China-related investments that New World is now offering seminars for its strategic partners across China. These seminars stress the importance of communicating with investors and the necessity of sustaining IR programs and dealing with disclosure issues.
Chan insists that all the basics be covered when it comes to the IR program. Over 1996, some 116 company and 13 site visits were arranged for investors and analysts. Senior management had a busy year, conducting five global roadshows and hitting some 13 cities in Europe, America, and Asia. To cut down on travel, NWI conducted its first global videoconference on interim results in March. In addition, emphasis is placed on generating analyst reports, site visits and a steady flow of press communications. For instance, in the case of NWI some 29 research publications were generated. Out of these, a total of 18 buy reports were filed by leading investment banks. Roadshow results and analyst reports are closely monitored and compiled in an annual review of IR activity.
In terms of press communications, the Chiu IR connection hosted a number of press visits to China. In April of last year, more than 20 reporters went to visit road projects in Zhaoqing. In November, more than 60 analysts and reporters attended the grand opening of a theme park in China. Over the course of the year, some 17 press releases were sent out on everything from project announcements, to massive bond issues and critical company developments. Presentations were also made to the Hong Kong Journalists Association.
Successful Communications
‘The key to our success is packaging different projects for different investors in the global market and communicating the opportunity in a transparent manner,’ says Chan through a veil of cigarette smoke in his corner office in New World Tower. One gets the sense that Chan loves to communicate and understands the power of such communication in selling his wares. As a financial man, Chan measures his IR success in terms of comparative valuation in the case of equity offerings, or in basis points when it comes to debt or loan markets.
‘Not only do we offer a selection of different projects to diversify risk, but the co-investment of New World acts as a safety blanket,’ notes Chan. ‘Our ability to secure quality projects along with funding has allowed us to reach the point where we are today. When we bring investors a project or structure they know it is likely to make money. We design these investments with a risk profile that is as minimal as possible, and then we point out the risks to our investors via our IR campaign.’
Chan views the debt segment of his IR program as importantly as his equity initiative. New World is constantly looking for windows to issue debt or achieve favorable loan syndication pricing. In defining the company, whether investors are interested in debt or equity, Chan employs a similar message. Though the message differs for those interested in New World as a credit, and the risk parameters are altered, promotional material often does double duty.
Coping With Risk
Risk is a buzz word that scares most would-be investors off placing funds in China. While Chan does not ignore risk factors, he does not believe they are as high as most investors are led to believe. When asked about risk by investors on numerous roadshows, Chan points to his confidence in the PRC government machine. ‘One does not invest in China without feeling a certain confidence in the government,’ notes Chan. ‘After all, they are the key joint venture partner.’
Chan’s recent investment and involvement in power producer Beijing Datang is a good example of this confidence. Replete with clippings from local daily newspapers, Chan boasts about New World’s investment in the flotation of Beijing Datang on the day after Deng Xiaoping passed away. While other companies stayed away from the transaction due to the instability caused by Deng’s death, New World waded into Beijing Datang with an investment of HK$1.2 bn.
‘Do you think we are worried about the risk in China? Our track record shows that we are clearly not,’ notes Chan. ‘We are very confident of the future and stress this confidence to investors at every opportunity. Perhaps this is the most critical component of our investor relations message. We want to make people feel good about investing with us in China. If they do not feel good, then we are unlikely to be able to maintain their investment on our books over the long term.’
Dually-listed on the Hong Kong and London stock exchanges, Beijing Datang raised some $450 mn. In the pre-IPO stage New World took a 9.9 percent stake on the producer and watched its investment grow by HK$1 bn virtually overnight. Given the past problems of NYSE-listed power companies Huaneng International Power and Shandong Huaneng Power, Beijing Datang faced an uphill battle with investors.
‘We worked with Beijing Datang to create an IR story that made sense,’ says Chan. ‘There were many reasons why Datang could fail miserably, and no-one wanted the power industry to be faced with another failure. It would have closed the window for equity investment for some time. In the end, we had to come up with an IR story that would convince investors who had suffered major losses on the two Huanengs. There were not many happy faces on the road show, but in the end they saw the difference in investing in Datang.’
Helping Hands
Chan feels it is in the best interest of New World to assist these Chinese companies in developing a solid understanding of IR. Sending in Johnny Chiu and his IR team, Chan kicks off the IR educational process with a seminar to senior management. Over the long term the company is encouraged to establish an ongoing IR initiative along the lines of New World.
Chan’s IR initiatives outside New World extend to such companies as Beijing Northstar and Beijing Enterprises, one of the most highly oversubscribed issues ever to list on the Hong Kong Stock Exchange at 1,270 times the actual IPO. More recently the company purchased a small stake in China Southern Airlines, an issue that has gathered investor attention as one of the largest IPOs. Chan hopes IR will enhance investor attention while increasing New World’s investment.
‘In the coming months we will work with our strategic partners in building a global shareholder base,’ adds Chan. ‘We know that Chinese companies are behind in handling IR, but that does not mean there is not a great willingness to learn. Companies have watched the way investors have reacted in the market and they are gaining a better understanding of what needs to be done. We feel that our understanding of the business should be shared for the benefit of all our initiatives.’
