Creation of an investor brand

BY EDDIE RAZAK


Businesses depend on customers. Hence, it is important to have a corporate name that synchronises with a consumer brand to make the company recognisable both as a product and a business. For instance, listed company Proton Holdings Bhd carries the same brand identity as its products.

On the other hand, some companies do not have the same corporate brand as the products it carries. Take Axiata Group Bhd, formerly known as TM International Bhd. It is currently undergoing a major rebranding exercise to profile itself as a growth company and thus, different from its former entity as part of Telekom Malaysia Bhd. The new Axiata brand does not represent any product that the group supplies.

Axiata has stakes in a number of operating companies in 10 different countries. Each company has a number of brands for the various products and services it offers. Although fragmented, there is a substantial measure of brand equity under different brand names held by the various companies, manifested in the 90 million customers the group has.

The question then arises: is it worthwhile for an investment holding company to promote its own corporate brand, which is not identifiable with any of its consumer products?

Some may argue that, rather than create a new brand for the holding company, it would make more sense to develop the consumer brands under the operating companies, as the latter is where customers can subscribe for services or buy products. After all, the holding company does not have any direct customers.

However, if the holding company is a public-listed company, like Axiata, it does have “customers” of a different kind. They are the members of the investment and financial community comprising shareholders, retail investors, research analysts, portfolio managers, private equity managers, institutional fund managers, bond market investors and intermediaries, and bankers. In addition, there are the financial media, ratings agencies and market commentators, operating locally or internationally.

In such cases, there is merit in an investment holding company choosing to develop an investor brand targeted at the investment and financial community, as opposed to a consumer brand.

A strong investor brand increases the options that a listed holding company has and its success rate in raising funds through equity or debt. The capital obtained can be channeled to the operating companies to support the specific expansion strategies and growth plans in the various consumer markets. The holding company will be able to optimise its capital base to support the group’s total operations.

The operating companies themselves may raise funds, supported by a strong parent company. In Axiata's case, a few of its operating companies are listed on the stock exchanges of their respective countries.

Axiata has already undergone a massive fundraising exercise with its recent RM5.25 billion rights issue. Although it may seem that its rebranding is directly linked to the rights issue, this was not the case as the rights issue exercise was initiated before the new corporate identity was unveiled. The rights issue was completed successfully due largely to the strong support given by Axiata’s major shareholders.

Fundraising is only one of a number of reasons for Axiata’s rebranding. What it is looking at are the long-term benefits of positioning itself as an innovator and leader in mobile telecommunications, focusing specifically on the burgeoning Asia market.

Much of the group’s business is in high-growth emerging markets covering a substantial geographical footprint, where there is relatively low penetration of mobile telecommunications subscription. Therefore, there are tremendous opportunities that can be exploited through the collective strengths and synergies within the group.

Although there may be inherent volatility in the mobile telecommunications industry and specific challenges in the operating environment in the different countries, Axiata’s investor brand aims to communicate the group’s long-term prospects to the investment and financial community. However, for the investors to better understand the investment merits of the group, the rebranding exercise will have to be accompanied by heightened levels of corporate disclosure, management guidance and investor engagement. The investor brand has to go beyond the visual, psychological and symbolic aspects of the corporate brand.

Axiata’s efforts in communicating its investor brand may not yield immediate results, but in time, market participants will come to understand the investment value proposition that the new brand stands for. One of its desired goals is to see that, in the long run, there will be a higher level of confidence and acceptance of Axiata among investors inside and outside of Malaysia. Also, its long-term objective is to form a broader base of shareholders, command a premium on its share price and have access to lower cost funding in the future.

As it is, the operating companies are retaining their own brands, but they have begun adopting the Axiata icon in their own logos. It is possible that a strong corporate brand may eventually become a consumer brand, which will be entrenched in the minds of both investors and consumers as representing a certain quality and aspiration. Meanwhile, Axiata’s corporate rebranding exercise is a purposeful endeavour and the first step in the right direction towards creating a compelling investor brand.


This article was published in The Edge Malaysia on 7 July 2009.

