Jeff Corbin Comments on what the BRICs can Learn from Israel
By: Danielle Drolet
Markets are becoming truly global as a new generation of companies in growing economies are influencing the marketplace. Danielle Drolet finds out how BRIC-based businesses are tailoring their IR effort.
Brazilian-based electric utilities company Cemig announced its debut on the New York Stock Exchange on September 18, 2001. By 2008, its market capitalization exceeded $6 billion, positioning it as a global investment option. Since then, Cemig has added investors in more than 45 countries, according to IR officer Agostinho Cardoso.
Cemig, now an $11.1 billion market cap company, started out as an over-the-counter stock program before eventually receiving its level 2 listing on the NYSE. It is now the third-largest Brazilian equity traded on that exchange, says Lucia Domville, senior MD, Latin America, at Grayling. It is the only utility company in Latin America to be part of the global Dow Jones Index. Cemig has also been in Dow JonesĘ sustainability index for 11 years in a row.
Analysts agree that capital markets are resurging and the IPO market is reopening with more stability in equity prices and funding. Meanwhile, the emerging regions, specifically the BRIC economies (Brazil, Russia, India, and China), are creating a strong foothold in the market.
"The emerging markets, BRICs, are offering better growth stories and more returns that you can't find in the US," says Domville, whose company began working as Cemig's external IR firm in 1992. "Most emerging and growing companies need funding to keep growing. Now, they need to get everyone else involved. Investors want to increase the returns of their portfolio for investment. They are seeking growth stories and extraordinary returns."
Companies such as Cemig are seeing new opportunities in the global investment marketplace and are rapidly transforming their IR teams to build stronger offshore business relationships, as well as emphasizing best practices.
"The US is the largest capital market in the world, so it was important to be in a successful market," says Cardoso. "Then, we needed to be thinking about the equity side, but also about future possibilities. So we started the process to reach out to investors all over the world. Since the beginning, we saw Cemig was a great company for investors. Considering the strategy and our culture, we could be a different option for them."
The rise of the BRICs
Gone are the days when New York and London were seen as the prime investment hubs of the world. In less than 10 years, other contenders, such as the BRICs, have quickly paved their own path up the investment hierarchy, due to growing economies, increased transparency, and greater access to technology.
Geographically, the BRIC countries account for more than 40% of the world's population. They also encompass a total gross domestic product of $18.5 trillion.
"About 15 years ago, the US really was the only market for an IPO," says Elizabeth Saunders, senior MD and head of the capital markets practice at FD, an FTI Consulting company. "Every once in a while, you'd take an IPO to London, but you certainly wouldn't take it anywhere else. What's happened is you have wealth in those countries. They have investable assets, and US and multinational companies are saying we need to tap into those assets."
In fall 2010, FD opened an office in San Paulo, Brazil, consolidating the financial firm's footprint in all four BRIC countries. Ketchum acquired Moscow-based Maslov PR late last year. It also recently assumed a majority ownership of its Greater China operations. Many agencies have long expressed their global reach, but pushing support presence further into the BRIC regions has been a priority in the past decade.
Currently, FD, which has its home base in Europe, has approximately 50 people located throughout Latin America. And it is looking to expand into Mexico. The firm has a presence in Singapore, Hong Kong, and Beijing, as well as an office in India.
"Now firms such as ours should ask, 'Are we in the right places?'" says Saunders. "We need to compel our multinationals to be more aggressive on this front because the demand for the global side of IR is happening a lot faster than they see it happening."
Assuming a dominant position
In 2003, Goldman Sachs forecasted that the BRICs could become among the most dominant economies by 2050. China's economy alone has already surpassed Germany's (2007) and Japan's (July 2010). Meanwhile, South Africa is expected to join the BRIC grouping later this year.
"With the ongoing trend of globalization, we are seeing more international companies, especially in certain emerging markets and BRIC countries, where growth rates are very high," says Erik Knettel, senior MD at Grayling. "They're looking to tap the US and other capital markets because they represent such attractive growth stories."
Growing BRIC sectors attracting US and European investors include energy, mining, oil, gas, tech, and consumer.
