Kenya: Investor Relations Management: Dealing with the Public

Wednesday, 20 May 2009

This section discusses how a still relatively inexperienced retail investor pubic often does not ask the right questions – and how listed companies' relations with the media have not always been easy. Kenya: Investor Relations Management: Practices in East Africa New Retail Investors Asking the Wrong Questions – and the Wrong People Investor relations as a specialised field is underdeveloped in East Africa partly because retail investment itself, whilst often enthusiastically embraced, is still a fairly recent phenomenon. In Kenya, large numbers of retail investors have entered the NSE over the last five years, with many arriving under the Kengen IPO in 2006. Companies have not made the effort to provide information to these masses and new investors often do not know what to ask for and who to ask for it from. No one paid much attention to this problem because the market was on a strong bull run throughout this period.   Inexperienced investors were able to make quick turnaround profits on a whim, but few of them understood how the markets actually worked – what the difference was, say, between the roles of a broker, a company, an investor, the NSE itself, the government or the CMA. “Investors came directly to us for share information, or to their broker – not to the company,” says Diana Gichaga, public relations and communications manager for the NSE. Gichaga says many investors still do not understand how company performance and investor behavior cause share price fluctuations - “they actually come here and ask, why is the price behaving this way?” That persistent lack of understanding - especially with the end of the bull run and the added influence of the global financial crisis - means NSE share prices have begun to fluctuate more erratically as casual investors move in and out of the market, often buying high when they see a share doing well and selling low in a panic, rather than focusing on long run returns.  Rob Stangroom, CEO of African Is Cool, an investor relations consulting firm based in South Africa, thinks it is the responsibility of the listed companies to ensure enough information is available: “When share prices are over-valued, companies should provide comprehensive information and earnings guidance. Similarly when prices are undervalued as is clearly the case in the current bear market, dissemination of the same information accentuating long-term value has the opposite effect. No or little disclosure and the market is forced to become more speculative. Perhaps the promotion by the NSE of shareholders associations is the first step in listed companies taking responsibility for managing perceptions.” Weaknesses in Capital Market Governance  Weaknesses in how Kenya’s capital market is regulated and managed also increase pressure on companies to improve their investor relations: When the Safaricom IPO came out to an incredible 532% oversubscription in 2008, the event was a joint PR/IR challenge. The hype around the first public listing of one of Kenya’s most successful companies was nearly impossible to control. The CMA required Safaricom to publish a prospectus with financial information, but few people read it, expecting that the Safaricom IPO would deliver the same windfall profits that the previous IPOs like Kengen’s had delivered. Brokers and banks played up the hype and offered individuals 100% financing to purchase shares.  Safaricom exercised little PR oversight because the offering was officially from the government that sold part of its shareholding, not the company. But Stangroom thinks the IR process could have been improved, faulting not the least the expensive advisors contracted by government to manage the IPO: “Key IPO information was not available online, the prospectus was reissued, and the company could have used a blog to disseminate information. International corporate advisory firms come to Africa to earn millions in fees, but do not have the insight in how to manage corporate image?”  Thousands of first-time investors entered the Safaricom sale with expectations of easy profits, and no idea how to manage their highly leveraged investments. When Safaricom’s stock price fell off, as many IPOs do, the situation imploded. Brokers went under, oversubscription refunds never came, investors panicked and the markets took the hit. But the Safaricom IPO merely helped to highlight existing weaknesses, as problems extend beyond the mobile operator’s case: The NSE introduced an automatic trading system in 2006, and remote trading in 2007, so turnover has shot up in a short period of time. Many of the brokers who trade on the new virtual floor have yet to establish the internal control frameworks necessary to handle all the fresh business. But because the NSE is still owned by the brokers and is not a first line regulator, when something goes wrong, there’s not much the exchange can do. A recent scuffle between the Central Depository & Settlement Corporation (CDSC) and the CMA over suspension of Equity Bank’s trading license following the Safaricom debacle demonstrates the lack of clear regulation and enforcement hierarchies that persist in the market. For investors, this confusion perpetuates misunderstanding of accountability channels and how the markets should work.  In such a market, companies need to learn to proactively fill these gaps and work with capital market institutions to provide investors with the information and clarification they need. Increasing communications support for retail investors will also help seasoned institutional, corporate and foreign investors by introducing some much needed stability to the NSE. Safaricom is plowing ahead on this front. The company wants to develop media relations, and improve its electronic distribution of information through email alerts and possibly SMS communication – and as a mobile network operator, the company is probably better placed than others to do so.  Investor Relations and the Media Even though internet access is growing rapidly, the internet is not yet a mainstream communications channel in East Africa, so media coverage remains an important element of investor relations. Unfortunately, listed companies are still learning how to relate with the media well. Their slow progress results from a combination of general suspicion towards information disclosure and weak journalistic practice in an region where journalists are still paid little, and often do not fully grasp the complexities of financial and business reporting.  Two things have brought significant changes to business journalism in East Africa:  The Aga Khan has poured a significant amount of money into his Nation Media Group, which has greatly improved production and editorial quality, especially at the Daily Nation in Kenya.  The introduction of Business Daily (also a Nation Media Group publication) as East Africa’s first daily financial paper has also introduced a new level of professionalism to the sub-sector. Editorial standards are improving and reporters have learned how to write about specialized business topics. In the online world, these official media are supplemented by a large variety of blogs and stock-market focused websites.  Most listed companies in East Africa employ public relations firms, but the communications channels are still confusing and often mishandled. A cold call from a journalist to a public company looking for press releases, annual reports, email alerts or other information may not be answered at all, or transferred to the wrong person. Queries are often never returned and questions about sensitive topics simply dodged. For listed companies, this is an opportunity lost as companies taking this seriously are able to differentiate themselves from their peers, argues Stangroom. One problem is that public relations firms in East Africa are not often versed in the true objectives of IR, even when they offer this service alongside traditional PR.  For seasoned business reporters, direct relations with companies and their executives are growing warmer as media integrity improves, investment in the sector grows, and listed companies begin to understand the importance of press coverage. This means that companies also need to be aware that they cannot provide material information to a select few without disclosing it widely and promptly to the broader investment community. Ultimately, however, this shift in attitudes needs to start with a formal corporate board level policy - without this, there is little motivation to keep up good practices. Kenya: Investor Relations Management: Perspectives We gratefully acknowledge the support of Rob Stangroom for this article. Working for the African arm of the former Robert Fleming investment banking group, Rob Stangroom established the Malawi Stock Exchange as the first registered stockbroker and Secretary to the Malawi Stock Exchange. He has subsequently acted as lead advisor in five successful IPOs in sub-saharan Africa and in 2006 established African Information Solutions for Companies Online Limited ("African Is Cool") a company established to use technology and international investor relations practices to ease the burden of strategic communications for listed companies in Africa. African Is Cool is actively involved in promoting transparency and investment into Africa through its free portals www.africanfinancials.com and www.africanshareholder.com. African is Cool has nine listed company clients in four countries and sponsors the Green Annual Reports Initiative (GARI) Share this article with others: Comments (0) Subscribe to this comment's feed Write comment Show/Hide comment form Name Email Title Comment smaller | bigger Subscribe via email (Registered users only) I have read and agree to the Terms of Usage. Add Comment