Indian companies do not have a good reputation for investor relations. Few of the over 50 London-listed GDR issues trade with any liquidity and numerous companies have been accused of misleading investors. But having raised over $6 bn through GDRs and attracted billions more in the local market from foreign institutional investors (FIIs), Indian companies are facing real pressure to change.
What India could get away with in a bull market that witnessed investors swarming to its stocks just won’t pass muster following the region’s market turmoil. This was made crystal clear when the Indian government reluctantly pulled a $500 mn issue for the Gas Authority of India Ltd (Gail) due to sagging demand. The cynicism of investors concerning Indian IR is apparent in the opinion of one investment banker who prefers to remain anonymous. ‘Investor relations in India? You’ve got to be joking,’ he laughs. ‘Many companies want money but they don’t want the responsibility of dealing with investors.
Family control
Before the market opened to foreign investment in domestic stocks in 1991, companies were largely controlled by the major families. Stock was held by retail investors and government-controlled institutions, neither of whom caused much trouble for management. But with the introduction of FIIs and the first GDRs in 1992, things began to change. Foreign investors did not accept the level of disclosure Indian investors were used to and companies had to adapt or face dwindling interest in their stock.
‘The information supplied by many Indian companies is still viewed with suspicion,’ says Sundip Dixit, an analyst at Lehman Brothers. ‘Yet, this lack of credibility is not an issue for some companies. And investors are starting to understand Indian companies are not bad compared to what they are dealing with in Thailand and Indonesia.’
Dewe Rogerson, led by Rosie Catherwood in India, has played a major role in pioneering IR in the country. ‘Indian companies are worried about the insightful nature of foreign investors,’ says Catherwood. ‘There is a feeling that information is power and power is money. Therefore you’re not supposed to tell anyone anything they don’t need to know.’
Times are changing though. ‘Indian companies realize that money is not going to fall from trees anymore. They have to court investors,’ adds Catherwood, who has completed a successful program for VSNL and is now working on Mahanagar Telephone Nigam Ltd (MTNL). ‘The more progressive companies understand that they have to provide more accurate and detailed information. There are some very solid IR programs among the larger companies and you can expect lots more in the coming years.’
For a better view of how Indian companies are thinking about communicating with investors, Investor Relations magazine spoke with four leading companies about their IR strategies and practices.
VSNL: shining jewel
India’s exclusive provider of international telecommunications services has long been deemed the shining jewel in the government’s privatization crown. After two aborted IPO attempts, Videsh Sanchar Nigam Ltd (VSNL) finally listed its GDR last March with the $526.6 mn offering generating over $5 bn of demand. The first state divestment to be sold in GDR form, VSNL had the distinction of listing the largest ever GDR on the London Stock Exchange.
‘VSNL is committed to ensuring all its shareholders are kept well informed,’ says BK Syngal, chairman and managing director of VSNL and a driving force in the investor communications initiative. ‘It’s in all our interests to communicate properly. Our GDR investors showed great faith and we’re determined to ensure they understand how we are investing the IPO proceeds and executing our growth strategy.’
Apart from meeting statutory obligations in India and for the London Stock Exchange, VSNL runs a number of direct IR initiatives. These include a monthly shareholder analysis program, bi-annual briefings to the investment community, a regular investor newsletter, and media briefings for financial and telecom publishing groups. VSNL delivers its communications to some investors by e-mail and also offers a web site.
‘Our main communications problem is that we don’t know exactly who our GDR holders are at any given time unless we conduct an investor identification program,’ says Syngal. ‘However, the total universe of foreign portfolio investors in India is known to us. With this knowledge, we can cover the vast majority of our GDR holders and other interested parties with our financial communication program.’
On the disclosure and reporting front, the work is complicated by the majority-owner position of the Indian government. Due to this, VSNL has obligations over and above those faced by non-government owned public companies. For instance, annual results have to be audited by the Comptroller and Audit General’s Office as well as by independent auditors. And the annual report must be presented to parliament before it can be distributed. These requirements can delay communications but VSNL remains committed to speeding up the process in any way it can. All eyes are upon the giant gem as it polishes up its image.
ICICI: capitalizing on debt
The competition for capital in the financial sector has produced GDR offerings for a couple of key institutions. The first was Industrial Credit and Investment Corporation of India (ICICI) in August 1996 with a $220 mn GDR. It was an attempt to capitalize on the bank’s longstanding profile as India’s most prolific debt issuer.
