An overview of developments in IR in Latin America, where classic market drivers and a handful of the biggest companies are slowly improving IR despite an absence of formal structure or recognition for the profession
Except for a handful of the biggest companies, investor relations is still in its infancy in Latin America. Only two countries in the region – Brazil and Mexico – have formed professional IR associations. Even in the absence of a formal IR structure, however, individual companies across the region are adapting to global best practice in order to attract investment. Classic market drivers are pushing Latin American IR development and creating the potential, over time, to spark its ascendance.
This field guide to Latin American investor relations focuses on Mexico, Venezuela, Brazil, Peru, Argentina and Chile. On the following pages, IROs, professional association executives and government officials offer their views on the shape and progress of the profession in the region.
The perception that there is a need for professionally managed IR has gained strength at Mexican companies only recently, according to Martha Velasco, executive director of the Asociación Mexicana de Relación con Inversionistas (AMERI), the Mexican IR association, which was launched in 2002.
‘One of the association’s objectives is to create forums that provide investors and public companies with a space conducive to conducting an exchange of ideas and achieving a better foundation for investments,’ Velasco says. The sixth of these forums, co-sponsored by AMERI and the Bolsa Mexicana de Valores, was held in Mexico City in May this year.
The Mexican market is still recovering from a series of shocks, including the 1994 peso crisis and recession. Velasco says uncertainty followed President Vicente Fox’s 2000 election, which ended 70 years of rule by the Institutional Revolutionary Party, but the market calmed down once it became clear Fox was not promoting any ‘radical rupture’ of the economy.
By 2003 the IPO pipeline had a new lease of life, and it has continued to grow – ‘though not yet with the speed we would like,’ Velasco adds.
With an eye to keeping up with global standards, AMERI is a member of the International Investor Relations Federation (IIRF). It also keeps a close eye on its neighbor to the north and draws lessons from events in the US. Velasco says the Enron debacle was a big force in getting Mexican companies to see the importance of adhering to strong standards of transparency.
The discussion of the investment climate in Venezuela starts and stops with Hugo Chavez. The fiery president is prone to pronouncements that chill the markets: in April he pledged to spend ‘whatever it cost’ to nationalize the cement industry, threatening foreign and domestic investors who own the assets. He’s since backed off a bit on his plan, but he’s torn a swath through other sectors like telecoms and oil, taking over companies for less than fair value in his drive toward socialism.
The increasing hostility between the US and Venezuela has generated plenty of fallout, although the two countries do make attempts to get along. They were negotiating a treaty to ‘protect and promote foreign investment’, but talks broke off. Venezuela has investor protection treaties with Argentina, Barbados, Chile, Colombia, Ecuador, Holland, Mexico, Portugal and Switzerland.
On paper, things look good. Venezuela’s Superintendency of Foreign Investments issued a decree in 1999 detailing the country’s general principles of protection for foreign investors from all countries, including those not covered under individually negotiated treaties. It promises international investments will be given ‘fair and equitable treatment’ and will not be subject to ‘arbitrary or discriminatory measures’. Still, international investors do not have unfettered access to all investment opportunities in the country. The same decree says that, by law, certain sectors ‘may be reserved for the state or Venezuelan investors’.
It’s clear from the extensive trilingual resources available on the website of Bovespa, the Brazilian stock exchange, that the country is actively courting international investors. There are currently no restrictions on the types of assets foreign institutional or individual investors are allowed to hold in Brazil. Brazil’s investor relations institute, IBRI, which is a member of the IIRF, has seen a 75 percent rise in its membership during the past two years. ‘Brazilian companies are competing for the attention of the world capital markets,’ says Geraldo Soares, IBRI’s executive president. To that end, he adds, companies are highly attuned to the importance of maintaining excellence in transparency, corporate governance, accountability and sustainability.
Soares, who is also head of IR for Banco Itaú, characterizes the Brazilian market as ‘extremely regulated and self-regulated’ and notes Bovespa’s special listing tiers for companies that choose to adhere to stricter governance standards. This model, established in 2002, ‘has been a great success,’ he says.
The greatest source of market volatility Brazil faces today is a consequence of the US credit crisis, according to Soares. ‘Foreign investors have played an important role in IPOs in the Brazilian capital markets over the past two years,’ he points out. ‘The US subprime market has taken the heat out of demand for Brazilian securities. I believe the recovery in the IPO market will begin in the second semester of this year.’
