At last count, 60 different countries were represented on the London Stock Exchange, with many listed companies based in nations that most western citizens would be hard-pressed to identify on a world map. Analysts in New York and London can now expect to cover companies not only from their own backyards, but also from different continents, time zones and cultures. The problem for many of these firms is how they keep their investors, typically based in the US or Europe, updated and informed on the country-level issues that affect their business, but lie mainly beyond their control.
Country-level education is a major issue for Audrius Ziugzda, director of Vilnius Bank in Lithuania. When his company launched its global depositary receipt program in 1996, he found it was necessary to explain to investors not only the bank, but also the country in which it operates. ‘We would have a section of our presentation entitled What is Lithuania? explaining where it is and outlining some very basic details about the country,’ he says.
Lithuania is one of many countries that emerged out of the wreckage of the Soviet Union in 1989-90. As the iron curtain lifted, countries all over eastern Europe were being born or reborn, sending cartographers into a frenzy as the map of Europe was redrawn. When Vilnius Bank launched its GDR, much time was devoted to country-level issues, answering analyst queries on the Lithuanian economy and government. ‘National concerns are a key issue, especially for foreign investors,’ chimes in Saulius Salda, head of IR at Vilnius Bank.
This sentiment is echoed on the other side of the world by Scarlett Alvarez, director of IR at CanTV, the telecommunications company that was the first Venezuelan company to list ADRs on the NYSE. Like Vilnius Bank, CanTV launched its depositary receipt program in 1996. ‘When we launched the IPO, we started talking about our environment. Many investors and analysts see investing in Latin America as a high-risk move, so they need to be kept well updated on what’s going on in our country,’ she says. The growth of CanTV is largely dependent upon Venezuela’s national situation, Alvarez explains. ‘It makes sense that if the economy falters and unemployment rises, people will spend less on their telecom needs,’ she says.
Another IR practitioner agreeing with this view is Indira Nair, managing director of the Kuala Lumpur, Malaysia office of PR company Edelman. She believes that better informed international investors make better investing decisions on companies from the region. ‘We have found that investors have a general opinion about our country, but investing decisions are often based on these general opinions, rather than being based on the actual market situation,’ she says. For Nair, a thorough understanding of national issues should become the standard operating procedure for any investor wishing to invest not only in Malaysia, but also the whole region. ‘It really is not good enough to just have a broad or superficial understanding,’ she opines.
Stat attack
So how does a company go about educating investors and analysts on the finer points of their country? Vilnius Bank dedicates a large chunk of its investor presentation to key figures and issues in Lithuania. Statistics on population, ethnic groups, GDP, inflation and current account balance are all included along with key debt ratings and foreign reserve data. The roadshow presentation details Lithuania’s monetary policy, foreign trade flows and structural reform program. Some statistics are not always easily come by but Nair suggests IROs turn to government ministries, stock exchanges and central banks for key data. International research houses are another useful source of country-level facts and figures, she adds.
For many companies, national information is not a minor consideration when meeting investors. ‘When we launched our IPO, we would spend anything up to half our time at presentations discussing Venezuela,’ says Alvarez. ‘We would talk about the key economic and political issues, especially problems like high inflation and high unemployment.’ Meetings are the main method most companies use to provide updates on such issues, but CanTV also invites clients to Venezuela. ‘A lot of investors want to come and meet us when we are in New York,’ says Alvarez, ‘but we make sure that we host site visits as well.’
To allay fears over the shaky state of the Venezuelan government and currency, CanTV’s first roadshow featured a government representative from the ministry of finance, brought in to explain economic policy. Alvarez also suggests hiring an independent observer for the initial investor roadshow. ‘Get someone from outside the company and outside the government to analyze the country situation, because analysts will have much more confidence in an independent observer,’ she says.
The internet also has a role to play. Few investors or analysts are likely to have Accra, Ghana on their travel itineraries, but that’s the location of the headquarters of Ashanti Goldfields, one of the world’s largest gold producers. ‘The web is a major resource for investors seeking to find out more about our company and its operations in West Africa,’ explains Corinne Gaisie, Ashanti’s UK representative. As well as including economic facts and figures, the site (www.ashantigold.com) features a section on the history and culture of the Ashanti people, giving visitors a history lesson on the company and its roots in the West African state.
