The immediate impact of the market collapse across the region has been many companies taking the view that they were right in assuming that proactive investor relations was not worth the effort. If no-one wants to buy your stock why bother trying to communicate better with them?’
Andrew Pirie, a director at financial PR agency Baldwin Boyle Shand in Singapore, is by no means alone in his assessment of what Asia’s market turmoil could mean for business – or, indeed, what it could mean for the growth of investor relations in the region. At the beginning of the new calendar year gloom and doom pervaded companies from Korea to Indonesia, Hong Kong to Singapore. Bumping up the communications budgets seemed a long way from most executives’ strategies for the immediate future. Just surviving was more the order of the day.
What a change a few tumultuous months can make. Last summer all the talk was that IR might really take off across the region. No longer would attempts at good IR be confined to a few blue chips in the more advanced economies. No, now everyone was beginning to see the light. Indeed, new IR-focused businesses were beginning to spring up – and prosper, too. Conference organizers were positively upbeat about adding IR to their schedules.
Cast your mind back to September. Alison Chow, director of IRAsia.com, confidently dealt with inquiries at an IR conference in Singapore. Her company’s web-based financial information site was attracting attention across the region.
In January this year, Chow was back in Singapore for another IR conference. This time it was easy to sense a different mood. Sure, IRAsia.com remains busy but, as Chow freely admits, attracting new clients in the existing climate is a difficult task. Numbers at the conference were under half those of the same event last year. Another event optimistically scheduled for the same week in Singapore had to be cancelled.
And Singapore has had it easy. By comparison with some of its Asian neighbors, it’s a relatively stable economy with few debt concerns. Indeed some of the colony’s blue chips even rallied as defensive plays. Still, even these players remain realistic about what the downturn could mean for them in the longer term. ‘I don’t think this trend will go away very quickly,’ says Karena Tay, IRO at Singapore Telecom. ‘The general consensus is that our results shouldn’t be too badly affected. We’re a defensive stock. The general downturn might lead to a downturn generally in telecommunication businesses but that’s true for all telcos, not just SingTel. So far we haven’t seen any deterioration in performances. Singapore remains relatively strong because our fundamentals are strong.’
Companies in Korea, Thailand, Indonesia and Malaysia were much more down in the dumps. Earlier that same miserable week in January, Chow had been in Kuala Lumpur for another IR conference. When it was planned, the organizers were talking of at least 50 delegates; barely 20 turned up.
In KL it was hard to get delegates to break into a smile. The ringgit had collapsed to nearly half its value of three months before and the stock market had plummeted as foreign investors dived for cover. The only solace to be gained was from the realization that Indonesia had it much, much worse. One suspects that Chow was relieved she hadn’t signed up to speak to delegates in Jakarta on the same trip.
Dual approach
What hope for the development of IR in such an environment? Two schools of thought seem to be forming. The first says the market collapse is a nail in the IR coffin. Few companies were dedicated to really telling their story to the financial community and this will set any signs of development back even further. It’s like a giant foot crushing a few seedlings.
Strangely enough, despite Pirie’s initial pessimism (expressed at the beginning of this article) he comes from the other school. Yes, the initial reaction may be to slash communication budgets and cut back on any investment in the investor relations function. But Pirie believes that attitude won’t last for long – at some of the more enlightened companies at least. And here’s why.
‘Companies will no longer have access to cheap debt funding – which has been the cause of much of Asia’s problem – so equity funding will become more important. After stampeding out of the region last year, international investors are coming back. But they’ll be more selective in their review of opportunities and more demanding in terms of communication provided by companies. I don’t think most companies have turned the corner on this issue yet. Many are still preoccupied with survival.’
Pirie believes regulators across the region will now begin to encourage a greater commitment toward transparency and disclosure. That’s a process which slowly started earlier last year but has been given a fairly hefty kick in the right direction by the recent events. Certainly, Singapore has already begun to issue a few recommendations accordingly (see Register, page 15).
Paul Marriage, executive director of investor relations agency Forrest International in Hong Kong, agrees with Pirie that some companies will have been put off IR in the short term with a ‘tried that, didn’t work’ attitude.
