Few would dispute that DBS’s surprise share placement last November was a success – for several reasons. First, the offering amounted to S$2.2 bn (US$1.2 bn), the equivalent of 40-50 days worth of trading volume, and it was one of the largest ever in Singapore, if not in the Asia-Pacific region. Second, the issuance succeeded even with the Singaporean bank’s share price at a 52-week low, or about a third of its former high. Third, the deal took place within 24 hours.
So how did DBS pull this off? The answer, in short, is that it was testament to the bank’s reputation and solid communication with the investment community.
DBS started life as the Development Bank of Singapore in 1968 and has always been dominated by a large government-owned stake. In recent years, the government’s grip has loosened and today it owns just over 30 percent of the stock. ‘The bank’s management are now professional bankers with a very investment bank mentality,’ smiles Tony Raza, investor relations officer for DBS. So concerned were investors about the government’s involvement in the bank that the 2000 annual report stated, ‘Some are confused about DBS’s unique status: Are we pursuing strictly commercial ends? Or are we an instrument of national policy, as our heritage and ownership sometimes suggest?… There has been no active government involvement at DBS for some time. And we are quite comfortable – and successful – standing on our own two feet.’
Thus the conscious transformation from a dowdy government-dominated bank reliant on domestic investors to one of Asean’s largest banks with a large international shareholder base.
Credit for the overhaul is widely attributed to John Olds, former CEO of DBS. He came on board in 1998 – in the middle of a thumping regional recession – as the first foreigner to head Singapore’s largest bank. He set to work on regional expansion and placed unprecedented emphasis on investor relations. Today, the CEO and president role has been handed on to Philippe Paillart, with Jackson Tai as chief operating officer and CFO. But the bank’s commitment to transparency has not waned. Indeed, DBS has been very busy of late, continuing with expansionist plans which have sent the IR department into overdrive.
‘DBS is trying to do something very difficult,’ admits Raza. ‘We are trying to make the infrastructure totally modern and to sell very sophisticated products that ramp DBS up to a higher level. This requires a lot of investment and typically there is a mismatch between your investment cycle and your return cycle. DBS has also pursued an aggressive policy of M&A. So there are a lot of changes that the company’s investors have had to grapple with.’
DBS’s ride on the stock market has been a roller coaster. A number of regional acquisitions were criticized by analysts for being too costly to restructure, and in the case of Hong Kong’s Dao Heng Bank, simply too expensive. Still, the bank pressed on, pursuing a long-term strategy which had to be explained to shareholders.
‘What DBS is offering is a strategy that is visionary and rather long-term in nature,’ Raza explains. ‘There is a concern about the time line between what DBS was offering and what the investors were looking at. So what we have had to do is make our strategy clear. We can’t just tell people to hold their shares, but our strategy became clear throughout 2001 when we talked to investors.’
Last year was definitely the turning point. The bank’s major shareholders are long-termers, who include the Singapore government and large US institutions Brandes Investment Partners and Capital Group International (which together took up half the November equity offering). But it also had its fair share of momentum or other short-term investors. Raza says long-term investors were satisfied with the bank’s long-term visions, but the short-termers were unhappy, and showed it by selling. But Raza bears no grudges; on the contrary, he says: ‘I think the interesting thing is that if we look at our shareholder list now there is a much better fit.’
A former banking analyst, Raza arrived at DBS during this difficult time in 2001. ‘In 2000, everyone was very happy with DBS’s investor relations,’ he recalls. ‘But 2001 was a bumpy year; I don’t think shareholders were thrilled with the performance of the stock. But what I do find satisfactory is that DBS was able to tap the capital markets last year in order to pull off M&A deals. We pulled off some $6 bn last year and we also completed a major equity deal at the end of the year when the equity market was not easy to tap. I think that all the IR efforts have certainly paid off.’
So what did it take for DBS to slow the rapidly falling share price and pull off its capital raising coups? Well, in the second half of 2001 it took a step that was unprecedented for a Singaporean bank when it began releasing quarterly results – ahead of the Monetary Authority of Singapore’s mandatory requirement which will take effect in 2003.
Keeping up with changes
‘We did it because we knew we were doing a lot and our numbers were changing,’ Raza explains. ‘The third quarter of 2001 was the first quarter we included Dao Heng numbers as the merger was completed on the last day of June 2001. So this was the first opportunity to show people how things were developing and how the transformation was taking place throughout the year. We had been preparing to do so for a while, and we were just making sure we could continue to do it on a continuous basis.’
