Thursday, September 27, 2007

The importance of Investor Relations

I have always wanted to write something on investor relations (IR) and how some companies have excellent IR while others simply do not know what it is ! Most shareholders may feel that IR is not necessary and may even use up valuable resources of the company (in order to maintain the headcount). This post will present my personal experience with IR and how it has benefitted me, as well as to outline the way IR works.

The concept of IR is that listed companies need to be public about all their activities, plans, corporate actions and strategies. Thus, the purpose of IR is to communicate important (and market-sensitive) information to the general public and shareholders in order to keep them informed of important developments surrounding the company. IR also gives shareholders a chance to engage Management directly through email or phone queries regarding various aspects of the company which they may feel curious about, or may wish to know more. This helps to enhance corporate governance and transparency as the flow of information means that there is no information assymetry; this also helps to reduce the probability of insider trading (but does not eliminate it completely).

A quick chat with a friend who works in an investor relation company revealed this: some companies use external IR companies such as OakTree Advisors (for Ezra) and August consulting (for Swiber). These companies employ staff such as my friend to type out announcements, compile financial reports and issue press releases. Most of the information is provided by the listed company and the staff of these external IR companies are given guidelines on how to phrase or structure the announcement. Amendments will then be made back and forth (similar to revising a draft) in order to come up with the final announcement, which will then be posted on SGXNet. The urgency of the announcement will determine when it is posted up; for example if it was a major contract win, then the news would probably be out within one working day.

Other companies do have their own in-house IR department to handle investor queries and help out with events such as organizing EGM, preparing the circulars, co-ordinating the share registers and even catering for the food ! Ezra is an example of a company with good corporate disclosure practices and an excellent internal IT department. I have personally emailed queries to Mr. Chan Eng Yew and Mr. Tan Tat Ming and they have always been polite, prompt and helpful in replying. I am impressed by the effort they put in in order to make sure shareholders are informed of any corporate developments and they also take a lot of time to explain things.

I had called several companies in the past before and suffice to say that IR seemed almost non-existent. One example is Amtek Engineering (soon to be delisted after being bought over). I had a lot of difficulty getting through to someone who knew what I was asking for: A hard copy of the company's Annual Report. I had called the main line and was forwarded all over the place before someone told me (in a slightly hurried, not-too-patient tone) that I could just download it from the SGX website. This attitude was a turn-off and I changed from being an interested investor to being a disinterested investor.

To summarize, a company with good IR also demonstrates good corporate practices and governance, and this can enhance the company's image in the eyes of retail and institutional investors. In turn, this boost in image will also come in handy should the company decide to raise funds through an equity placement. All-in, good IR is an indication of a well-run and transparent company (to me at least), and investors should also take this into account when deciding on whether to invest in a listed company.

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