More than two years after the crash, the feel-good factor is beginning to creep slowly back to Thailand. The economy is only expected to grow by a single one per cent in 1999 – but it is at least growth. Last year, it contracted by 8 per cent. Share prices have also been rising to levels not seen in years, albeit on a selective basis.
There is nothing like a good shock to shake off the complacency and correct those bad old habits. For Thailand, that fright came on July 2, 1997 when the government surrendered its defense of the baht from persistent speculative attack, sending the currency, stock market and property prices into a prolonged tailspin. The events that unfolded in Thailand shook the entire region out of a cocoon of false invincibility and exposed all manner of hidden or ignored economic and structural ills. Seeing the high-growth Asian miracle unravel and crumble with no end in sight, investors balked or panicked and threw in the towel. Investor perception of Thailand hit rock bottom. The ‘Land of Smiles’ had an image problem.
Bangkok had long been one of Southeast Asia’s more chronic crony capitals, where corrupt politicians treated local financial institutions as their personal piggy banks and company directors kept quiet lest a competitor gain an advantage. But the silence has been broken by the desperate need for foreign investment and Thailand is now taking investor relations more seriously.
Lessons learned
Today, lessons have been learned from Bangkok’s blackest summer and investor relations practitioners are slowly finding their way into boardrooms which were once hermetically sealed to all but directors and senior in-house public relations officers. The entry of more foreign investors and competitors has opened the eyes of companies that have never previously needed to consider wooing non-domestic capital. Many are still slowly, and reluctantly, opening up their activities to inspection by investors. The Asian crisis has also forced the government to review its policies on foreign ownership in a bid to bring in badly needed capital, especially in the shattered finance sector.
‘The recognition of the need for outside investment and investors’ expectations regarding disclosure is contributing to the growth of IR, as is the move toward a more transparent regulatory environment,’ says Steve Vincent, a managing director at Burson-Marsteller. ‘Where Thai companies were once wary of outside investors, they now welcome them and are willing to be more open. The perception of investor relations is shifting from giving too much away to one of being a benefit to the company by attracting investors,’ he adds.
‘The 1997 shock and its longer-term fall-out have highlighted the importance of confidence and perceptions,’ maintains Hasan Basar, managing director of Bangkok Public Relations Ltd. ‘This has encouraged people to look more closely at communications as one of the tools they need for building the former and managing the latter.’
After the struggle to survive the financial crisis, companies are now looking for strategic services linked to direct and measurable results in terms of share price or shareholder opinion, investor relations practitioners say.
‘In general, companies are looking for more strategic services and counseling rather than just media relations,’ confirms Vivian Lines, chief operating officer for Hill and Knowlton in the Asia Pacific region. ‘This is really good news for the financial public relations industry. With the right people who can truly counsel, we now have access to the boardroom, which means that we can influence and help drive decision-making,’ he adds.
Lines also notes that the Asian crisis ‘changed the nature of investor relations development by highlighting the need for stronger corporate governance, greater transparency and the need to communicate in good times as well as bad.’ Companies across Asia discovered that even if they were well managed and profitable, unless they communicated this to the market,their stock would get dumped along with the dross. Thailand is no different.
‘Those companies that already had good investor relations programs had a larger reservoir of investor goodwill they could fall back on when times got tough,’ Lines says. He thinks investor relations is being taken much more seriously than in the past, in part because people are beginning to see results in terms of better analyst appreciation and improved share prices; but also because it is winning more converts among those at the boardroom level.
Burson-Marsteller’s Vincent adds that whereas the crisis may have initially hindered the growth of investor relations, there is a growing sense of the benefits good investor relations can deliver, which will become more apparent to Thai companies over time.
Cement together
One company cited by many for its progressive stance on investor relations is Siam Cement Group. The country’s largest manufacturing conglomerate was conceived by royal edict in 1913 and although it has long been a professionally managed blue chip, it tended toward secrecy. The company’s president, Chumpol Nalamlieng, said recently that Siam Cement had believed that honesty and ethics were enough to attract investors. The company had not believed that meeting with analysts and journalists was necessarily in the interests of investors.
Chumpol said the company had been forced to take a new look when the financial crisis hit Korea and it was suddenly sitting on $4.2 bn in unhedged foreign debt. Siam Cement has since seen the benefits of a roadshow with Goldman Sachs and daily ‘talk’ time with analysts and reporters. The share price has risen markedly and huge interest was generated in a Bt14 bn bond issue earlier this year.
In the first six months of its current financial year, Siam Cement produced earnings per share of Bt28, compared to a Bt107 EPS loss in the interim period last year.