But is quarterly reporting in tune with DBS’s long-term strategy? ‘Quarterly reporting does get people to focus on the short term,’ Raza acknowledges. ‘Ultimately we believe that we’ll keep communicating long-term strategy, but keep the most transparent numbers available. It also helped because we were doing an equity issue in the fourth quarter so having the third quarter numbers out meant we were completely open and everyone knew and felt they were updated.’
Jackson Tai, CFO, sees quarterly reporting as a must. With the plethora of information available freely over the internet, informing investors directly ensures consistency. ‘In this day and age of instant information, you cannot get away with not giving your constituents the right market information. You must disclose facts about your progress and your shortcomings. There is no excuse for bad IR.’
Tai believes that, short-term as they are, quarterly reports work over the long term by allowing investors to monitor a company’s consistency and progress against benchmarks. ‘Measured over time, it should work,’ he says. ‘It’s not a question of it being a burden, it’s a question of what is good for constituents. Best practice comes from western countries – the UK, Australia and the US. We try to make sure we live up to best practice requirements.’
With the regionalization of the bank came complications that had to be explained on a continuous basis. Raza found investors were no longer just interested in the goings-on in Singapore; issues in the region, and indeed around the globe, had to be addressed. ‘That instantly changes your reporting and communication of how you value that impact, the analysis and how you calculate margins. It instantly becomes more complex,’ he says.
‘The other issue is that mergers and integration require a lot of updates to make sure everyone is comfortable with how progress is going,’ Raza continues. ‘For example, with the Dao Heng integration, we promised that by December 2001 we would achieve certain milestones. We had given out early criteria as to what to expect – how we should be judged and the accomplishment updates.’ As a result, Raza conducts analyst meetings on a regular basis, and uses his own experience as an analyst to give precisely the type of information they are interested in; and that means no vague mumbo jumbo.
DBS’s effort to drum up support from an international shareholder base has been helped by its management team. ‘The fact that they have an international background made DBS interesting for international shareholders,’ states Raza. And with such a geographically dispersed shareholder base, senior management, accompanied by Raza, are frequently on the road.
‘Senior management have an investment bank mentality; they are very conscious of the capital markets,’ says Raza. ‘Specifically, Jack Tai is very involved with communicating messages to investors. He meets with shareholders often and they appreciate the messages coming from his mouth. In the past, it was difficult for investors to meet senior management, and I think the market appreciates the difference. Investor relations has come into its own as I am always attending the investor meetings with Jack Tai. It makes it easier to follow up with investors.’
Raza also works closely with the bank’s corporate communications department. A competitive banking environment, consolidation and the regionalization efforts of various banks in the region since the 1997-1998 Asian crisis have put the media spotlight on the larger players on the field.
Corporate governance is another area on which DBS has put significant focus on over the last few years – focus that has paid off by distinguishing it from other banks and listed companies in Singapore. The bank won the best corporate governance award from the Institute of Certified Public Accountants of Singapore since its inception; and it came second in this magazine’s Asian Investor Relations Awards last year, identified through a survey of the Asian investment community.
It was the first bank to appoint non-Singaporeans to its board of directors and the first to establish a nominating committee of the board, as well as a board risk management committee.
Still, DBS knows that investors notice its efforts in investor relations and corporate governance simply by looking at the balance sheet. ‘We approached the Singapore and international markets several times last year, and each time our transactions were well oversubscribed. These are good indicators that investors are getting our story and that they welcome our transparency,’ concludes Tai.
What the analysts say
Todd Martin, Deutsche Bank
‘DBS Bank is now very open and transparent compared to three to five years ago when there was a lack of information and communication across the whole banking sector,’ Martin says. ‘All banks in the region have improved, but DBS has been one of those that have improved the most. Out of all the companies I cover, they are one of the best. They provide excellent access to management, respond to requests quickly and are good at disclosing information. DBS splits the Dao Heng numbers out on a quarterly and annual basis and this has allowed us to analyze the deal properly. They are reporting on a quarterly basis 12 months ahead of the mandatory requirement and this is appreciated. This allows us to keep track of the quarterly trends affecting the bank. As for clients, I’ve always been able to get them in to see the senior management.’
Anon
‘DBS investor relations is one of the best in terms of access to management, transparency and disclosure of company information. They are as frank as they can be about where they are going as a company. Tony Raza, as a former bank analyst, understands banks. Most IROs are there to facilitate meetings, but Tony can stand on his own and he knows exactly what the numbers are about. He is also able to give insights into senior management’s thoughts rather than just repeating what is in the annual report.’
