Observations of IR in Russia:
Evolving from the tactical to the strategic
In the decisions of would-be investors, perceptions can be as important as realities. Russian assets have long suffered from a sense of distrust by many foreign investors. Longstanding concerns about the rule of law and abuse of power drive this suspicion.
Investor Relations Advisory Services,
Yet against this backdrop, it is evident that Russian corporates are working hard to encourage investors to drop their instinctive aversion towards Russian risk and think more rationally, focusing on strategy and profits instead. As a result, the country’s investor relations profession is changing and experiencing burgeoning growth, while taking domestic market experiences into account.
The recent global credit crisis, and a broad flight to quality at the time, prompted demand for a new kind of IR in Russia. Companies were faced with the inability to raise new funds because the financial markets were essentially closed to many issuers. Given investor concerns about financial fundamentals, IROs turned their attention to questions about cash flow financial leverage, and the overall balance sheet. As investors’ aversion to risk dissipates and a new period of growth ambitions begins to play out, the theme for the years ahead is likely to be one of companies raising capital and a refocus on strategic targeting of investors.
Russian blue chips have, for some time, been aware of the notion that increased transparency aids valuation. However, as a consequence of recent experience, IR in Russia is developing from something thrust upon companies by regulators, investment banks and consultants, into something strategic and essential. No longer is the IR function restricting itself to a mold and insisting that investors fit into it. In my interactions with companies, I have sensed a genuine interest to foster a two-way flow of information with the financial community and to candidly address the hard questions. Also, effective action is now taken by many companies to move beyond their mandatory reporting framework to communicate detailed supplementary information about pockets of value within the business.
Problems still persist, though, not least a scarcity of qualified IR professionals and their often unclear duties within organisations. In addition, moving from company to company the Russian IRO often encounters different IR systems and responsibilities, or an unfamiliar reporting structure. Providing company management - and in some cases the board of directors - , with invaluable capital market insights and helping shape their thinking on growth and governance has become a strategic imperative for European and US IR professionals. Notwithstanding the problems their profession faces at home, the best IROs in Russia will distinguish themselves and elevate their vocation by leveraging their knowledge of the financial markets and putting it into forms and terms their management and boards can incorporate into strategic planning. Essentially, they will perform two complementary roles: one looking out, serving investors, and the other looking in, serving internal clients.
The opportunities for the IR profession in Russia are sizeable. The country’s attractiveness as an investment destination continues to improve, its domestic stock markets are relatively large and liquid, and the sellside is proliferating in Moscow. IR activity will likely be on the rise as the investment environment evolves and the number of publicly listed companies in Russia and the region increases. In the longer term, to be a truly valuable asset, the primary challenge facing local IROs will be to demonstrate a more strategic impact on the company and become accepted as part of the top management team.
Please leave your comments in
Getting started in investor relations
By David Yates, FinanceTalking.