Detrimental attitude
Not all companies see the need to delve into national issues in detail. Indira Nair believes that many Malaysian companies are quite reticent to speak about wider economic and political issues, preferring to leave this to official government sources. ‘This attitude proved detrimental to them during the Malaysian economic crisis,’ she says. Even when the country was hit by the political controversy about the trial of former minister Anwar Ibrahim, Nair reports that ‘many publicly-listed companies adopted an ostrich-head-in-the-sand approach.’ Others were less shy and those that communicated clearly the impact of the problems on their business managed to maintain foreign investor interest. ‘By offering their own informed opinions, they were seen to have done a better job,’ Nair says.
It is at times of economic or political crisis that companies discover how well-informed their investors and analysts really are. For Ziugzda at Vilnius Bank, the Russian economic crisis presented a whole new set of challenges for his company’s investor relations effort. ‘We had to prove to investors that our proximity to Russia was not as strong as before. We needed to show that our economy is more flexible and has moved on,’ he explains.
Indeed, foreign trade diversification is one of the major thrusts of Vilnius Bank’s investor presentations. Russia now accounts for only a quarter of Lithuania’s export market, with over 50 percent of exports leaving for the EU. Yet, Salda concedes, the Russian financial crisis was a difficult time for the bank. ‘We saw an investment outflow, but we expect investors to come back,’ he adds. ‘Lithuania and our capital, Tallinn, have more in common with places such as Budapest, Hungary and Warsaw, Poland, than with Moscow,’ he claims.
Geopolitical issues are also a concern for investors in MOL, the Hungarian oil and gas group. According to Szabolcs Czenthe, assistant director of investor relations, investors frequently ask about Hungary’s future role in an expanded EU. ‘Analysts and investors in our GDR want to know whether this will mean convergence in the rules and regulations that affect our business,’ he says. MOL has suffered problems in its gas business that are not easy to explain to US fund managers. ‘It is difficult for them sometimes to understand that issues like government regulations are largely beyond the control of the company,’ he explains. Despite that, Czenthe says interest in country-level issues is often a minor concern for investors and analysts: ‘In a normal shareholder meeting it is quite rare to speak about general national issues,’ he says.
Those thoughts are echoed by Gaisie. ‘When we first listed in New York and London, there was much more investor interest in Ghana,’ she says. ‘But our existing investors are well informed, so for us, providing country level information is a minor consideration now.’
Still an issue
Salda says investors are now better informed about the Baltic states, too. ‘Knowledge of our region is improving with time. Particularly in the last few years, investor knowledge has expanded dramatically,’ he says. This is a common phenomenon. As investors become more acquainted with the company and stock, their need for country-level education lessens.
For Scarlett Alvarez, the fact that analysts know CanTV’s local situation doesn’t mean that Venezuela stops being an issue. ‘We still talk about our country whenever we meet investors,’ she says. While interest in national issues is high through the IPO period, investors do not stop being interested in economic and political developments once the share issue is up and running. ‘People do not want to have to worry about the security of their investments,’ explains Alvarez. ‘So they are still keen to know about our government. What are their policies? Where are they going?’
It could be said that interest in country-level issues merely reflects wider investor concerns. The learning curve is at a high around the time of an IPO, but this tails off in the post-IPO period. Still, investors want to be updated and kept informed of developments within the company for as long as they hold shares. Why should their interest in the country-level issues that affect company performance be any different?
Indira Nair certainly believes companies should continue to talk about national issues. ‘Make time to educate and inform investors. View the process as a long-term exercise, rather than a stopgap measure,’ she advises.
They may wish it wasn’t so, but companies still operate in the context of national rules and regulations. With the advent of the internet, growing cross-border trade and a global M&A market, many observers believe the activities of global capitalism have rendered the nation state redundant as a regulatory tool. But while governments may no longer control global capital flows, companies are still influenced by political and economic decisions emanating from their countries’ parliaments and palaces.
True, some global companies are better able to evade the clutches of governments, but all must face the effects of wider economic and political factors. This is especially true of companies from emerging market countries which are not well known in the West and whose regulation may not conform to western models.
For the investor relations officer, the challenge is great. They have to educate investors on the value and integrity of their own company, and be candid, clear and proactive toward investors on country-level issues too. So the IR role may have to mutate into international relations in order to satisfy investors making decisions with one eye on financials, the other on the atlas.