Peru proves the most impenetrable of the Latin markets. Information on its public companies is difficult to find, and regulators are unresponsive or bound by bureaucracy. Even requests for simple, factual information, such as a description of the process for listing and de-listing companies, went unanswered by the Comisión Nacional Supervisora de Empresas y Valores, the Peruvian counterpart to the SEC.
Information on the Bolsa de Valores de Lima website is available in Spanish only. An FAQ page confirms that foreign investors are permitted to invest, but explains that all transactions must be completed by a sociedad agente de bolsa, ‘the only market intermediary authorized... with effecting investors’ buy and sell orders’. Investors are required to buy stock in the seller’s choice of currency.
Argentina’s stock market operates on a small scale, says Pedro Insussarry, Telecom Argentina’s finance director. Total trading typically runs in the range of $30 mn to $40 mn a day. The country’s history of economic crises plays a key part in fostering the mentality that hampers market growth, Insussarry says. That history has left the country without a ‘culture of savings’ because ‘every now and then, Argentina falls into a crisis and you lose X percent of your portfolio’. For the same reasons, the IPO market in Argentina is at a virtual standstill.
Insussarry estimates that 80 percent to 90 percent of traded companies have controlling shareholders. Transparency standards may also look peculiar to international investors, but a recent transparency decree made efforts to push standards closer to those in the US. For example, the decree requires the establishment of audit committees on corporate boards.
Telecom Argentina is among the companies nudging IR forward. Insussarry oversees IR for the company, but he also has an IR manager, a position that’s becoming more common in the largest companies and those with the most liquid stocks. At smaller companies, the IR function is more likely to be folded into the CFO’s responsibilities.
A member of NIRI since 1996, Insussarry meets periodically with other IR officers on an informal basis. Those meetings have generated some talk about establishing a similar body in Argentina that would be scaled to that market’s parameters. For now, though, the meetings remain informal and there are no specific plans in place to create a more official organization.
Few Chilean companies trade in the US, and as a consequence, the country has not yet developed a large or sophisticated IR structure. Moreover, unlike their counterparts in Argentina, Chilean IROs have not even begun meeting informally and have no plans to form a professional association.
Chile’s IPO pipeline is not very active. There were only a handful of IPOs in the past year, and there aren’t any anticipated in the coming quarter. IPO risks are comparable to those in the US, however, because Chile has one of the region’s strongest and most stable economies.
Those companies that are courting foreign investment are moving to bring their individual IR practices in line with the expectations of investors abroad. For example, regulators require Chilean companies to report results on a quarterly basis. There are no regulations to mandate what information must be included in an earnings release, but some companies are moving toward a more sophisticated and thorough analysis that would satisfy an equity analyst’s demands.
There are other forces in the Chilean market encouraging increased vigilance with regard to transparency. In February, the Superintendencia de Valores y Seguros – Chile’s equivalent of the SEC, headed by Guillermo Larraín Ríos – instructed all publicly traded companies to produce a document that explains how they handle privileged information and how that information is disclosed to the public.
Facts and figures
The Bank of New York Mellon (BNY Mellon), Citigroup, Deutsche Bank and JPMorgan Chase, which run depositary receipt (DR) programs, are great resources for data and perspective on the state of IR globally. That is because part of their service involves helping their DR clients get their IR programs up to scratch.
BNY Mellon’s recent annual report, ‘Global trends in investor relations 2007’, looks at the resources, goals and priorities of the 170 DR issuers who responded to the survey. The facts it reports add some shape to the Latin American story.
For instance, Latin American IR departments have an average of 3.3 members on their teams compared with four in western Europe, 3.8 in the Asia-Pacific region and 3.2 in the Middle East. Forty five percent of Latin American IROs counsel the CFO daily on issues like sell-side analyst opinions, stock trading volume and competitive intelligence, compared with 52 percent of western European IROs and 30 percent of Middle Eastern IROs.
A quarter of Latin American IROs always attend executive meetings, 56 percent attend as needed, and 19 percent never do. These IR professionals also carry out about half of their investor meetings alone and half with senior management. Western European and Middle Eastern companies tilt more heavily toward meetings involving management.
Finally, 92 percent of Latin American CFOs participate in roadshows, a significantly greater participation rate than that of CFOs from any other region.