It was a red-letter day for Venezuelan corporate life when Scarlett Alvarez became the first head of the new IR department at CanTV in 1996. ‘We are new to IR in Venezuela – no other Venezuelan company had listed on the NYSE before,’ she says, adding without false modesty: ‘We created an IR department quickly, from scratch.’
Alvarez was the first IRO in the country, and now dispenses free advice to other companies following in CanTV’s IR footsteps. She has even had inquiries from Argentina. Asked whether Venezuela has a Niri equivalent, she muses aloud, ‘That may be a good idea.’ If it happens, she will be a motivating force behind it, with her proven track record of boldly building IR where no-one has gone before.
Phone sale
The Venezuelan government effectively privatized its telephone system back in 1991, with the sale of a 40 percent stake in Compania Anonima Nacional Telefonos de Venezuela (CanTV) to the VenWorld consortium. GTE was the majority partner in VenWorld, owning 51 percent of it. The consortium’s holding of 40 percent of the shares of CanTV (the A shares) gave it operating control. The government kept 49 percent and granted 11 percent to CanTV employees.
In 1996 a $1.1 bn IPO launched another 36 percent of the stock onto the market, and it was then that CanTV brought its IR department online to ‘maximize share price and minimize debt cost by keeping actual and potential investors fully informed about the company.’ Acclaimed by Latin Finance as the ‘deal of the year,’ the stock was floated on the Caracas Stock Exchange and as Venezuela’s first ADR on the NYSE (VNT).
GTE took the opportunity to buy another 5 percent but the offering was widely subscribed both inside and outside the country. It is now held mainly by institutional investors with over 80 percent held overseas, and some 20 percent in the Venezuelan capital market.
Included in that 20 percent, a result of the government’s plans to spread share ownership, there are some 83,000 new Venezuelan shareholders in the company.
Foreign interest
International interest extends beyond the US, and CanTV has found that European investors not only hold stock directly but also via New York as ADRs.
The large foreign ownership levels are a product of a deliberate company policy. Since CanTV is the second biggest company in Venezuela after the oil giant PDVSA, a purely domestic flotation could have strained the resources of the local capital markets and the government was concerned to encourage international investment in the country.
To tempt investors, and to give the company a secure foundation to rebuild itself, the government granted it a telephone monopoly until October 2000. So while the rest of the world worries about the impact of Y2K problems, CanTV is concentrating on streamlining the formerly bureaucratic organization in time to meet the competition.
Already, the number of lines has been doubled and the company has been divided into separate units to ensure, for example, that high volume customers like the government and the major corporations are treated well enough to keep dialing CanTV into the next millennium. To keep investors happy, productivity has been increased and the company’s payrolls have been trimmed to commercial levels with the help of severance packages.
Just as Scarlett Alvarez is Venezuela’s first IRO with responsibility for NYSE-listed shares, for most overseas investors, CanTV is their first stake in the country. ‘I don’t think it’s a problem, it’s one of the interesting parts of the job. I like it,’ says Alvarez. However, it does mean that her job has an extra dimension. ‘We have had to sell Venezuela as an investment as well as the company. Being in the IR position you have to know the company well, but in my case you also have to know the country well.’
That was especially true with last year’s hotly disputed elections, where analysts and investors were calling frequently to get the company’s opinion on the results and likely effects on the company. The winner of the election had led a failed military coup several years before, and investors were unsure how he would approach business in general and CanTV in particular.
But the scope of Alvarez’s job doesn’t end there. Sometimes she not only has to represent a country and a company but a whole continent. For instance, when Brazil had its problems, nervous investors and analysts called for reassurance that Venezuela would not be affected by its neighbor’s currency crisis.
Emerging crises
With currency crises erupting across the globe, it is not only companies in emerging markets whose credit ratings are affected by government. While CanTV could be rated AAA on its own merits, its credit rating hits its head on the ceiling of the government’s own BB rating. In addition, ‘Relations with the government are always very important because of the quarterly tariff adjustment,’ Alvarez comments. ‘This was an election year and analysts were afraid that people would go out on the streets. If you look at our ADRs and Venezuelan bonds, both went up after the election.’
