30 June 2008

IR can build loyalty


Firms need to keep information flowing, even during difficult times

ENGAGEMENT and communication between listed companies, investors and shareholders should be an ongoing thing, especially in today’s challenging times.

Malaysian Investor Relations Association (MIRA) chief executive officer Eddie Razak stressed that companies cannot talk only when times are good.

“You have to keep the information flowing even during difficult times because this will encourage investors and shareholders to stay loyal to your stock.

“This will lead to price stability of the company's shares,” he told StarBiz.

In Malaysia, Eddie noted that many of the smaller companies see investor relations (IR) as transactional.

Companies need to take a long-term view and not only engage in IR activities when they have new projects, need investments or when business is good.

Eddie said by having good IR practices, a company would be able to attract investment capital – anytime capital is required for new projects for example – and at the lowest possible cost of capital.

“We have to let companies understand that good IR ultimately is about getting money,” he quipped.

In addition, Eddie pointed out good IR was crucial as more Malaysian companies were investing abroad in a big way.

“When these companies go abroad, they begin to seek investment capital from international sources, even issue American Depository Receipts and consider overseas listing.

“All these require greater levels of disclosure and transparency,” he said.

He stressed that the goal of IR was to get companies to voluntarily disclose quantitative and in-depth qualitative information that would help investors make “justified investment decisions”.

He feels there has been a lack of understanding of IR.

“We need to let companies and market participants understand what IR is, in order for them to see its value and purpose.

“The continual two-way interaction between companies and the investment community will allow investors to decide if the companies are worth investing in, thus allowing companies to attract investment capital and achieve a fair valuation of their shares,” he said.

Nevertheless, Eddie sees challenges that may hamper the progress of IR in the country.

Companies become reluctant to practice IR when the market is not responsive.

Structural impediments such as macro-economic conditions beyond the company's control and other competing markets pulling investment funds away make it difficult to induce companies to do IR as the desired results are not forthcoming.

Another factor that makes IR activities ineffective is that small companies are too small to be on the radar of big funds. Their shares also tend to be tightly held thus leading to lack of liquidity and market velocity.

“Family-controlled companies find it difficult to accept that investors and public shareholders have a right to the company's affairs,” Eddie said.

Nevertheless, he sees IR slowly but surely taking root among Malaysian companies as investors push for more information and better disclosure in their aim to make good investment decisions.

He is confident that IR would proliferate in Malaysia as had happened in the more developed countries.

“IR has been slow in happening in Malaysia but it is no doubt happening and MIRA aims to hasten and promote its proliferation. Investors' growing desire for information will push listed companies to do more IR.”

As part of its IR initiatives, MIRA and Bursa Malaysia will organise an investor briefing for institutional investors designed for small-cap and mid-cap listed companies in October at the KL Convention Centre. Concurrently, an exhibition targeted at the investing public will be held.

The association would be introducing the Certificate in IR examinations in association with an international examination body that would formalise the qualification standards of IR practitioners by year-end.

MIRA has also issued an IR manual and workbook to guide companies. It has also introduced an IR Incentive Programme.

Under the programme, an online IR portal is developed for participating companies, integrated with the company's own website.

It is free for two years – fully subsidised by the Capital Market Development Fund (CMDF) and limited to 100 listed companies that qualify. There are now 60 companies on this programme.

MIRA, which was established by Bursa Malaysia and funded by the CMDF, has over 200 public-listed companies, intermediaries and service providers.

This article appeared in The Star StarBiz on 30 June 2008.

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