‘Investor relations is a route to survival for many companies and those embracing it are those most in need of capital,’ says Vincent. ‘The trend will pick up speed as companies begin to see how companies that practice good investor relations benefit from it.’
The weighty mix of bankruptcies and corporate debt has had a mixed effect on agencies. While a number of public relations agencies simply folded in on themselves overnight because their clients went out of business, practitioners say that those that have kept their heads above water have been those with a good track record of providing counseling. Others with strong franchises in special areas of expertise have also survived. But the survivors are having to work harder.
‘The whole nature of IR services has changed,’ says Lines. ‘Those companies which only offer media relations will be left far behind as the demand for targeted, strategic programs increases.’
Basar says demand for his firm’s IR services doubled during the crisis. ‘It’s a seller’s market if you have the right expertise and track record … and don’t owe the banks,’ Basar says, adding that the IR workload at Bangkok Public Relations now accounts for 20 per cent of the consultancy’s business, up from 10 per cent before the crisis broke out.
The picture is not all a bed of orchids; a lack of honesty and transparency is still a problem in certain circles, despite the hard lessons learned from the summer of 1997. The majority government-owned Krung Thai Bank shocked ministers and investors this August when a newspaper leaked an auditor’s report revealing a level of non-performing loans significantly higher than the bank had admitted – at 84 per cent of the bank’s total lending. The prime minister was personally concerned that the revelation could derail the country’s economic recovery: an indirect cry for better IR from the very top?
Vincent says that while the companies with which Burson-Marsteller is involved are comfortable with IR, ‘it takes time to get comfortable with greater levels of disclosure.’
Prospects for IR in Thailand are good overall, he says. ‘Progressive, growth-focused companies will embrace it while the hesitant ones observe. The economic turnaround is still in its early stages; many companies still need investors, which will support the development of investor relations.’
Basar says: ‘With foreign shareholding increasing in many companies to a level where it can impact management policy, I think there will be a growing demand for investor relations services.’
Limited access
Before the crisis, foreign access to the Thai finance sector was severely restricted. Standard Chartered Bank, one of the most active foreign banks in the country, secured a toehold in Thailand in 1894 but until recently had only been allowed to operate one branch in the capital. After suspending the operations of all but two of 56 local finance companies out of a total 91, following the IMF-induced restructuring, Standard Chartered suddenly chalked up another 67 branches upon the purchase of a 75 per cent stake in the kingdom’s twelfth largest bank, Nakornthon Bank, on September 10.
Standard Chartered is optimistic about its new purchase. Nakornthon recorded an average annual deposit growth rate of over 16 percent from 1994 to 1997 and 30 percent in 1998, compared with an industry average of just 10 percent between 1994 and 1998.
‘There’s greater interest (in investor relations) and it is important that this is sustained,’ Lines says. ‘The danger is that when times are good people may forget that they still need to communicate with shareholders and to build up that reservoir of goodwill which will help them when times are bad.’
Another possible hindrance to the growth of investor relations in Thailand, according to Basar, is the lack of qualified professionals in the field with strong local experience. ‘The barrier is qualified practitioners with a solid track record in Thailand,’ he says. Companies want advice from those with an understanding of the local culture and customs.
Despite the sharp turnaround in GDP growth and economic activity, local Thais are having a harder time feeling good than the optimistic foreign investors who are eagerly searching for a toehold in the country. The poor local sentiment is probably due to the persistence of after effects of the economic crisis. Despite rosier prospects for macro-economic conditions, more people are expected to face lay-offs, while those already unemployed will see their savings wither.
To help address the malaise, the Thailand Board of Investment is holding a major industrial and technical exhibition, the BOI Fair 2000 in February. Many foreign investors in Thailand are expected to set up booths for the likely 3-5 mn visitors.
‘While normally, such activity is designed to boost international confidence in a country’s potential, this is probably more intended to showcase international confidence in Thailand as a way of feeding domestic confidence,’ Basar reckons. The event is the brainchild of Staporn Kavitanon, the secretary-general of the Board of Investment and, in Basar’s judgement, and probably one of the country’s most effective public relations people.
Whatever the outcome of the BOI’s initiative, some Thai companies are keen to show the world that they are increasingly optimistic about future prospects – even if they have not yet learned the language of western investors. Siam Cement includes the following on its web site: ‘Like a great tree, Siam Cement grows taller and stronger every passing day, branching from a mighty trunk, fed by deep roots of moral rectitude. For us, the future is bright with the promise of new horizons and new accomplishments that inure to the benefit of mankind.’