AP Singh, deputy general manager at ICICI, has taken on the responsibility of communicating this specialized credit bank’s story to investors. ‘Dealing with the capital market is certainly nothing new to us,’ says Singh. ‘We have a long association with overseas debt investors and have communicated with them all along. However, our equity experience is different. We listed in the Indian market in 1955, and have built a retail base of some 700,000 investors. But their requirements are very different from those of foreign investors.’
Singh has had his share of dealings with institutional investors in India. In terms of domestic institutions, many shareholders are part of the same community as ICICI. They do not require special information to know what the bank is up to. For that reason, there was no need to do anything other than maintain contact through the normal lines of communications.
That began to change in 1994 when foreign investors bought into the bank. Today, direct foreign investors own some 12 percent of ICICI equity while GDR holders hold a further 20 percent.
With the increase of foreign investors, and a realization that debt investors have different information needs than their equity counterparts, the IR function was split into two. Singh took the responsibility for stockholder relations and has since developed a range of e-mail, internet and general IR initiatives to deal with investors.
Singh notes, ‘We are constantly open to inquiries and willing to share information. Given the various degrees of openness in India, ICICI is among the best, especially in the financial sector where familiarity with foreign investors is limited.’
The hardest IR challenge currently facing Singh is dealing with the biases that investors have toward India as a whole and emerging markets in particular. Whatever preconceived notions investors have must be filtered before the buy sign is flashed for ICICI stock. To assist in this process, Singh is constantly having to supply information on general practices in India to make life easier for the first-time investor.
Singh notes that it is not easy for most Indian companies to take the big step into the IR game and the patience to explain the machinations of India may be lacking for some. Starting an IR department or program from scratch is considered to be a daunting task. However, once they realize that it is required, it does not take companies long to meet investor needs. As India integrates with the global market, Singh notes the benchmark will eventually be US-style IR.
‘Perhaps India is ahead of many countries in the evolution of IR,’ concludes Singh. ‘After all, continental Europe is still coming to grips with the concept. And transparency and disclosure are even less apparent across southeast Asia. Despite the general complaints, given its long-time equity culture and roots in the Anglo-saxon world, India may offer the best information levels in the region.’
As India opens up to foreign investors, IR-savvy leaders like ICICI are a hot commodity – both as investments and as role makers for the future of Indian IR.
Reliance Industries: paving the way
As India’s largest quoted company, Reliance Industries, has been leading the way in Indian IR for many years. Hardly surprising when you find the diversified petrochemicals business has to cope with some 2.6 mn retail investors and strong support in the international capital markets.
Mathew Panikar, the London-based director of Reliance Europe, can take a large chunk of the credit for raising the company’s profile among international debt and equity investors. He joined Reliance in 1991 from Unilever where he saw the benefits of regular communication with the financial community. That commitment to communication proved vital as Reliance has regularly turned to international investors since – often paving the way for other Indian companies to follow in its footsteps. It was, for example, responsible for the first Indian GDR issue back in May 1992 and last January it issued the first 100-year bond by an Asian company – tempting investors to oversubscribe the $100 mn issue four times.
Panikar says the commitment to good IR comes from the company’s founder and chairman, Dhirubai Ambani, and is keenly supported by his sons and current managing directors, Anil and Mukesh Ambani. Outstanding performance and good communication have attracted debt and equity investors worldwide.
Today, Reliance’s IR program centers around Panikar in London and a team of three at the headquarters in Mumbai, dealing with inquiries and communications with equity and fixed-income investors. The group also employs the help of Ludgate in New York and Grandfield in London for IR and financial PR advice.
The financial community certainly keeps Panikar and his colleagues busy. ‘I think we had about 500 meetings with equity and fixed-income investors last year,’ he says. ‘And our senior managers are always available for meetings provided some notice is given. That’s very important for most fund managers.’
This year, Panikar expects the tone and number of meetings to change. India, he points out, has not been affected as badly as other Asian economies by market turmoil, but fund managers still want a certain amount of hand-holding. And the Indian elections are also important. For the international investment community, giving details about the macroeconomic situation can be almost as key as talking about Reliance’s prospects. ‘In 1992 our IR meetings were approximately 65 percent on India, 35 percent on Reliance. Last year it was more like 40 percent on India, 60 percent on Reliance. Now we’re back to around 50:50.’
