On The Road – a newsletter for Roadshow, Syndicate and Capital Markets teams
Q: EM’s clients such as Aeroflot and Phosagro produce ‘best in class’ Reporting as evidenced by the Investor Relations Society’s recent awards. How do you work with them to understand their investors’ needs?
A: We have longstanding relationships with our clients that often date back to the time of their IPO and sometimes well before. Although much of our day-to-day work is with IR and PR departments, we also develop close relationships with senior management or beneficial shareholders and therefore gain an understanding of our clients that goes well beyond a narrow IR perspective. This is particularly important in Emerging Markets such as Russia. EM has offices in Moscow as well as the major financial centres of London, New York and Hong Kong, and we are uniquely placed to bridge cultural differences. In our experience, many Russian companies are extremely professional and keen to produce ‘best in class’ reporting and disclosure. However, sometimes they need to be guided into what types of disclosure investors expect and how to present certain information. We also regularly carry out investor perception studies for our clients and most of the times the feedback we receive with respect to our clients’ quality of Investor Relations is indeed very positive.
Q: How important is it for companies to gain a better understanding of what their investors want?
A: For companies to understand what their investors want is of supreme importance. Certainly, for our Russian clients this has always been the case but perhaps nowadays more so than ever. A strong IR function can contribute significantly to a company’s share price and valuation as investors appreciate the transparency and clear insights gained from good investor relations. Moreover, we have seen that investors are becoming increasingly active and hands-on. Activist shareholders campaigns to hold management to account when they are unhappy about the company’s direction or performance are becoming increasingly common and therefore companies need to be on their mettle. To work closely with your investors is absolutely imperative in this context, so there are no surprises for either side.
Q: Are there any geographical differences, ie do Russian investors have different concerns to W. European investors?
A: If we are talking about domestic institutional investors, the Russian universe is still fairly limited, but overall their concerns are the same as those of Western European investors. Although in recent years it has been particularly challenging for the Russian market to attract Western European investors, the fundamentals that those investors look for haven’t changed. A good example is the successful IPO of Detsky Mir (“Children’s World”) earlier this year, where EM acted as the Financial PR and IR advisor. This was the first globally marketed IPO out of Russia since the beginning of Western sanctions against Russia in March 2014, and it was striking that 90% of total demand for the shares came from international investors (including 35% from UK and 25% from US). Since Western sanctions started, it had been virtually impossible for Russian issuers to attract trust and attention of international investors due to geopolitical tensions, volatile rouble, and a struggling economy. To re-open the market for Russian issuers, the Detsky Mir deal therefore required unusually thorough briefing of international media, analysts, and investors. Detsky Mir, a market leader in the attractive sector of children’s goods, with a fantastic brand, strong ownership and first class corporate governance (another “hot topic” in our markets) stood out as an extremely attractive investment in this context.
Q: How do Russian & CIS roadshows differ – if at all – from W. European roadshows?
A: In my experience, there is little difference. Nowadays the sophistication of issuers and their advisors in Russia and CIS is on a par if not higher than many Western European examples. Clearly the addressable investor universe is more limited for Russia and CIS and this guides to a large extent where the roadshow will go.
Q: Crisis communications and reputation management’: you look after Aeroflot, what lessons can be learned from the recent United Airlines PR disaster?
A: Obviously United Airline staff made a mistake in the first place with what happened, and then compounded the problem with the initial management reaction. Of course together with Aeroflot we looked carefully at the fall-out and any lessons to be learned. I don’t think I am close enough to give an informed opinion, but It certainly highlighted the importance of social media and the speed with which this type of news reaches a global audience nowadays. One of the key things therefore is a very swift and completely honest reaction and damage limitation. It again proved the truth of Warren Buffett’s famous quotation, “It takes 20 years to build a reputation and five minutes to ruin it.”
Q: What one piece of advice would you give ECM, DCM, Syndicate or roadshow teams looking to engage with a wider audience in Russia or the CIS?
A: One thing I would say is not to underestimate the power of new digital technology. At EM we are firm believers in the power of social networks and digital solutions and we increasingly see how this can make a material difference as to how companies interact with their investors and indeed how they can attract new investors. As I mentioned before, the addressable investor universe for Russia and the CIS is by definition narrower than a full global audience, and therefore any marginal gains to attract the widest possible audience are very important. For example, Black & Callow’s “iRoadshow” initiative is something that we would highly recommend. Not only can it be used to reach a wider audience, the analytics behind it is very impressive and will let the issuer and its advisors gain a priceless insight into investor motivation and behaviour. And if I can give a second piece of advice, I would encourage ECM, DCM and Syndicate or Roadshow teams looking at Russia and the CIS to subscribe to our EM AM daily newsletter, which will give you a great snapshot of the most important Russia related news for the day. Subscribe here.
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