Gulf firms must improve investor relations - analysts

TAKING STOCK:
Kuwait, home to the Arab world's second-largest bourse, has no financial regulator and its stock exchange has minimal disclosure rules.(Getty Images)

Gulf Arab companies are hampered in their ability to raise capital during the financial downturn by under-developed investor relations, experts said on Thursday.

Capital markets in the Gulf Arab region are still in their infancy and investors have long complained about lack of transparency.

"If (publicly listed) companies are actually interested in raising more capital or using that public equity to acquire other companies, then there are certain norms of behaviour in that type of market," Hasnain Malik, head of MENA investment research at Citi said at an industry event in Manama.

"If companies in this region want to use their share price for more than status, they have to get much more engaged in the machinery of that equity market," he said.

He said companies needed to improve their disclosure standards, publishing earnings more rapidly with more detail to enable equity analysts to judge them.

Few companies in the region hold analyst calls or preannounce the day they release their earnings, analysts said.

Kuwait, home to the Arab world's second-largest bourse, has no financial regulator and its stock exchange has minimal disclosure rules. "For a research house like ourselves, really it needs more than a two-page statement that shows the profit and loss and balance sheet," said Najla Al Shirawi, chief operating officer at Bahrain-based SICO investment bank. "We need notes to financial statements we need full disclosure."

She said because management takes time to respond to analyst inquiries, it can take up to three weeks after earnings are disclosed by a company before SICO can issue a research note.

"We would like to shorten that period to a few days only", she said.

Investor relations have been lacking despite vibrant Gulf stock markets as the oil price rose, a boom that ended last year. Most company shareholders are either state-affiliated entities or dominated by business families.

"When times are bad, you will find CEOs and CFOs concentrate on core shareholders, which are typically five or six families, and explain personally to them what the situation is," said Tijjay Majiyagbe, director at investor relations advisor Arindon. "So what the rest of the market thinks seems open to interpretation."

Now companies are eager to find out who their investors actually are in both equities and debt.

Majiyagbe said firms are trying to diversify their investor bases to balance regional and international investors.

"They are now building up investor relations to actually analyse and segment the investors. This is the first time that a world crisis directly affects the Middle Eastern financial community," he said.

With the initial public offering market in the Gulf Arab region lying largely idle, capital markets are increasingly turning to debt issues.

Debt issuance by corporates is expected to slowly pick up again during the second half of the year, after recent sovereign issues by Qatar and Abu Dhabi in the United Arab Emirates provided benchmark pricing.

"During the Qatari issue, one of the key common points flagged by investors was the need for more disclosure and greater transparency," said Mark Waters, Middle East head of debt capital markets at French lender BNP Paribas, one of the lead arrangers of the Qatari bond issue.

"As more and more GCC issues are tapping international debt markets, those two key issues will be paramount," he added.

Experts also said Gulf Arab companies remain wary of international investors after international banks suddenly pulled out funds from the region when the global financial crisis unfolded during the second half of 2008. (Reuters)

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