Asia specific: the crisis in Hong Kong
Any notions that the Asian market might escape the worldwide economic crisis have long been discredited. In Hong Kong and China, as elsewhere, firms have felt the catastrophic fallout from a collapse in global demand.
Despite this calamity, however, investor relations practitioners in the region seem infinitely more sanguine about the future than many of their contemporaries in the West. In fact, the more conservative approach favored by many Asian firms is making them increasingly appealing to investors, especially those in the US who are looking to diversify away from domestic equities.
Footwear manufacturer Stella International was listed on the Hong Kong Stock Exchange in July 2007. Since then, CFO Don Lee and his team have gone to great lengths to win over investors. Slick videos with enough shopping bags to keep the most seasoned shopaholic content are all part of the proposition.
In contrast to these images of western conspicuous consumption, however, is the traditional Asian identity of the firm and its strong family influence. The three founders of the company remain in senior management and the firm is 45 percent family-owned.
‘We spend a lot of time explaining the business model,’ Lee says. ‘We are one of the few corporations where the independent board has real influence.’
The firm’s prospects have been hurt by the rapid nosedive in US consumer spending, but the company hopes its growing presence in the domestic Chinese market and the outsourcing of designer label fashion shoes will help to offset this in the short term.
With a population well in excess of 1 bn, food is undeniably big business in the PRC, and food processing firm China Agri boasts an enviable position as one of the largest companies of its kind on the mainland.
Like many Chinese firms, China Agri is a listed subsidiary of a large and diverse parent company. COFCO, its state-owned parent, has five other listed company subsidiaries that cover a range of sectors including agricultural trading and processing, branded food products, biochemicals, wine, real estate, tourism, finance and retail.
Recent studies have focused on the implications of the state-owned model for corporate governance, including the difficulty of scrutinizing related-party transactions between subsidiaries and their parents. Andy Li, vice president of China Agri, says the problem is not widespread, however.
‘Some Chinese firms don’t have a clear division between parent and subsidiary and this can make life difficult for investors, but that is not a problem for us,’ he explains. The firm has won several accolades for its corporate governance since it listed in Hong Kong in March 2007.
China Agri has tried to emulate the structure and management style of US technology and services firm General Electric, Li adds: ‘We have a solid management team in place and we attach special importance to independent non-executive directors.’
The management has invested heavily in the company’s website, but Li concedes there is still more to do. ‘Too often, companies cut costs when it comes to investor relations,’ he says. ‘People just see it as a cost center, so they don’t invest adequately.’
Li has a range of responsibilities at China Agri, including IR, financial controller and company secretary functions, and is committed to pushing for higher standards in IR. He also sits on the Chamber of Hong Kong Listed Companies as chairman of its investor relations committee. ‘Around 80 percent of our institutional shareholders come from Hong Kong, so a lot of time is spent there, but we also visit Singapore on a regular basis,’ he explains.
Like many companies, China Agri has seen high levels of volatility in its share price, due in part to seismic fluctuations in agricultural commodities. The company is hoping measures taken by the Chinese government – such as raising subsidies for agricultural production – will help to promote growth in the longer term.
Pacific Basin Shipping
The team at Pacific Basin has had a roller-coaster ride over the past two years, seeing its share price drop from a high point of more than HK$18 ($2.32) in November 2007 to HK$2.70 in October 2008.
Like many shipping firms, Pacific Basin is affected by the trade of raw materials into China – and when demand collapsed, the share price dived. ‘Dry-bulk shipping is a cyclical industry so we’d been putting money on our balance sheet for some time,’ explains CFO Andrew Broomhead. ‘Unfortunately, the downturn has proved to be rather bigger than we expected.’
The company has at least benefited from some balance sheet bolstering. It issued a convertible bond in December, managed an equity placement in May 2008 and 2009 – which raised $275 mn and $98 mn respectively – and sold some of its fleet to raise $700 mn in 2007 and 2008.
‘We aren’t faring that badly compared with the other dry-bulk shipping firms – many of them are down 70 percent to 90 percent since the market peaked in 2007,’ Broomhead points out. ‘The main challenge now is that people really don’t like complexity anymore. We are finding it’s even more essential to get the message out clearly.’
The British market is home to the lion’s share of international shareholders, with more than 20 percent compared with around 15 percent in the US. Like many Asian firms, however, Pacific Basin makes use of the plentiful supply of investor conferences in the region to make contact with current and prospective investors.
Broomhead, a former accountant, estimates that the team had more than 900 meetings with investors and analysts over the past year, with around half of the meetings taking place outside of Hong Kong.
Pacific Basin’s corporate communications and investor relations manager, Emily Lau, spends a lot of time with the analyst community. ‘We have investors from all over the world and we have 23 active analysts covering us at present,’ she points out.
Pacific Basin – unlike many of its listed peers in Hong Kong – has a large free float of 96 percent, which makes it more characteristic of its western counterparts.