Looking ahead to the IR Magazine India Conference
What a time for IR magazine to come to India. Indeed, what a time for investor relations to come to India. In 2005 Indian companies raised more than $17 bn on overseas markets, a jump of 88 percent over 2004, according to Barclays Capital. Included in that figure was more than $4 bn raised through American depositary receipts (ADRs) and global depositary receipts (GDRs). And while Asia’s convertible bond market drooped in 2005, India’s foreign currency convertible bonds almost tripled in number to 61 from 22
in 2004.
Mergers and acquisitions were also buzzing: 2005 saw a total of 467 M&A and private equity deals amounting to $18.2 bn, up 48 percent from 2004, according to business consultant Grant Thornton. Cross-border deals numbering 192 accounted for $9.5 bn of the deal flow.
As if companies weren’t busy enough, they spent the year feverishly preparing for Clause 49, a set of corporate governance rules from the Securities and Exchange Board of India (Sebi) that went into effect on December 31, 2005. Around 15,000 new independent directors were needed to meet Clause 49’s board independence requirements and firms had to get ready for mandatory risk assessments and certification by the CEO/CFO of the effectiveness of internal accounting controls.
With all this as a backdrop to the inaugural IR Magazine India Conference on February 23 at the Bombay Stock Exchange, one query stands out: where’s the investor relations?
Two camps
Mike Hughes, global head of product management for depositary receipts at Deutsche Bank, sees Indian companies split into two camps: US-listed and non-US-listed. Those with ADRs listed on Nasdaq and the NYSE have US-style investor relations, as do some of the GDR issuers listed in London and Luxembourg. ‘But the vast majority of offerings are done for specific capital market reasons, and to date IR hasn’t played a significant role in most of these,’ Hughes says.
The reason for IR’s neglect is clear – and understandable. Unlike their peers in other emerging markets, Indian companies haven’t had to fight for international capital because international investors have been fighting to invest in Indian companies. ‘There is a healthy demand for Indian paper so corporates don’t have to push their equity story as hard as a western European firm might,’ Hughes explains. ‘There’s good awareness of the market as a growth economy.’
That state of complacency is due to change, however, as the Indian market rapidly matures. The goal for Indian companies with a growing overseas investor base is ‘continuous visibility,’ says Sameer Shah, Deutsche Bank’s Asia-Pacific head of depositary receipts. The idea is to reduce the ‘concentration risk’ of having a firm’s shares held by just a handful of investors, which reduces liquidity and potentially increases volatility.
To date, IR in India has mostly been the preserve of top-rank companies like ICICI Bank, Gujarat Ambuja Cements, Bajaj Auto and, of course, Infosys, which has won best IR by an Indian company at the IR Magazine Asia Awards since the awards’ inception. Hughes notes, however, that as the market matures, smaller firms also need to communicate with investors on an ongoing basis. ‘This conference is happening at the right time,’ he asserts. ‘There is a need to raise awareness of IR.’
IR active
Laks Meyyappan is senior vice president at Computershare, deputy CEO of Japan Shareholder Services and director of Karvy Computershare. He estimates that just 20 percent of Indian listed firms are ‘IR active’, mainly because so many companies here are still family-owned. Also, the unwinding of cross-shareholdings has not happened in India the way it did in other markets, like Japan.
Meyyappan agrees IR is set to take off in India. In preparation for this, Karvy Computershare will launch a new IR division within months. ‘Foreign institutions demand information on a quarterly basis – and not just results but also long-term plans,’ explains Meyyappan. ‘They have lots of new questions, so it’s time for Indian firms to get proactive with IR.’
Part of the challenge is identifying exactly who is buying their securities. Indian companies know who their Indian beneficial shareholders are, but the same transparency doesn’t exist for US, European or Japanese investors. Meyyappan says the need for foreign ownership data arose with the crop of IT companies, like Infosys, that listed
in the US in the late 1990s. That’s when the phrase investor relations came to India, Meyyappan says.
Karvy Computershare will run one of the panel sessions at IR magazine’s conference this month. Several of the firm’s largest clients will answer a series of questions with a particular focus on the new breed of activist investors in the US and Europe.
Luxembourg-bound
A South African lion has roared on Wall Street but the NYSE has yet to host an Indian elephant, and the most popular new home for Indian issuers in 2005 was the Luxembourg Stock Exchange. More than 24 Indian companies raised over $1.1 bn on the European bourse last year, beating the NYSE, Nasdaq and the London Stock Exchange (LSE).
The preponderance of GDRs over ADRs may be partly a response to the Sarbanes-Oxley Act. ‘Sox has scared some companies away,’ Meyyappan admits. But companies like ICICI Bank, Wipro or Infosys have easily met or exceeded Sox requirements.
Now it’s the turn of other Indian companies. ‘Clause 49 should strengthen overall standards of corporate governance and probably lead companies to follow a more structured IR strategy going forward,’ Shah says. ‘India’s capital market is one of the most mature among the emerging markets, and the regulators are constantly ensuring that there are sufficient checks and balances in place as India endeavors to retain its spot as a top investment destination.’
Will the fast pace of overseas capital raising in 2005 continue in 2006? ‘The pipeline is still very healthy,’ Hughes affirms. In fact, there are more listing options than ever. Last year London’s Professional Securities Market (PSM) and Luxembourg’s Euro MTF opened the way for foreign companies to list GDRs without restating their information under international financial reporting standards (IFRS). PSM’s first listing in October was an Indian company, Electrosteel Castings. In December Great Eastern Energy also took a new route when it became the first purely Indian company to list on London’s Alternative Investment Market (Aim).
The big story by the end of 2005 was that foreign shareholders now own almost a third of corporate India through various investment vehicles, but the consensus seems to be that all this new capital is very welcome. After all, it’s contributing to India’s growth. And let’s put it in perspective: as TN Ninan recently pointed out in the Business Standard, the total foreign shareholding in Indian firms is now about $150 bn, of which about $40 bn is linked to corporate control. That’s about the same value as India’s 300 mn cows.