‘There are many companies in the region that do a little investor relations very reluctantly. Free information flows are not as normal in this part of the world as in, say, the US or UK.’ Speaking soon after the Chinese New Year holiday in early February, Marriage notes the first signs of optimism for several months as the markets rallied across the region. ‘The market really sets the mood here. If it rallies by 1,000 points, everyone’s got big smiles.’ It’s almost a case of what a difference a few tumultuous days can make.
‘We’re still definitely in a situation where companies have to explain the country first, the currency next and then go on to what they’re doing,’ continues Marriage, noting that even routine calendar IR work in leading companies has been knocked askew by the collapse. ‘Companies would normally be working on plans to be on roadshows in the spring. That’s not happening. They’re waiting to see if the market settles since they don’t want to go abroad and talk about the market all the time. Some companies will postpone trips to the US and Europe in the middle of the year. I think that’s the wrong attitude, though.’
So what should companies be doing IR-wise in the immediate future, while things remain uncertain? Massaging the concerns of debt investors is obviously a key consideration. Next up: ‘Get out there and start disclosing more,’ says Marriage. ‘Give people an indication of how you’re coping with what’s going on.’ He advises maintaining routine calendar work and preparing answers to many of the macroeconomic and currency questions. Those can then be distributed to shareholders or put up on a web site to free up time for more hand holding.
‘I hope it’s dawning in the west that Asia’s horribly oversold,’ says Marriage. ‘The current feeling is that by mid-year some normal business cycle will have returned. It’s a feeling that we’ve got over the worst. I think that perhaps we haven’t.’
Steady now
‘Brace yourselves for a difficult year ahead’ seems to be the most frequent message coming out of the IR agencies in the region. Virtually without fail, advisors are predicting that when international institutional interest does return (many value players are already pumping pounds and dollars back) it is going to be far more selective. Those companies that take IR seriously will have the edge. Lack of disclosure and transparency in the region was a key concern of fund managers when things were going well. After having their fingers burned badly once, they will be wary of diving back into stocks which retain too many secrets.
‘In these difficult times, competition for the investment dollar is ever increasing,’ says Chris Salt, a director at Gavin Anderson in Singapore. ‘Companies must take the opportunity to protect and enhance their corporate reputation. They need to differentiate themselves from the pack.’
The initial tendency of western fund managers at the end of last year was to lump the whole region together and run away in droves. That situation has changed and the differences between, say, Thailand, Indonesia and Korea as compared to Hong Kong and Singapore are being noted and recognized. But it’s still up to individual companies to help investors sort out the economic mess and put it into perspective.
‘Companies have to be frank about what they perceive as the macroeconomic situation in the months ahead,’ adds Salt. ‘The more enlightened companies are already positioning themselves and working to differentiate themselves. There’s not going to be the same indiscriminate stream of funds into the region as we’ve seen in the past.’
Coping with calamity
‘Once everything comes back together, companies are going to have to work a heck of a lot harder to attract money. The days are gone when you just signed a promissory note and got $10 mn.’
Suresh Kumar, special advisor, investor relations, at Jakarta-based Bakrie & Brothers, has had to change a lot of his old assumptions in the last few months. Bakrie, one of Indonesia’s leading business groups, has worked hard at developing its IR function over the last few years but nothing could prepare its investors for a currency collapse at the speed of the rupiah.
‘Since the market collapsed we’ve been prioritizing investors on the debt side,’ says Kumar, adding that Bakrie is relatively better off than many other Indonesian companies since it had hedged 90 percent of its debt. Many other companies are struggling just to keep their heads above water.
In the wake of the collapse, Bakrie has appointed Chase as advisors to assess the value of the group and report back on where it should be going. Once that is in place Kumar and his colleagues will start thinking about the equity market again.
‘At the moment there really is no benefit in chasing equity investors – all our energy is on the debt side. There hasn’t been much interest in the stock market because the assumptions have to change every day.’