Brazil, Domville says, has become particularly attractive because of its transparency and its positive presence worldwide. The country will host the 2014 FIFA World Cup and the 2016 Olympics in Rio de Janeiro.
"Brazil's image, stability, and transparency has grown over the years," she adds. "The country is more on the forefront of all things. It has been growing nonstop and has done fantastically compared to the crises Europe and the US went through. Growth rates have been amazing. Capital market people are always concerned with returns and putting money where they see less risk. Brazil has done a lot to make the financial markets more transparent."
In India, strong sectors for global interest, says Madhuri Sen, MD and VP, India, at Waggener Edstrom Worldwide, are technology, which was the earliest area of interest, followed by infrastructure (power, roadways, and urban development), and coal, mining, and gas.
"Pharmaceuticals may be the emerging sector to look out for," she adds. "The other sector expected to attract global investor interest is likely to be telecoms on the back of the launch of 3G services that require a significantly high investment in the infrastructure layer."
Sen adds that investments from global investors have increased in their "scale and velocity" in the country.
"While at one time the average appetite for funds was in the range of $200 million to $300 million; over the last three years it's risen to $5 billion to $10 billion, based on the rising confidence of the industry here," she says.
Before diving into the global marketplace, companies often initiate strategies to reposition their brand. Hong Kong-based Greenheart Group underwent a renaming in fall 2010 from Omnicorp. The company, which has been publicly listed in Hong Kong since 1988, took a larger step inside the global marketplace when it added major controlling shareholder Sino-Forest this past summer. Sino-Forest, a leading commercial forestry business in China, is a Canadian-listed company. Canada sometimes serves as a testing ground before businesses tackle the US market.
Since the initial transaction was announced in June 2010, Greenheart's share price has risen more than 60%, says David Wu, director of corporate development and IR.
"Greenheart has emerged from an unusual past," he adds. "We have evolved significantly, from our operations to our corporate image. One major change was to initiate a clear and transparent IR program, allowing the market to fully see what we did, how we did it, and why we were doing it."
Edelman began working with Greenheart in May 2010 on the initial transaction with Sino-Forest, which was the agency's client at the time. Currently, Edelman is on retainer for both companies.
"Emerging market companies are growing in both size and importance, particularly in the natural resources/energy and tech sectors," says Corliss Ruggles, director of financial communications at Edelman. "India and China both have companies that are significant players on the global stage. Some, such as Baidu, a Chinese Web services company, have listed on the NYSE as a way of widening their investor base. Typically, having a wider investor base is difficult if a company has no presence outside its home market; however, things have changed. It was clear Greenheart needed IR and PR support as it faced a new chapter of growth and development."
In Russia, the industrial segment, including mining, energy, and oil, is most attractive. FD's Saunders says where China is concerned with the challenge of transparency, Russia's is regulatory. Last month, following the World Economic Forum in Davos, BP partnered with Russia's Rosneft, a state-controlled oil company, to swap shares and jointly search for oil off the country's northern coast. In addition, PepsiCo acquired more than half of Wimm-Bill-Dann Foods, Russia's top branded food and beverage company, for $3.8 billion. The deal, upon completion, makes PepsiCo the largest food and beverage business in the country.
BRIC-based companies and agencies agree a heightened digital presence has also been a key component in opening up the markets. The digital and social media bottom-line presence, for example, is making it easier for US-based multinationals to get their stories out and their stocks more accessible to a Taiwanese investor and vice versa.
"These wonderful Internet tools make stories so much more accessible across the globe," adds Saunders. "I don't think we are going to go back to a US-centric vision for IR. You won't have to come to New York, or be based there, to really be able to access capital."
When a company goes public, an agency will typically be hired to begin training the burgeoning IR team's top managers or the staff who go out on the road and meet investors face to face. Training and educational initiatives are a must, notes Domville, when it comes to acclimating the IR pro with another culture interested in investing.
"As the top managers become more savvy, eloquent, and comfortable in front of investors, the IR team wants to train the rest of their staff," she says. "They want the whole team to be well educated and trained. They need to know what they're doing and how to talk, reply, and respond."
The key to good IR training, according to Wu, is focusing on a fundamental understanding of the business, not only the strategy and the numbers, but "everything else that would educate an investor to invest in your company." The other goal is to be more transparent.
