In April 2010, Africa Investor magazine, a premier provider of investment data, research, broadcast and published content to the investment community in sub-Saharan Africa, carried out a survey among leading companies and investor relations professionals on the continent, including Customs Street Advisors, to measure the level of transparency and information on shareholder identification across different countries. The results which are published in the May 2010 edition of the magazine show disparities across countries, with South Africa, the most advanced in terms of disclosure, and Nigeria and Ghana, lagging behind. The survey was coordinated by Catherine Wright.
Africa is playing catch-up in the transparency and business reporting stakes, but Catherine Wright finds in our regular investor relations survey that it will pay dividends.
In an ongoing look into the state of investor relations (IR) activity across the continent, Africa investor, in conjunction with IR Global League, presents the third in its series of bi-monthly surveys. Africa investor has surveyed some of the continent’s top companies and leading Africa analysts in our regular poll to ascertain the level of transparency in the African business climate. Although new reforms and regulations are being put into place across the continent, African countries are still perceived to rate poorly internationally in terms of transparency, a deterrent for investment.
Obi Onyeaso, managing director and founder of Customs Street Advisors, a Lagos-based investor relations advisory firm, explains that transparency is, at its base, a compliance function and that it is not an elective principle.
‘Once companies meet the required disclosure requirements of regulators and the national accounting body, they have scaled the bar,’ says Onyeaso. But is satisfactory transparency sufficient? ‘Companies can always do more,’ Onyeaso adds. ‘I believe that this is where companies that want to succeed in the Darwinian competition for capital, especially in frontier markets like sub- Saharan Africa, have an opportunity to pull ahead.’
Ratings
So just how does Africa rate in transparency? Do companies simply meet the requirements or do they go beyond them? We began our survey by asking the investor relations officers (IROs) what percentage of the shares in their company are publicly traded or free float.
The free float of a company is those of its shares that are available for trading, excluding shares held by strategic shareholders.
‘From an investor relations perspective, one cannot over-emphasise its significance. Free float is critical to liquidity, which in turn, impacts on the cost of capital, fair valuation and institutional holding of the shares,’ says Onyeaso.
Our survey revealed that 56% of the companies surveyed have 50% or more of their company’s shares available as free float, while over 30% of respondents have more than 80% available. Thus, these companies are under a fair amount of pressure to be as transparent as possible.
Vanessa Ingram and Marlize Keyter from Keyter Rech Investor Solutions, which provides investor and financial media relations services to companies listed on the main board and AltX of the JSE Limited, explain. ‘The more widely held the shares, especially where the shares are held by large institutional funds, the more pressure a company will experience to be as transparent as possible,’ says Keyter.
Ingram adds: ‘The more transparent a company, the easier it is to analyse and make forecasts and, in this way, they are rewarded with higher share prices and ratings.’ Our analyst panel was also asked what role ownership structure in a quoted stock plays in their investment strategy, and they emphasised its importance, saying that it was ‘definitely something to verify’.
Shareholder identification is vital in the establishment of a solid IR function. If a company is to communicate any information with their shareholders, whether good or bad, it is essential to know who the shareholders are.
Most of the companies surveyed obtain their shareholder information from registrars, such as Link Market Services or Computershare, while a third of respondents make use of market intelligence agencies, such as Thomson Reuters. Some of the companies also obtain their information from the stock exchanges, while less popular are the banks and IR consultants.
‘There are many reputable organisations that provide this service,’ says Ingram, ‘but it is also important for top management within a company to take these registers, once analysed, and understand them and check their validity with institutional fund managers on occasion.’
When asked how often they usually obtain this information, the majority of respondents receive this information, at most, four times a year. Although more often would be more effective, says Ingram, this is unrealistic, and Neil Ryder of IR Global League agrees: ‘The logistical nightmare to achieve it would be staggering.’ Most respondents also insist that, ideally, and in order to do their job properly, shareholding information needs to be no older than three months.
However, most respondents were generally satisfied with both the currency and comprehension of the information they receive.
Regulations
When asked if the shareholder disclosure regulations in their country do enough to ensure efficient communication between companies and their shareholders, most respondents believe that regulations are sufficient.
According to our analyst and investor panel, however, when asked how they rate the regulations on disclosure of share ownership in the African countries they cover, relative to major markets, the analysts rated major African markets such as Morocco, Tunisia, Kenya, Zimbabwe and Uganda, as simply ‘adequate’, while Nigeria and Ghana fare even worse, being rated as less than adequate or ‘inadequate’.
In response to whether they would like to see regulations that required institutions to publicly disclose all shareholdings every three months (as in USA), 47% of our IROs said yes.
Unfortunately, this suggests a level of complacency among Africa’s investor relations departments, says Ryder. He maintains that the US system is ‘rather weak’. The UK is the most transparent system in the world, he claims, and the fact that only 27% of respondents feel that institutions should privately disclose all shareholdings directly to the company whenever asked (as in the UK), is ‘disappointing’.
However, there is some light at the end of the tunnel as Africa’s biggest economies are putting regulations in place which will enable them to compare favourably with their international counterparts. Keyter is positive on South Africa. ‘We have seen a definite trend to disclose more rather than less,’ she says. ‘Between IFRS (International Financial Reporting Statements), the JSE Listings Requirements, the new Companies Act and King III Report on Corporate Governance, South Africa compares well with international disclosing requirements.’
Nigeria, too, has made much progress over the last ten years, explains Onyeaso, with both the Securities and Exchange Commission and Nigerian Stock Exchange having instituted a number of vital reforms in compliance, reporting and governance. But, he says, there is still a lot of work still to be done.
There is much room for improvement of the transparency within Africa’s business climate; with some exceptions, the level of transparency within Africa’s markets needs the benefit of stronger regulation, as well as less complacency on the part of the investor relations sector.
‘Companies need to stop viewing greater transparency as a burden,’ says Onyeaso. He argues that by striving to meet the same disclosure expectations set for their peers in more developed markets, companies will demonstrate their commitment to access and transparency.
Today, he says, the annual report and unaudited quarterly results are the barest minimum. ‘Companies must go beyond. Transparency for its own sake is invaluable,’ he says.
The original article that discusses the survey can be read here on the Africa Investor website.
One cannot help noticing how Niyi Meka Olowola, Oando's Head of Corp Comms, is nodding in approval. Maybe Goldman Sachs can learn lessons.04:47:49 PM January 25, 2012from HootSuite
It's at times like these companies praise heaven for media-savvy CEOs.Among Nigerian business leaders,Wale Tinubu, is easily among the best.04:46:01 PM January 25, 2012from HootSuite
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