01 September 2008

Retaining shareholder loyalty in times of uncertainty

Companies need shareholder support to continue their business evolution. Shareholder support is critical for capital raising exercises, both for take-up and cost of capital reasons. Loyal, cornerstone shareholders should be treated as key stakeholders in the company’s business. They are entitled to be kept informed despite challenging times.

During market downturns, shareholders may opt to hold the company’s shares rather than cut loose, whilst alternative investment opportunities begin to diminish. To retain loyal shareholders, companies should have an IR calendar – a timetable of disclosure & engagement, throughout the year. Companies that don’t have an IR calendar should start one.

Stick to the IR calendar

Assuming that the company has put into place an IR programme and has scheduled a timetable for addressing the investment community, it should stick to the calendar no matter whether times are good or bad.

Even when results are less than impressive, companies need to be transparent and explain the conditions that it is facing. Investors already invested will spend more time to diagnose the company. They may choose to hold its shares, or stay on the sidelines. But more importantly they have understood its business.

There are many companies in the US and Europe who diligently stick to the IR calendar in spite of bad times. Such companies will be the first out of the gate with capital raising activities when the economy picks up again.

Invest in information

Companies should invest in information during a downturn, that pays off when the market recovers. This means that the company allocates resources for putting together corporate information, in a coherent, comprehensive way and disseminating it consistently to investors. Investors may take a wait and see approach with information it receives, but as soon as they see an positive turn in the market, the company’s shares will be the among the first gainers.

As soon as business picks up again the company may want to initiate a capital raising exercise. For instance, the company may want to issue placement shares, rights issue or issue debt instruments. If the company has kept investors informed even during a downturn, it will have a better chance of success in the take-up rate of its capital raising exercise.

On the other hand, companies that only begin communicating when the market picks up, may find that it takes a longer time and more effort to convince investors. Even so, it may not get the right response from the market. It may face insufficient underwriting commitments, or may have to give in to more discounting or a higher placement fee or a higher coupon rate. This means that the cost of capital of the capital raising exercise has gone up.

Eventually when the market fully recovers, opportunities of gaining investor support may have been foregone, in an increasingly competitive investment environment.

Some companies only communicate their investible proposition before a capital raising exercise but after the transaction is completed there is no follow through of information. Companies should continue to update investors regularly according to its IR calendar, especially on its performance and actions after a capital raising exercise.

Breadth of communication

Companies should make use of technology for disseminating information, by putting information online, making it accessible 24/7. This makes it easy for shareholders, analysts and investors to make timely investment decisions, at any time or from any timezone.

Besides an online presence, companies can make use of tele-conferencing for briefings to outstation and overseas analysts and investors, post its webcasts of analyst briefings on its website, collect analysts’ questions via e-mail and post management Q&A on the website. It can also put shareholders, analysts and prospective investors onto an e-mail alert list and automatically blast out alerts whenever the company has new announcements, news, or results release.

Eddie Razak
September 2008

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