"I sometimes ask the people on the other side of the table for their feedback and believe me, you will get it," he says. "More often than not, they will be more than happy to tell you where you can improve. It is important to remember they have every intention of making you a better IR person, too - it is in their interest to do so."
At Cemig, Cardoso's five-person IR team attends conferences, road shows, and one-on-one meetings, along with executives from the company's other departments.
"We give investors an opportunity to talk not only to IR, but also to someone who can answer any corporate information or technical questions," he says. "We want to understand the capital market culture and respond to the capital market partner's needs and questions."
With the financial market changing, BRIC-based IR pros and the agencies they work with face new challenges and opportunities. Many firms working with BRICs agree their multinational clients' in-house teams are only in the early stages of their ultimate global IR plan.
"They still have a very US- and Europe-based IR program at best," says Saunders. "They don't translate releases and financial documents. They have IR websites that aren't as good as they could be in telling the story."
Most work now being done in-house at the corporate level, she adds, is creating a more extensive and far-reaching program, one that goes beyond the road show.
Particularly in Brazil, there are a lot of companies that do not have the capability to meet the needs of a global investor community due to staffing, explains Anthony Dovkants, MD and head of FD Brazil.
"Recently," he recalls, "a multinational said to me, 'We can't think of diversifying to investors because we don't have enough people to do it. We haven't yet allocated the resources to think about this yet.' It really is just evolving."
Being prepared to go global
Saunders says the main challenge is getting multinational clients to ready a global plan, prioritized by international cities, not just the base level of a US-formatted IR plan.
"If you don't have alliances or that international coverage, it's hard to do IR for multinational and large companies," adds Saunders. "The head of FD Brazil must be able to call someone from New York and get an answer, and we must be able to call him and say, 'We need an answer about this investor immediately.' That's going to be really difficult to do via database versus human contact."
Another issue in emerging countries, says Dovkants, is breaking an IR team's habit of meeting the same people, visiting the same places, and attending the same conferences. New York, historically, has been the focus for IPOs, but it is critical now for companies to explore new opportunities to perform better in secondary markets.
"They're used to seeing people in Hong Kong, London, and New York. We're trying to bring them to different cities like Paris, Madrid, Dallas, and Shanghai, and give them this new opportunity to cement new relationships," he adds. "That would be the largest recurring theme and an important one for companies in this part of the world."
A model for the BRICs
Before the BRICs, there was Israel. In the spring of 2010, the country's stocks were upgraded from emerging to developed, a model that Jeff Corbin, CEO of KCSA Strategic Communications, says emerging countries may want to emulate.
Corbin has been working with companies in Israel for more than 10 years, many of them have primary listings on the NYSE and NASDAQ. Besides an office in Tel Aviv, where KCSA serves 10 clients, the agency has domestic offices in New York, Boston, and Chicago.
"Every single IPO coming out of Israel in the past five or six years has helped [Israeli companies] in terms of going public," he says. "It has also helped them get their communications to the next point."
The next point, according to Corbin, was the challenge of getting beyond the culture, the language, and the sometimes "tough" business demeanor of Israel, as well as taking into account the 5,700-mile distance from New York to Tel Aviv.
To get through it, Corbin led presentations with his clients' IR teams on breaking down the cultural barrier and on general IR requirements, such as being competent in the English language. The educational effort also included preparing for investor meetings and media interviews.
ClickSoftware, one of KCSA's Israel-based clients, went public in June 2000 and is currently traded on NASDAQ Global Select. The company offers workforce management and service solutions.
Noa Schuman, manager of IR at ClickSoftware, says the company relies on KCSA as its "front line" for its investor base and to keep current on investor issues through IR professional organizations and conferences. In addition, she cites transparency and visibility as vital components for any successful global IR strategy.
"Don't rely on quarterly press releases alone to communicate with your investors," advises Schuman. "Keep an active and open dialogue with your investor base, either directly or through an agency.
"You also need to be open and honest with investors about the good news and the bad news," she adds. "And be visible. Attend broker-sponsored conferences and road shows. In addition, and just as important, conduct non-deal road shows that are not sponsored by bankers and analysts to introduce the company to a much wider range of investors."