Sunday 29, July 2018 by Banker Middle East

Staying on par with investment trends

 

Andrew Tarbuck, Chairman of Middle East Investor Relations Association, provides an exclusive insight into the current trends surrounding investor relations in the region.

How is investor relations function developing in the GCC?
Strategic investor engagement is increasingly gaining importance. In a region that boasts some of the highest mobile phone penetration rates in the world, it is not surprising that one of the key investor relations trends is to leverage the power of social media. While these communication channels are often seen as a support tool for listed companies in developed markets, we see an even higher relevance of the strategic use of social media in the Middle East.

With almost unlimited possibilities to convey information and create engagement, these tools are a very convenient and impactful way to communicate with investors and stakeholders. We at MEIRA believe that companies should embrace this trend as a new way to tell their corporate and equity story. And last but not least, showcase their ability to innovate and willingness to adopt new technologies, which is a big plus for every company.

The Middle East is also part of a global phenomenon where we are witnessing a growth in so-called ‘unicorns’ being start-ups with a value of over $1 billion. The region is home to highly successful private equity houses, high value family-owned private businesses and high net worth individuals operating through personal offices but is also the foundry for unicorns including some extremely high growth tech start-ups such as Careem and Noon. Investor relations is therefore increasingly relevant for private companies (either because they will eventually go public or they have a wide universe of stakeholders) as well as public companies, and so a future trend for investor relations in the GCC is adoption of investor relations best practices by private companies.

In terms of the academic development trend for investor relations in the region, I believe that there are three distinct stages: (i) talking about investor relations; (ii) understanding investor relations; and finally (iii) adopting investor relations. In terms of that development curve, I think that we are firmly into the second stage where there is a willingness from regulators, exchanges and corporates to dig deeper to understand IR and its benefits. This should hopefully lead to considerably more adoption of IR in the future, but there is still some way to go.

Talking of the regulators and exchanges, there is significant optimism around their willingness to promote investor relations best practices (and possibly make it mandatory for publicly listed companies in the future). This is as a result of government-led initiatives, particularly in Saudi Arabia and the UAE. Government-led pressure to improve economic diversification and develop capital markets can only be a positive outcome for the proliferation of investor relations best practice.

Looking ahead, I am a strong believer in the potential benefits of artificial intelligence which is poised to be unbelievably useful for shareholder analysis and investor targeting. It truly has the potential to change the way investor relations professionals work, not only in the GCC region but around the world.

What are the main concerns of both local and international investors in this respect?
It is great to be at the epicentre of the relevant changes happening in the region. While international investors would rarely have considered taking an interest in companies in the Middle East a decade ago, there is a considerable influx of inbound investments from outside the region. The largest international institutional investors are today interested in this part of the world, having discovered the huge potential that had long been hidden underneath an outdated capital markets infrastructure. The legal and regulatory architecture has changed considerably in several Middle East capital markets so as to, prima facie, allow foreign investors to participate in the local market (think of the Qualified foreign Investor regime in Saudi Arabia) but also to indirectly encourage foreign investor participation (think of the MSCI Emerging Markets status upgrades for the UAE, Saudi Arabia, Kuwait and Qatar). The most important principle for a well-functioning financial market that attracts investors is trust.

The process of creating this trust is lengthy and highly complex and involves many different market participants. First and foremost, a strong and stable legal and regulatory framework with a strong focus on transparency needs to be established, which is on a par with more developed markets. The increasing professionalism of the investor relations role was one of the other key drivers behind this development. It is safe to say, however, that challenges remain.

For example, public companies with low liquidity or demand for fresh capital tend to be less willing to understand the benefits of investor relations and lag behind when it comes to communicating with their investors and other key stakeholders. We cannot say it often enough: developing a comprehensive investor relations programme is essential for any listed company and can be of great benefit to larger private companies—not only to attract international investors, but to also improve the company’s investment proposition to local investors when the competition for capital is fierce. Our country chapters are offering many different, tailored initiatives to raise awareness of these opportunities and provide advice and support.

What are the challenges in adopting international best practice in this area?
MEIRA was formed in 2008. At that time, only very few listed companies in the Middle East knew about or understood the value of investor relations. Ten years later, we are seeing a large increase in the number of listed companies that are setting up effective investor relations departments, led by the UAE and Saudi Arabia. However, some countries are still struggling to push through the necessary capital market reforms. Local stock exchanges and regulators make the effort to not only set the stage through new regulations, but also encourage listed companies to comply with international best practice in investor relations.

For this to happen, it is crucial that both a company’s board and management are fully supportive of the role that the investor relations officer has to play. However, a feature of this region is that there is still a large number of listed companies which are managed by their founders and majority owned by extended families. It is challenging to convince them of the value of good investor relations as they are often concerned about ceding a measure of control over the business, no longer being seen as the voice or face of the business or unwilling to volunteer too much information than is required as a matter of law or regulation.

At the same time, however, there is an increased demand in the region to train young professionals in investor relations. The next generation of leaders in the Middle East is likely to think and act very differently, as we are witnessing in Saudi Arabia, and we are happy to play a role in helping the region overcome this challenge.
How more can the market improve on its investor relations capabilities? 

Investors and stakeholders play a major role in the growth of any company; therefore, it is important for a company to maintain strong and transparent relationships with them—building trust is key. Despite the progress we have observed in the last decade, it is not uncommon in this region to have employees from finance, marketing or communications manage a company’s relationships with investors and analysts.

I maintain that the creation of dedicated investor relations departments is one of the most significant improvements the markets can aim for in the near future. In addition, the local stock exchanges and regulators in the region are playing a major role in developing specific rules and regulations to improve the corporate governance standards in their respective markets. However, these new regulations need to be enforced to see actual results, and this is currently still a weak point in the region.

What initiatives and strategies does MEIRA for the year?
Since its foundation, MEIRA has grown significantly and now has a well-established presence in majority of countries across the Middle East region. We are proud to count some of the largest and most well-known listed companies in the Middle East among our members, and we work closely with exchanges and regulators to achieve our common goal of improved transparency and efficiency of regional capital markets. For any regional company, joining us is an indication that it recognises the importance of sound investor relations, transparency and communications practices.

By offering tailored seminars and education programmes, we help them pioneer initiatives in their respective market, which contribute to the overall improvement of regional markets. In response to an increased demand for training courses, we are continuously expanding our offering in this field. For example, MEIRA has recently collaborated with the Institute of Finance in Saudi Arabia to deliver the first-ever three-day course in international best practice in investor relations in the Kingdom. Equally important is the fact that our association connects people.

MEIRA forms the largest network of investor relations experts and associated professionals in the region, being able to exchange knowledge and meet likeminded individuals at our events is a big advantage by itself.