New species are always emerging from the Brazilian rainforests. But none, perhaps, is as anomalous as media giant Globopar’s IR operation. The media holding company’s fully- fledged IR mechanisms and its transparency standards reveal its figures as visibly as the costumes at the Rio Carnival, but they are all aimed at bondholders, since the company has no public equity holders.
The Marinho family owns the financial holding company, Globo Comunicacoes e Participacoes, which has a full or majority stake in broadcast, cable and satellite television networks; newspapers; a publishing company; cell phone, paging and satellite portals and a radio network – not to mention a Brazilian internet portal. Admittedly, the board of directors may not meet Calpers requirements, since it consists of four members of the Marinho family, but between them they are leading Brazil into the electronic new century.
There is, however, method in the seeming madness of the fully operative IR function as Mauro Molchansky, Globopar’s CEO is quick to explain. ‘We think investor relations is very important, because if at any time we do decide to take this group public, then we will have a base of investors that know us, respect our type of attitude, and who are potential buyers of our shares.’ And even without looking to the future, he identifies three important groups to be nurtured: ‘our clients, our human resources and our investors.’
Altogether, apart from the minor technical detail of the absence of a listing, Globopar behaves like a virtual public company, and Molchansky agrees, ‘That’s our philosophy. We want to have an attitude and profile similar to a public company, since in order to grow in the future, we will need to make some big investments in our business. We are in media, entertainment, communications, and we need a large amount of money in order to finance our growth on a long-term basis.’
Indeed, just like many public companies, Globopar has pandered to analyst preferences by focusing its operations. In the last two years it shed its interests in its real estate, hotels, cellular phones and telecom hardware (NEC Corporation) businesses in an effort to become more of a pure-play media operation. Despite the lack of public shareholders, some 20 research analysts cover the company on the sell-side and 50 on the buy-side – the kind of attention that would be the envy of many IROs in public companies. ‘We work like a public company,’ Molchansky explains, ‘and one that’s better than many of them.’ It may sound like boasting, except many analysts agree!
Of course, one missing aspect of this virtuality is the valuation that the stock markets would put on the company – but looking at the nugatory values Nasdaq high fliers recently showed, investors may prefer to rely on the twice-annual assessment made by Globopar’s auditors, based on multiples in the market. ‘That’s the most practical way we have to compare performance with the major players in the world,’ explains Molchansky.
When he joined the group, it already dominated the TV market, with TV Globo accounting for 60 percent of Brazilian TV advertising revenues. The company was reaching natural limits to growth, as its progress was constrained by the increase in the size of the country’s economy and population.
The company decided to expand into other kinds of media, from cable to internet, using the money-spinning television network, as collateral. Indeed, its earning reports refer to TV Globo as ‘the guarantor.’
The bondholders – sixty percent institutional and forty percent retail – often need extra coddling since so many of them come from abroad and have some measure of skepticism. TV Globo may have been spinning money, but it was spinning Brazilian reals, which have not exactly been the hardest currency in the world. Even so, the company has the highest debt rating it can get – the same as Brazil’s sovereign rating. Molchansky explains, ‘The only advantage of borrowing money locally is that you anticipate future devaluation, but in the past it was very expensive. Although Brazil is a large country, there just aren’t enough reserves to fund our needs. We have to go abroad to raise substantial amounts of money. In the future it may be better, of course.’
Some analysts hypothesize that the key hurdle to raising equity is provisions in Brazilian law restricting foreign ownership of local media. With the limited funds available in Brazil, only foreign capital would give a fair valuation to a flotation, so until the legal issue is resolved or the company structure adjusted, going public would not be the best option.
Paying the debt
In the meantime, for the same reasons of local capital scarcity, much of Globopar’s debt is in dollars and euros. But in the last year the company paid off almost a third of its debt with the proceeds of asset sales, such as Telecom Italia’s purchase of 30 percent of Globo.com for $810 mn. Current annual revenues are $1.3 bn, and the foreign currency debt is now lower, reduced by $532 mn to $1.71 bn in the last year (currently Globopar has more than $1 bn in eurobonds outstanding). ‘It made a lot of sense, since investors are concerned about the size of the debt, so we decided to reduce it,’ Molchansky comments.
He has been chief executive for seven years, but he cut his IR teeth as CFO of the Aracruz Cellulose company, the first Brazilian company to issue an ADR on the NYSE. ‘I conducted that process and it was then I started developing this kind of relationship with major investors. When I came to Globopar, I applied much of what I had learned,’ he reminisces.
Globopar issues quarterly reports in Portuguese and English, both for the consolidated group and for TV Globo, which is the collateral for all those bonds. Both merit MD&As, and all the material is available through e-mail or posted on the web site (globopar.com.br).
