African Investor Relations

The CEO breakfast on investor relations (IR) management, hosted by AIC on 15 September 2009, discussed some of the grey areas that still persist in Kenya’s regulatory environment with regard to online IR management, and whether this indicates a shift in the approach towards investor protection.

In a bullish market, one-on-one meetings between listed companies and their larger investors were well accepted by listed companies and created meaningful interaction. In the current bear market, however, many listed companies have begun to show apathy towards their investors, finds Gregory Waweru, an analyst with Kestrel Capital stockbrokers, warning that in a sluggish market, the communication of strategy becomes even more important. If costs are a concern in the current environment, then online mechanisms offer an affordable alternative. But so far, websites are not picking up the slack either.

Most companies in East Africa have not yet fully explored the potential of online communications. If, a few years ago, the lack of access to the internet had been a powerful restraint, this excuse is rapidly falling away: The first of several fibre optic cable ventures has become operational, and internet access will expand exponentially. The largest growth in access will be through handsets as the purchase of computers will still be out of many people’s reach, but digital means of communications will certainly reach a much broader audience.

Cost savings were a driving factor in how Safaricom, a key player in the mobile and data business, prepared for their first AGM: Safaricom have made extensive use of recent legal changes that allow the use of electronic means of communications, e.g. providing their annual report in a digital version rather than printing and dispatching paper copies for every single one of the more than 800,000 shareholders. The large number of retail investors may be a logistical headache for Safaricom, but digital means make it a lot easier to deal with this group of shareholders that has previously often been neglected for sheer cost reasons.

Transition in the Legal Framework

The US Securities Exchange Commission (SEC) has only allowed electronic means of communications with shareholders in 1995. But today, they are the standard, and hard copies of information have to be explicitly requested. In the UK, it is the opposite: Shareholder consent is required for the delivery of electronic communications.

In Kenya, electronic communications have not yet become mainstream in IR management, and the regulatory environment reflects this transition: Kenya’s Companies Act requires notices to be given to shareholders ‘in writing’. At first glance, this seems straightforward, but it does not actually define what qualifies as ‘writing’, i.e. it lacks clarity whether electronic means of communication are admissible. Amyn Mussa, a partner in law firm Anjarwalla and Khanna, also suggests that lawmakers need to look at the concept of ‘deemed delivery’ again, i.e. the question when it can be reasonably assumed that a shareholder has received the information sent by the listed company. The new draft Companies Bill, in contrast, is clearer: When information is e.g. posted on a company’s website, this is considered ‘deemed delivery’. This is, of course, much easier for the listed company – but may lead to a dilution of shareholder rights.

Perspectives

Rob Stangroom cautions that this new proposed legislation would imply a significant shift in the approach to shareholder protection: So far, the underlying principle is that the burden lies with the listed company to make sure – within reason, of course that the shareholder will receive the company notices. Under the new legislation, this burden would shift to the shareholder who would be expected to make an active effort to obtain information. This, he says, it not necessarily wrong: It may well be that the overall challenging infrastructure of reaching shareholders – unreliable postal services, high transport costs and so on – justify this shift. Safaricom’s approach would certainly suggest that the high costs of attempting to provide all shareholders with a hardcopy of the annual report would not necessarily be rewarded with commensurate success.

But it has its own risks: It is one of the fundamental principles of governance, Stangroom argues: The board need to give a reasonable return to shareholders for a given level of risk. In the Kenyan context, the question then arises whether costs savings resulting from simply expecting investors to find the necessary information will worth the possible risk – dilution of shareholder rights and possible litigation. More substantially, can a board adequately assess future risk in the face of such rapid technological changes in digital investor relations platforms? What would constitute significant savings today would no longer be expensive in a year or two. A board, he argues, should err on the side of caution.

Source: Ratio Magazine

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Legislation and regulation in most African capital markets are not as strict as those in other markets and therefore corporate liability not as high. Progressive investor relations practices are therefore not as prevalent. However, according to AIC, the rapidly growing Internet access across the continent and the fact that many investors in African equities are a global community, the potential to build a relationship and communications with investors online is enormous. AIC’s Online IR Awards reward the pioneers in this field.

Online investor relations practices comprise strategic management responsibilities that integrate finance, communication, marketing and securities law compliance to enable the most effective secure two-way communication between a company, the financial community, and other constituencies, which ultimately contributes to a company’s securities achieving fair valuation.

