WITH the world’s attention fixed on political instability in the Middle East and North Africa, and Dubai’s debt debacle still fresh in the market’s memory, the region’s fledgling investor relations profession has more than its fair share of challenges to contend with.
However, as Manuel Parra, Chief Executive Officer of Corpstation FZ LLC, an investor relations and corporate communications firm based in the United Arab Emirates (UAE), tells IR Web Report in this exclusive interview, beneath the macro political and economic problems lies a host of internal corporate governance and management issues that are hampering the development of IR in the region.
Parra began his career as an analyst with corporate governance advisory firm Institutional Shareholder Services before becoming a partner at Tradinfo, an IR events company based in Brussels, Belgium. Today, he runs CorpStation from offices in the high-tech Dubai Media City and counsels companies throughout the region on their investor relations programs as well as helping international companies access the region’s investors.
1. Political instability, such as in Tunisia, Egypt and Bahrain has been making headlines around the world. From your vantage point, what impact do you see this having on IR in the region?
We have been asked this question a few times over the last weeks following the events in the Arab world. To be honest, we have been partially surprised by the question itself. In the UAE, and the Gulf Cooperation Council (GCC) in general, the events of North Africa have had little effect, with the exception of Bahrain. Here in the UAE there is no sign of change, or unhappiness in the local population.
We don’t expect any immediate change in terms of IR policy, or even in general, here in the GCC following the latest events. Also in terms of European-US companies doing roadshows in the GCC, we did not register any change in their attitude following the latest events.
Concerning North Africa, we are quite active in Egypt and over the last months it was a general “feeling” that something might happen soon. In terms of IR, it is too early to say: the final outcome of the current protests can be only evaluated in a year’s time, depending on which direction these countries take.
2. Tell us about CorpStation and the services you provide to companies.
We are a joint-venture between European IR experts and Dubai-based investment professionals, benefiting from strong connections in the Middle-East and North Africa, and deep knowledge of the business environment and investors’ needs in the region. Our aim is to bring IR excellence to the Middle East North Africa (MENA) region. We provide a full range of investor relations services, with a consulting approach. Ideally, we work with listed companies over a determined period, usually at least 12 months, to assist them to improve their IR practices.
Depending on the level of sophistication of their IR (if any) our support includes different services and tools. We have 3 different IR service plans: Fundamental IR, IR Evolution, and IR Excellence. However, these packages are just to give an idea to companies about the services we can offer and our working method. In practice, based on our IR assessment of the company, we determine a tailor-made plan, with timeframe and performance indicators.
In most of the cases, we provide our consulting without appearing as CorpStation to allow our clients to get a maximum of visibility and recognition from the market. A part from us, usually listed companies here use freelancers to assist them when needed, or they just refer to PR companies for design of annual reports and financial PR, which is very different from IR.
3. What is the greatest need in the market?
Regulators should definitely implement regulations for listed companies. We are trying to lobby regulators, trying to explain the benefits and the importance of implementing better IR practices and greater transparency to the market. There are articles weekly about this issue and we have heard for years that soon regulators will implement new rules. The reality is that only a little has changed, from my point of view, over the last 2 years. The creation of the IR society, to me, has not yielded many results.
Another issue is that the companies themselves, especially at the highest management level, do not have an understanding of the importance and the benefits of good IR. Unfortunately, even the crisis that hit Dubai — and that for some companies was clearly made worse by the absolute lack of communication and the absence of an IR team — has not changed the situation much.
A good development we have seen lately is that at a lower managerial level there are some very good people that are trying to push their CFOs or CEOs to approve budgets to conduct IR efforts.
Ultimately, the problem is that IR is associated with “transparency” only, which is not exactly the most popular word in this region.
4. You mentioned that there is change at the lower levels of companies. Is this a generational issue?
I can’t answer this question for sure as we haven’t done a formal study, but my feeling is that yes, young qualified people are working in the communication or IR departments of a number of listed companies in the region. They face the same challenge: to convince the CFO and the management to invest in IR. They are educated about the importance of IR and they would like to be able to implement what they know, and to show their management what can be achieved with better IR.
5. Is IR in the Middle East more focused on attracting international investors or local ones?
This has to do with the market regulations and company internal statutes. As you might know, stock markets in this region allow only a certain percentage of foreign ownership. On top of that, some companies have additional limitations based on their “government shareholding,” “family shareholding” etc. In many cases, that means there is little space for foreign investors to step in. Of course, this does not apply for several large companies with a more open approach.
For these reasons, there is much more interest in handling domestic, or regional IR communication than internationally. I would also add that compared to other regions, private investors and family offices play a much more important role, and this should be taken into account when developing an IR strategy.
6. How does the Internet feature as a communications channel, or is business communication and IR largely conducted offline?
IR websites are one of the few tools in IR where some listed companies have invested. And I do mean some listed companies. It’s not the majority, or even 25% of them. There are good providers in the region, including of course the main global agencies. Some companies manage to keep their shareholders updated though email campaigns, and a few have regular updates and newsletters. In general when we asked companies why they don’t use internet communication more often they refer to the lack of time and personnel. And I can’t blame them, we are talking about mid- to large-caps with 1 or 2 staff taking care of everything, and not only IR in the strict sense, but also communication and events related to that.
The majority of private investors still prefer to contact the company only by phone or fax, and the use of text messages is an existing practice in this region.
7. Are their opportunities for international companies to attract institutional and smaller investors in the region?
Yes, there are very interesting opportunities. In general, though, there is a misperception of what an international company can achieve in this region in terms of attracting institutional or smaller investors.
We have organized several roadshows for listed companies coming from Europe, and we always inform our clients in advance of what they should expect when coming here. The big institutional names, like Mubadala and the sovereign wealth funds, follow a precise mandate and strict investment rules, which means that only in a few specific cases it is worthwhile visiting them. The sovereign funds and some institutional investors usually make available their investment guidelines — or at least they communicate the most important parts of them – and so the first step for a CFO or an IR professional is to be well informed about the funds’ investment rules. Some regional institutional investors have offices in London and so it’s not critical to visit them here. Sovereign wealth funds and institutional investors are only for a few companies, and a for a few “projects.”
Talking about family offices, or private investors, it is a completely different approach: the potential is very interesting and the presence in the region through roadshows — and even better with a local representative — is very important.
Companies should not think they can visit the Middle-East once and go back with 2 or 3 new institutional investors in their shareholding. It takes a long time and a lot of effort to develop local relationships and establish trust. The first meeting is to know each other, the second meeting is to show commitment, and starting from the 3rd meeting you talk business.
And last, but very important, there is much more interest in the region when we come with a “deal”, or at least with a broker that has, or can collect, a block of shares, instead of simply promoting the stock on the secondary market. It’s common after a meeting with an investor where the CFO has presented the company, to hear the question: “Ok, I got it, now what do you have to sell?”
8. As you look to the future, what do you see as the biggest challenges that you face?
Our biggest challenges:
- Make top management of listed companies understand what IR is really about, why they should have good IR practices in place ,and why IR is one of the best investments a listed company can ever make (and get them to find the budget).
- Convince our clients that even if we are not such a big name, we provide exactly what they need, in a professional and timely manner, and with reasonable costs. At the end, we are the only company in the UAE offering IR consulting, and most probably the only one in all the GCC countries.
- Explain to our clients the difference between the role of a Broker, a PR agency and an IR consultant, and underline that financial PR is not IR.
IR Web Report thanks Manuel for his time and for sharing his insights.