Although the group is not listed, some of its subsidiaries, such as cable operator Globo Cabo, are. That has also been useful experience. Globopar has a majority stake in Globo Cabo, which goes the extra nine yards – its results come out in US Gaap as well as Brazilian Gaap, since it has an ADR on Nasdaq and a listing on Madrid’s Latibex market in addition to being one of the most traded stocks on the Bovespa exchange.
Under Molchansky’s influence, Globo Cabo also has its own well-staffed IR operation. While they are separate, Globopar’s IR departments coordinate with its subsidiaries to ensure there is neither a feast nor famine of Globo family companies at the various investment conferences.
In addition to retaining Citigate Dewe Rogerson in New York as IR consultants, Molchansky maintains Globopar’s commitment to IR: ‘We invest in it, we train people in it.’ His team of five dedicated IR people are, he says ‘very well trained,’ helping deal effectively with investor calls. And they do call. ‘Analysts, investors, asset managers, and all sorts of people interested in buying our debt – we ensure we give them all a lot of attention.’
Economic barometer
The quarterly results, naturally, attract investor visits, ‘Not just to follow our performance, but also to find out what is happening in Brazil; they find us a good environment to exchange ideas.’ In fact, if outside investors wanted a good barometer on the macroeconomic climate in Brazil, then they would be hard pressed to find a more accurate one than Globopar, whose dominant position in the media – with 78 percent of the market – reflects the economy more precisely than any government statistics. In fact, one analyst comments favorably on the company’s tightly-scheduled collection of its numbers for financial reports. ‘They do it all in a short timeframe, and I’m always skeptical – but they always manage it.’
To keep the bondholders happy and perhaps court potential future shareholders, Globopar conducts regular roadshows in Europe and the US, and, according to its IR advisor Citigate Dewe Rogerson, shows acuity in selecting conferences and seminars to attend. Molchansky refers to the IR efforts as, ‘Both equity and debt, all over the world, so we reach out to all investors. It doesn’t matter whether they are buying our paper or not, we want to maintain this relationship. Giving information to the marketplace is something that will pay a very good dividend for us in the future.’
The company alternates public management exposure between CEO Molchansky and Stefan Alexander, the director of financial planning and investor relations. Alexander’s role is important since, when he is not dealing with IR, his financial planning department is responsible for valuations, simulations, support to M&A, relationships with investment banks, long-term and medium-term debt (together with the treasurer) – all grist to the IR mill. Molchansky and Alexander are always accompanied by Marta Meirelles, head of the investor relations department, responsible for press releases, conferences or anything that Globopar releases to the market. She has a staff of four, which shows the importance of IR to the company. And they are at least bilingual, often trilingual, which shows the importance of world financial markets.
The group itself only gives presentations at fixed-income conferences, but it will go to equity conferences for the occasional one-on-one, or to talk on a panel about strategy. Then again, it will not talk about the company’s prospects for going public.
‘We have made no decision – but our standards of transparency are set so that we could go public any time,’ Molchansky concludes.
A lot of people will be waiting.
What they say about Globopar
Jose Marcos Treiger, IRO at NYSE-listed steel producer Companhia Siderúrgia Nacional (CSN) likes Globopar’s IR activities so much that he suggested that we write a story about it. He recalls that it was Mauro Molchansky ‘who opened the New York Stock Exchange to Brazilian companies in 1992 – when he listed Aracruz Cellulose. At that time there was no regulatory framework in this country, no knowledge of US Gaap. In fact, there was no previous experience at all, even at the Brazilian Central Bank. Under his leadership, the turnaround in Globopar’s transparency was immense. Now they apply very advanced IR techniques.’
Roberto Kadlec of Bank of America Securities concurs, ‘I’ve been following them from the beginning when the company only had semi-annual statements. There was a lot of internal education about the importance of this process and they were successful doing it. They even asked analysts what needed to be done. Globo Cabo is listed here and does a good job. Which is not to say that all companies do it. They have made a very conscious effort to reach out to the investment community, even if that is limited to bond holders and analysts at the moment. They follow the book, [have] quarterly press releases, conference calls. Management is available for questions and comments. In terms of the quality of the information, you cannot fault them, not least when you take into account the complexity of the operation.’ He has one minor quibble over full disclosure, ‘They don’t have to meet statutory deadlines for quarterly filings, but since they are not under the gun, they allow themselves a little margin.’ He concludes ‘I follow other privately held companies and bond issuers in Brazil and none comes anywhere near to Globopar in its IR.’
Chase’s Ignacio Ponce de Leon agrees, ‘If you talk to people in the market, the IR function of Globopar and Globo Cabo is among the best. Beyond their excellent quarterly releases, the company is extremely accessible. They are always willing and able to answer difficult questions. We have never found the company to in any way purposely mislead or hide information. On the contrary, they see it in their best interests to be as open as possible, and it has served them well.’