Getting on the right side of shareholders

BY EDDIE RAZAK


Since the outbreak of the financial crisis in the US, we have witnessed numerous global financial institutions needing to raise funds to shore up their capital base as they write down the toxic assets in their books. Those financial institutions that do not get bailouts from their governments have no choice but to turn to their shareholders for cash injection.

The systemic spread of the financial crisis has caused a credit crunch globally. Businesses are finding it difficult to get funding, as banks pull back on lending. Of late, not only financial institutions but also companies in other sectors have resorted to raising funds through their shareholders.

Suddenly we see many public listed companies competing to obtain capital from their shareholders through rights issues. More companies now see the importance of their shareholders and are hastily ramping up their investor communication to get shareholder buy-in.

The success of any rights issue is very much dependent on whether the listed company has substantial support from its shareholders and how strong its major shareholders are.

For instance, in the case of Malayan Banking Bhd’s (Maybank) proposed RM6 billion rights issue, Permodalan Nasional Bhd and its subsidiaries, which collectively hold a 55.7% stake, have undertaken to subscribe for their entitlements in full and apply for an excess allocation of 20% of the issue. Together with the Employees Provident Fund’s (EPF) undertaking to subscribe for its 13.7% entitlement, Maybank has effectively secured significant support from its substantial shareholders, with 89.4% of the rights issue taken up.

Similarly, in the case of TM International Bhd’s (soon to be known as Axiata) proposed RM5.25 billion rights issue, Khazanah Nasional Bhd has provided an undertaking to subscribe for its 44.5% entitlement plus another 20%, should the minority shareholders renounce their entitlements. Assuming the EPF and Skim Amanah Saham Bumiputera (with 16% and 8.5% stakes respectively) are willing to pick up their entitlements, TMI would secure an 89% take up of its rights issue.

Across the Causeway, Singapore-listed Chartered Semiconductor Manufacturing, which plans to raise US$300 million through its rights issue, has received an undertaking from its 59.4% owner, Temasek Holdings to subscribe for up to 90% of the issue.

With the backing of major shareholders who have the resources to support the rights issue, the exercise is sure to succeed, regardless of negative market commentaries, adverse analyst calls or declining share prices and in spite of any dissenting voices among the minority shareholders.

In contrast, if a listed company has a fragmented shareholding or if its shareholders do not have deep pockets, it will have a harder time with its rights issue.

First, the company will face an uphill task to convince its shareholders at the emergency general meeting (EGM) to approve the rights issue resolution.

Shareholders, who may have become accustomed to receiving constant dividends from the company, now have to consider the prospect of their stake being diluted if they choose to renounce their rights entitlement. Obviously, shareholders will thoroughly examine the rationale for the cash call.

Are the proceeds from the rights issue to be used to repair the balance sheet due to depleting shareholders’ funds arising from mounting losses? Did the continuous erosion of cash resources require additional working capital to be injected? Did mismanagement of the capital structure lead to a possible cross-default of debt covenants, necessitating a cash injection to pare down debt and improve the gearing ratio?

Whatever the reasons, the company now recognises that there is a lot to explain in terms of scenario and strategy in campaigning for support of its rights issue.

Second, even if the listed company garners enough proxy votes at the EGM to pass the rights issue resolution, it still does not mean the shareholders will dutifully put their money on the table.

If they cannot visualise the prospects for the company post-cash call, they are likely to walk away rather than invest further despite being offered a hefty discount on the rights issue price. Smaller shareholders who would rather conserve their cash in this economic downturn would be hard-pressed to fork out money to supplement their stake in the company. Moreover, there are many buying opportunities available at bargain-basement prices in today’s market.

Third, the rights issue exercise may fail altogether if there is insufficient shareholder interest or if there is a massive selldown and the share price falls below the rights issue price. This would not only derail the company’s recovery plan, but also further damage its reputation and confidence in its prospects.

Hence, if the listed company has had consistent investor communication over the years, it would probably be much easier to gain the support of its shareholders. Assuming that its long-term outlook is indeed favourable, if it had been vigilant in maintaining investor communication, the company would find its efforts paying off when it comes to fundraising exercises. The listed company’s investment in investor relations may not be explicitly reflected in its accounting books, but its invisible benefits begin to emerge once the company’s cash call receives the right response from shareholders.


This article was published in The Edge Malaysia on 6 April 2009.