by Chin-Lee Tan
Senior Account Director, PPR Singapore
As Asia's second largest-listed stockmarket, Singapore has attracted numerous mainland Chinese companies looking for investment capital to back their international expansion plans. A number of these companies - locally known as S-Chips - have faced financial and regulatory issues in recent months, mainly due to poor governance.
Now the remaining 100 or so Singapore-listed Chinese companies risk guilt by association. A loss of confidence among investors is difficult to handle at the best of times, but potentially disasterous in a tough economic climate.
So what can S-Chips do to better manage their reputation?
In my view, every S-chip needs to undertake a careful audit of activities and do some genuine soul searching to establish whether the company has complied fully with regulatory requirements for accurate and fair disclosure.
If the answer is yes, how can the facts of this compliance be effectively communicated to improve overall investor confidence? If no, how can lasting improvements be made - and what will it take to convince investors that the company sincerely intends to reform its approach?
Only by taking these steps can investor confidence in S-chips be mended and ultimately fully restored. Let me illustrate this point with two examples:
Telling the Story
For one such S-chip, the discovery of negative news came nine months after a successful IPO exercise. Senior executives noticed that investor interest in the company stock was declining despite a series of good financial results. They realized that simply meeting regulatory standards for disclosure was nolonger sufficient and that significant improvements were required to enhance communications with key investor groups.
As the retained IR consultant, I worked with the managment team to devise a fresh communications approach and reach out to the investor target audience. Among the first tasks was the reframing of key messages about the company as a listed entity in order to address the information needs of Singapore-based analysts and fund managers. This was particularly important because the company's operations and management team were located hundreds of miles away in China.
Recent cases of corporate governance failure have inevitably raised the bar on the quality of information that is demanded by investment analysts and fund managers to evaluate business efficiency. It is now essential to provide realistic and accurate responses on the management of the company and its business prospects. Senior executives must be prepared to deliver on these expectations. Working closely with the client, a detailed programme was developed to significantly improve communications.
Knocking on Doors
When the 2004 China Aviation Oil insider trading scandal caused investor sentiment to sink to a new low, another Singapore-listed China company took the opportunity to stand out from the crowd by and talking directly to analysts and fund managers. Together, we knocked on doors: going from one house to the next in order to obtain feedback and address any concerns.
Working with the company's Chinese directors, I was struck by their sincerity and determination. We resolved to address any scepticism within the shortest possible time. On one occasion we encountered doubts about the scale of the company’s operations and the directors responded by arranging for a detailed inventory of several hundred offices and factories to be prepared within twenty four hours. This document was then included as part of the company's standard credentials for future meetings.
The intensive effort was rewarded as various investor groups were gradually convinced of the company’s integrity and its commitment to meet the latest standards of governance and transparency. This success is reflected in the strength of investor confidence in the company’s stock today.
When the Chips are Down
As an investor relations consultant with nearly seven years experience, four of which have been spent working closely with S-Chip clients, I can confidently say that most mainland companies listed in Singapore will be able to manage this issue by following the advice outlined above.
The vast majority of S-Chips are well organized mainland businesses that choose to list in Singapore precisely because of its rigorous standards of corporate governance and disclosure. These companies want to adopt the best practise in order to improve management of their own business. In addition, they demonstrate a willingness to invest both time and effort to foster relations and to engage in two-way communications on an ongoing and sustainable basis with the investing community.
As communications professionals, we need to help ensure that this process is effectively carried out. Only then will investor confidence be fully restored.