In fact Alvarez is uniquely suited for her dual role as IRO for CanTV and for Venezuela Inc. A graduate in business and finance and a NYU postgraduate in capital markets, she also worked with the Venezuelan government’s World Bank project finance office before moving to New York in 1990 to help in Venezuela’s Brady Bonds negotiations (the debt-for-equity swap). Staying in New York, in 1995 she worked on the restructuring of CanTV’s debts with banks and suppliers, which gave her the opportunity to learn about the company – the first step to successful IR on its behalf.
A team of three handles the communications needs of domestic and international investors. Domestic investors in particular place heavy demands on the department, especially since employee shareholders can redeem their shares every six months.
Currently they account for 13.9 percent, and despite some selling by retirees, they represent a fairly stable, long-term base.
In fact, that relative stability is the overall IR target, which Alvarez describes as ‘maintaining and keeping our long-term holders who are looking for growth, investors with long-term portfolios and a moderate turnover.’ CanTV follows the investors and their sentiments as closely as it can, with the help of tracking from Thomson IR. With Thomson’s help the company also profiles potential investors and follow up with one-on-ones to persuade them of the advantages of a holding in CanTV. Conversely, if anyone sells, she wants to know ‘who and why.’
Venturing overseas
That proactive outlook is extended overseas. The main vehicle is industry conferences, and while suitably grateful to the sponsoring firm, it is a point of IR honor to ‘share the information with everybody, as fast as possible, not just with the ones who invited us to participate.’
So Alvarez always arranges one-on-ones with analysts and institutional investors when the company is on tour. Indeed, ten sell-side analysts in New York and London follow CanTV even more intensely than Venezuelan ones. Since senior management accepts invitations to conferences almost monthly, and contrive to be in Europe about five times a year, that gives them a lot of exposure.
As befits a major telecoms company, investor relations information such as earnings reports is posted on the internet (www.CanTV.com.ve) for prompt worldwide distribution. The site is user-friendly and attractive, even hosting an online gallery of young artists. Last year, in the same high aesthetic mode, for the first time the company issued its annual report on CD-Rom for which, Alvarez reports, the analysts and investors gave very positive feedback. And she promises, ‘The next one will be even better.’
More currently, the quarterly and annual earnings reports are issued promptly one month after the end of the quarter, in most cases by direct e-mail, and with conference calls connecting 150-180 analysts and investors on three continents. The meetings and conferences usually have the active participation of CanTV’s president, Gustavo Roosen, who Alvarez usually reports to. ‘He’s very available when it comes to IR, as are the CFO and the executive advisor to the president,’ she comments.
Of course the IR function works both ways, with the IR department having to feed back to management what is happening in the market and what investors are thinking. As well as regular informal contact with the president, his executive advisor and senior staff managers, Alvarez issues a weekly report summarizing who the IR team has met with, what questions were asked, what comments were made, and what the latest classifications of the company are. That information is passed on to senior managers through the organization. At the end of each day the closing stock price is e-mailed throughout the group, accompanied by a commentary on stock movements, explaining whether these have been caused by the company or apprehensions about Venezuela’s political or economic situation.
This weekly IR report and the daily e-mails are part of CanTV’s campaign to transform from a government bureaucracy into a more investor-sensitive and accessible commercial company. Now, Alvarez remarks, employees recognize the need for IR sensitivity, but it was not easy to change the management culture of an organization that less than a decade before had been part of the government. ‘We prepared a presentation on what the IR department did to show senior management and employees why it was important, and how the information they were giving us had to be accurate. After all, the price of the shares and the value of the company depends on them, not on me. This precise information is also important to comply with securities rules.’
Model management
The IR department also shared with management the type of data used by analysts for their models. ‘We gave a lot of presentations to every unit. Actually, we had a very hard time with it, but it worked in the end,’ she concludes. ‘We also had to make sure that they knew when not to give out information as well. We have a monopoly now, but there are a lot of people who would like to find out things from us so that they can start up themselves when the monopoly is opened up.’
With an eye firmly on correct disclosure practices, the IR department carefully organizes contacts between the investor community and management. ‘I organize the agenda between the analysts and the senior management down to the vice president level. We have to manage that very carefully. We need to know in this unit all the information sources, who is responsible for what, so that we can provide the most accurate information and decide how much of it can be shared.’
‘Our experience allows us to decide very quickly what information we can give out and what we cannot,’ adds Alvarez, as befits someone whose career path has combined diplomacy and investor relations.
