While the Brazilian capital market is still in its developing stages, the importance of the investor relations function has long been recognized. In fact, Brazilian securities rules are probably the only ones in the world to formally require that every public company must have IR. Since 1976, when the Brazilian securities commission (Comissão de Valores Mobiliários, or CVM) was established, it was a legal requirement that all issuers of any kind of securities offered in the marketplace should appoint an investor relations officer to act as the primary contact between market participants and the company.
Prior to that, it was already common practice for companies to make presentations and hold regular meetings with analysts and portfolio managers. Since 1970, those meetings have been promoted throughout Brazil by Abamec, Latin America’s first securities analyst association, which now has over 2,000 members through its eight regional chapters.
But it was during the 1990s, with the increased participation of foreign institutional investors in the Brazilian stock market and the first ADR programs launched by Brazilian companies and mostly placed in the US market, that IR started to acquire a major role in companies’ communication structures. More incentive came in 1997 when Ibri – the Brazilian Investor Relations Institute – was formed to promote the development of the IR function among companies and investment professionals, and to establish ethical and professional conduct standards for those in the IR profession. A monthly IR magazine was created in association with IBRI and several IR educational programs are provided in Brazil’s major cities.
Indeed, these last few years have seen Brazilian investor relations develop extraordinarily fast. However, not all Brazilian public companies, including the nearly 500 listed on São Paulo’s stock exchange, Bovespa, have effective IR programs. On the other hand, there is growing number of companies on the cutting edge of communications with the investment community in Brazil and abroad. Among them are those 15 Brazilian companies nominated for the Investor Relations Magazine Latin America Awards 2002.
Following Mexico
With that number of nominations, Brazil was hot on the heels of Mexico, the Latin IR leader. Among the ten award categories, four were conquered by three Brazilian companies: Aracruz, which received the Grand Prix for best overall investor relations by a smaller-cap company; Petrobras, with the most improved investor relations and best annual report awards; and Banco Itaú, for best IR web site.
With two awards and five nominations, oil company Petrobras is leading the canarihos. According to one of the research survey respondents, ‘It’s a great company to deal with. They have changed their management and they are now even better – good reports, good meetings.’
Chief financial officer Joäo Nogueira says winning these awards underlines the way Petrobras ‘has come out of the black box it was in only three years ago.’ Since then the management has undoubtedly changed as the company has been transformed from a state-controlled enterprise to a publicly-listed one. ‘When we listed we had to change a lot since we had to adapt to SEC regulations, which at that time were much more advanced than the domestic ones,’ explains Luciana Rachid, IR director of Petrobras. ‘Now Brazil is much more in line with the US.’
In the last few years, the number of private investors has increased considerably in Brazil. Many of them invest in equities through government pension funds but Petrobras has focused on attracting these small investors to its shares, ensuring their rights are protected and providing them with timely and transparent information.
‘Lula’ for president?
But for now the main challenge facing Petrobras and all the Brazilian companies is to persuade their investors that the financial market nervousness caused by the anticipated victory of the left-wing candidate, Luis Inácio ‘Lula’ da Silva, in the October presidential elections, is groundless. The uncertainty has caused depreciation of the currency and has rocketed the country’s liquidity risk rating. In this situation the only thing IROs can do is try to calm investors, assuring them that ‘whoever wins the elections, it is not going to harm the good function of the company,’ suggests Rachid.
Such an election result would cause changes at board level for some companies, however. At Petrobras, for instance, five of its nine directors belong to the current government, so they would leave the company should their party lose.
Similar issues will hit some of the other companies nominated for awards. The way they deal with this upcoming challenge may determine next year’s awards nominations.
At the 2002 awards, in all the categories except the best debt investor relations, Brazilian companies ranked highly. In the Grand Prix for large-cap companies, for example, among 20 nominees, ten were Brazilian (Petrobras, Banco Itaú, Ambev, Embraer, Copel, CVRD, Brazil Telecom, Telemar, Banco Bradesco and Companhia Brasileira de Distribuiçäo). In the Grand Prix for smaller-cap companies, out of ten competitors five were Brazilian (Aracruz, Gerdau, VCP, Cemig and Telemig Celular). For most improved IR, five of the eleven nominees were from Brazil (Petrobras, Banco Itaú, Copel, CVRD and Ambev). In the category of best corporate governance, among twelve Latin American finalists four were Brazilian (Banco Itaú, Aracruz, CSN and Unibanco). For the best communications with the retail market, three out of six nominees were Brazilian (Petrobras, Banco Itaú and Banco Bradesco). The award for best IR for an IPO had five nominees of which three were from Brazil (Petrobras, Embraer and VCP). And, finally, the category of best IR web site had seven nominees including four Brazilian (Banco Itaú, Petrobras, Telemar and CVRD).
The research
The research project underlying these Latin America Awards 2002 are part of a network of awards programs in nine regions around the world, the primary purpose of the Investor Relations Magazine Awards is to reward those companies and IR practitioners that are most effective in keeping portfolio managers and analysts fully informed of the strategies and activities that affect investment decisions and shareholder value.
The strong showing of Brazilian companies in this year’s Latin America awards clearly reflects the recognition by analysts and institutional investors of the efforts made by companies and IROs. The process of growing and improving IR that began more than three decades ago is still going strong.
Click here to see the winners
Ronaldo AF Nogueira is the managing director of IMF Editora and member of the Board of Ibri (the Brazilian Investor Relations Institute)