Indonesian companies had gained a reputation in the region for being more tuned in to IR than those in other economies. But they’ve been left reeling by recent events. Kumar admits that, in the short term at least, there have to be budget reductions. He has cut back on financial advertising, ended the retainer with the US agency which advised on cross-border IR and cut back on roadshow plans. He has also temporarily stopped a quarterly newsletter to all shareholders and tried to put it into newsflash form via a fax.
He stresses that things are on hold only while the uncertainty remains, though. Once things get back to something resembling normality Bakrie will come out with its IR guns blazing. ‘I firmly believe that this can’t go on for too much longer. No other currency has had a beating like the rupiah. It has to come back and then you’ll have an industrial base which is much more careful and which has to be much more proactive to attract the money.’
Of course, it’s not been nearly so bad if the bulk of your earnings are in US dollars. Irawati Koswara, investor relations manager at London Sumatra, a Jakarta-based plantation concern, is in that happy position. Much of LonSum’s revenues come from exporting palm oil, rubber and other commodities – it’s a US dollar earner but rupiah cost base. The investor relations task was to make that difference clear. ‘We did a roadshow in September as the crisis started to hit and that helped hold up our price a little bit. We’ve always tried to be transparent.’ Since then Koswara and colleagues have held a series of teleconferences to help analysts and fund managers keep abreast of their debt position and prospects.
What of the prospects for IR development in Indonesia in the wake of the collapse? ‘I think it depends very much on the type of company. We have definitely seen advertising budgets being cut. Companies are stopping that unless they have to do it due to regulations. For us, we feel we haven’t been affected too much. If anything, we see it as very important at the moment to make our position as clear as possible.’
Markets down, down under Australian and New Zealand companies found themselves caught up in the flak as Asian markets tumbled, with institutions harboring concerns over a downturn in business across the whole region. IR officers in both markets swung into action. In Australia and New Zealand, talk of cutting IR budgets during such a period is hard to find.
John Knowles, manager of investor relations at Australian resources company North, notes that all the resources stocks were initially hit hard but he and his colleagues have been busy advising investors of the true level of Asian exposure in each of North’s businesses. The stock has slowly clawed its way back to a level which Knowles says ‘isn’t unreasonable given the circumstances and uncertainty. We’ve endeavored to make sure the market’s aware of our position so it can make its own assessment.’
Fiona Green, manager of investor relations at Qantas, acknowledges that there has been ‘some effect’ on the airline’s business across the region but compared to its competitors in the worst hit markets it has got off lightly. ‘We’ve had a lot of calls and been carrying out a lot of meetings,’ she reports, adding that, timing wise, it’s been difficult to be too proactive since Qantas is building up to a results announcement followed by a roadshow. Those presentations will include a section addressing the Asian downturn but only to set it in context. ‘We won’t be going out and quantifying the effect,’ says Green. ‘It’s too difficult to second guess what it will all mean.’
Many foreign investors – which account for over two-thirds of the NZ market – held Australia and New Zealand in broad Asia-Pacific portfolios and sold accordingly when the collapse started. After the initial shockwave had calmed, many institutions began to consider the Australian and New Zealand markets as a way of maintaining their Asia-Pacific holdings while avoiding the volatility and greater uncertainty elsewhere in the region.
John Beattie, general manager in charge of investor relations at Brierley Investments Limited in Wellington, notes that although the New Zealand market dropped some 18 percent on the back of the Asian crisis, it was nowhere near as volatile as Thailand, Korea or Indonesia. At the time of talking in mid-February, the NZSE 40 had recovered around 5 percent from the 1997 low – a slow bounce back compared to the All Ordinaries Index in Australia which had recovered the majority of its lost value. Still, with 30 percent of Bil’s assets in New Zealand and similar percentages in the UK and Australia, it is relatively appealing for fund managers mandated to remain fully invested in the region.
‘Many fund managers have preferred to maintain or increase holdings in Australia and New Zealand than sort through the mess in the rest of the region,’ says Beattie. ‘We don’t have to travel too much at the moment, either, as many of our northern hemisphere-based investors are over here at this time of year. The weather is certainly more appealing here. Bil is more than 70 percent owned from offshore – that’s true of most major NZ-listed stocks – so there is a significant commitment to keeping our offshore owners informed.’
