Implications of investor relations for capital market

Dhaka,  Thu,  23 March 2017
Published : 17 Mar 2017, 19:58:31
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Implications of investor relations for capital market

Implications of investor relations for capital market
Dilip Pal
In the previous two instalments published in this section this scribe tried to highlight the importance of investor communication as a value adding tool, the structured approach to building an investor relations platform and its relevant best practices. Now this scribe seeks to highlight the IR programme of Grameenphone Ltd. that is catering to the information requirement of stakeholders. He also will highlight the implication of IR for Bangladesh's capital market

Grameenphone Ltd. practises active investor communications with strong endorsement from company management and board. It has a dedicated resource team for managing the varied information requirements of investors.  After getting listed in the latter part of 2009, the company established the function in 2010 and is conducting various information disclosure and communication activities to help the investment community.

The company's IR programme is governed by practices approved by its Board of Directors covering local procedures of information disclosure and communication. The main objective of this guideline is to ensure implementation of applicable laws of the land related to information disclosure of listed companies and disclosure policies of any parent company.   

IR function is kept under the Finance umbrella of the organisation with direct reporting to Chief Financial Officer. It is being managed by a single employee with an established information channel within the organisation. Three key objectives of Grameenphone's IR programme are:

l Establish communications and engagement practices taking into account public disclosure requirements and global best practices

l Build strong relationship with analysts, fund manager, regulators, financial media and setting up an information network with internal and external sources

l Developing trust and credibility in financial markets

With the broad objective at the forefront, a typical IR calendar for GP is divided into four quarters in a given year. Each quarter is mainly designed with one earnings declaration event, post results call conferences with analysts and subsequent one-to-one meetings. Non-deal foreign roadshow also is a part of this calendar.

Quarterly earnings declaration events are designed in the form of press conference. This event focuses on the key business highlights, financial performance of that quarter and update on the regulatory landscape. Usually the event is hosted the following day of the board meeting where company financials get approved. The contents are shared through a visual presentation with issuing a press release at the end of the session. The two-part session divided into storytelling by management and open questions and answers. Typically, the CEO starts with the business highlights and regulatory update. The CFO then finishes the event with financial update. Participants include local financial media -- both print and electronic, local analysts covering GP from both buy and sell sides and foreign analysts backed by both existing and potential investors.

In addition to the presentation and press release, a short write-up on the entire quarter is prepared covering the telecom industry update, major launch of products and services, details of profit and loss account and balance sheet position. To facilitate the data requirement of financial models used by analysts, an excel file containing relevant data is given. Following the event, transcript of the entire speech given by management is shared. To facilitate the participation of foreign analysts, live streaming of the event is arranged. This outsourced platform publishes the live feed of the speech along with the corresponding slides. Provision of asking questions is there in the platform as well. The recorded version of the event is stored for stakeholders who missed the event or whoever wants to revisit the session again. After the event, separate one-to-one meetings are organised on a request basis to delve deep into any specific issue.

A website dedicated for the investment community is a powerful tool. Grameenphone has a site with the address http://www.grameenphone.com/about/investor-relations. This site has all the relevant information including all the communication materials stored in an organised way. The site is designed in a way that anyone spending some time will get a very clear idea about the company affairs and its ongoing performance. In a way this site builds a solid background for going for any discussion or session with the Grameenphone management.

Reaching out to the other side is critical for any relationship building. This holds true for broadening the shareholder base with foreign institutes who have a long term investment mandate. Grameenphone conducts such non-deal roadshows in various investment hubs of the world. There are conducted in partnership with local and international brokerage firms with access of frontier and emerging market funds. Such events also have substantial contribution to the development of Bangladesh's economy and capital market, by putting Bangladesh on the international investor map as a credible investment destination.

Some other non-routine items include participating in summit/seminars organised by various local and international investment community as contributors and organising the capital markets day- an event with in-depth discussion and presentation on telecom services. Also journalist workshops are organised where telecom industry-specific performance indicators are discussed.

Grameenphone as a business entity aims to ensure value creation for its shareholders. Through a very proactive investor relations programme, it is actively able to contribute to this endeavour and aiming even higher.

When it comes to the 2nd part of it, this scribe does not consider himself an expert of capital market and its mechanism. But he does believe that there is always room for improvement in everything. Bangladesh's capital market is no difference in this regard. Structured investor relations programmes can contribute to generate efficiency in the capital market, specifically in the case of the equity part.

From a global investors' perspective Bangladesh is categorised as a frontier market in the horizon of investment management. This is, in fact, the last of the most commonly attributed three tiers. The other two are emerging and developed markets. Various parameters of market and regulatory structure, trading environment and operational efficiency define these three categories of the global market. Frontier markets are typically much less accessible to foreign investors, exhibit notable limitations in their regulatory and operational environment and support a smaller investment landscape. These markets tend to be much less robust and in the earlier stages of development.

The good part of this structure is that it is like a ladder. Prudent and concerted efforts can make the climb a smooth one. Few small steps can add incremental value to the market efficiency. Four crucial factors that can play a vital role in this climb are listed entities of any stock exchange, analyst community, financial media and concerned regulatory bodies.   

As mentioned in the previous instalments, companies listed with the exchanges should play the most vibrant role in establishing the proactive investor communication platform. Sharing the real scenario of company performance and potential with the investor community will generate immense value for the company. Confidence of investors gained through any effective IR programme will automatically pave the way for strong governance, high ethical standards, socially responsible business practices and a sustainable business entity. Commitment of the board and management on the various best practices shared earlier can make a tangible differentiation.

Next comes the role of the analysts in coding the business in a different language that is easily understandable and justifiable by the investors' commitment of taking a stake in an equity script. Brokerage houses and investment firms of the country should support whole-heartedly the analysts in writing quality research reports. Equity research can make a big difference by portraying the true business performance and its underlying future potentials. Analyst comments on equity notes can act as a catalyst for company management to perform even better. Quick wins can be achieved with the tide but certainly that will not sustain. Proper research will generate constant value for the issuing companies as well as the market.

 While analysts form the main bloodline for the institutional and high net worth retail investors, it is the financial media that can support the vast retail investors. Adequate knowledge of the various business drivers, financial statement analysis and macroeconomic factors that come into play are very important for reporting the business performance. A great deal of curiosity can help this community develop a good storyline of any company. Industry-specific coverage on company disclosures, regulatory developments, competitive landscape, emerging global trends will enrich the business reporting section. This will in turn help the retail and institutional investors in making informed investment decisions.

Regulatory endorsement is crucial for any value adding initiative from the market participants. Evaluation and adoption of best practices in the field of investor communication from other emerging markets can take a big leap forward from the present situation of the market. Even replicating few guidelines of investor relations and encouraging adoption by listed entities can be a good starting point.    

If all the four actors start contributing, rewards will be trickling down for the companies with good governance and financial performance. The rest will gradually fall out or see the pressure gauge increasing to change their way of work to survive. Honest intention and smart execution of all these can contribute to scaling up Bangladesh's capital market to the next landing area called 'Emerging Market'.

The writer is CFO of Grameenphone. dilip.pal@grameenphone.com
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