Category	:	Best Online IR Programme 2009
Winner	:	African Sun Limited
Key_criteria	:	Comprehensiveness of data published online Profile of website feedback Commercial returns from website feedback Timeliness of posting data online Diversity of media use Enhancement of the IR function
Comment	:	African Sun received our top prize for its balanced online IR programme implemented over the past year. African Sun’s www.africansuninvestor.com provided equal focus on investors as www.africansunhotels.co.za provided on customers. Their transparent investment thesis, comprehensive website data, a new CEO blog and strong business growth all contributed toward positive ratings. African Sun received excellent ratings for the timing and nature of feedback provided to the queries submitted online. The key aspect, however, that enabled African Sun to clinch the award was the commercial value of the feedback they received through www.africansuninvestor.com. A pity that their share price has yet to respond.
Category	:	Best Performance 2009
Winner	:	Econet Wireless Zimbabwe
Key criteria	:	Share price performance for the period under review
Comment	:	Econet Wireless has staged an unbelievable operational comeback less than a year since Zimbabwe’s hyper-hyper inflation forced the economy to re-start from ground zero through dollarisation. Throughout this period, Econet’s management could see the other side of the crisis and invested heavily in ensuring that when the US dollar replaced the local currency, they were in a strategic position to take advantage of it. This happened and continues to happen and the share price responded accordingly, recording the highest gain compared with other AIC clients for the period under review.
Category	:	Best Investor outreach 2009
Winner	:	Copperbelt Energy Corporation plc.
Key criteria	:	Geographic diversity of website traffic Number of unique website visitors Number of website page views Conversion ratio of visitors into registered InvestorPass™ visitors
Comment	:	CEC’s website analytics speaks for themselves: Amongst AIC’s clients, the company enjoyed the highest number of page views, the highest number of unique visitors, and highest number of visits from over 100 countries. Now that CEC has settled into its online IR programme following its launch in February 2009, tangible commercial benefits are starting to accrue through feedback to their website. CEC is a unique infrastructural public investment opportunity, which contributes to it being the radar screens of investors around the world.
Category	:	Best CEO blog 2009
Winner	:	Geoff Goss of Celsys Limited
Key criteria	:	Frequency and consistency of blog posts Blog content Insight and motivation in content
Comment	:	Geoff Goss has habitually provided an excellent blog to complement Celsys’ investor relations website on www.celsys.co.zw. His jovial views into the pain suffered by Zimbabwe managements over the past few years have been extraordinarily insightful. Yes, the CEO blog doesn’t exactly have millions of visitors every day, but the message we get from Geoff – and it’s a message that we give to all our clients is that every effort should be taken to inform shareholders through many different media. It only takes one investor to change the fortunes of a company and so the effort is worth it.
Category	:	Best IPO Online Investor Relations 2009
Winner	:	Telekom Networks Malawi Limited
Key criteria	:	Investor responsiveness before, during and after the IPO Website interactivity before, during and after the IPO Online prospectus
Comment	:	We only had one participant in this category, but there are some significantly unique aspects of this transaction that you will not have seen in any other African IPO. Firstly, regulatory approval was obtained to distribute the prospectus online with an application form. Secondly, the majority of TNM’s investment community was identified in InvestorPass at IPO stage. This secure two way communications platform has been key in merging corporate strategy (i.e. brand enhancement) with investor communications. TNM’s outreach measured by the number of countries visiting www.tnminvestor.com was AIC’s highest at 112.
AIC’s inaugural annual awards recognises the performance of AIC’s online investor relations clients during the previous calendar year.

Based on best investor relations practices, modified for African markets, African Is Cool (“AIC) uses corporate investor relations websites to create and grow an online investment community with which companies communicate, and from which they can receive feedback. The bigger the online community, the lower the costs of communication, the greater a company’s influence and the more efficient their communication.

Website feedback brings business deals, lowers the cost of doing business and gives listed companies the ability to modify corporate strategy. Because AIC’s services are unique they do not conflict with companies’ current financial reporting, IT, PR or marketing initiatives. In contrast, AIC services complement them.

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Our portal of African annual reports www.africanfinancials.com recorded almost 5,000 visits from over 82 countries last month. Top of the visiting country list was Nigeria primarily viewing, you guessed it, Nigerian annual reports. The UK and South Africa came second and third respectively.

Africanfinancials.com is Africa’s largest online portal of freely viewable, sortable annual reports. Our portal offers a free service to African listed companies to scan their annual reports into PDF and publish them online. Our portal also attempts to assist investors in  sourcing annual reports from listed companies but this proves challenging given African listed companies’ low levels of  awareness of the level of investors’ needs for information.

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16% of Zimbabwe listed companies have working AND up to date websites. Of these less than half have comprehensive investment data on them – data that enables investors to make an informed investment decision. This is at a time when the demand for investment information is high. A time when trading costs on the ZSE have just fallen and more than 60% of the value of share trading on the ZSE is foreign. A time when there are no comprehensive data on listed companies, no automated news or regulatory information systems!

At the time when the economy is coming to its one year anniversary of adopting the US$ as its national currency. At a time when Econet Wireless <> has invested US$66m in optic fibre cabling in Harare and at a time when availability of the web in Zimbabwe is going to improve drastically after March 2010.

I correlated these statistics by looking at the news and investor relations sections of Zimbabwe listed company websites and any investment related data such as share prices etc. on 28 and 29 January 2010.

There appears to be opportunity here for a number of stakeholders in Zimbabwe’s capital markets. The technology exists to sort this out but the levels of awareness and skills possibly not. For a greater insight into Zimbabwean companies read their latest annual reports here.

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Ashley Bendell, Head of Sub Saharan Equities for Exotix in the USA, a leading UK based Frontier Emerging Market boutique, will be hosting the firm’s senior Sub-Saharan Equity Analyst, Christopher Hartland-Peel (a 20 year veteran of the African Capital Markets) for meetings in the USA (from February 1st to 5th 2010) across New York, Boston, Miami, and Washington D.C. Please feel free to contact Ashley directly and pass this information on to your peers.

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Pretend you are walking through a marketplace and you see a crowd of people around a great Wiseman. As you walk up to the crowd, you hear the Wiseman hold out something in his hands and exclaim, “Behold this magic box! Every 15 minutes, the box will reveal a prize for whomever is holding the box; sometimes a treasure, sometimes not. But until the 15 minutes have passed, only I can see the contents of the box.”

At that point, the great wise man opens the box, peers inside and exclaims, “It’s a diamond!” and hands the box to a man in the crowd. This begins a great fervor in the crowd and one person shouts, “I will pay you $100 for the box!” The man considers the offer and trades the box for $100. After a minute has passed, the wise man asks the man for the box, peeks inside and hands it back and as each minute passes, the wise man repeats his observation of the contents. You begin to get excited as well and say to yourself, “A diamond is worth much more than $100!” You ask the Wiseman, “What does the diamond look like? How big is it?” and the wise man replies, “I have made my statement and will speak no further until the 15 minutes are up.”

You count all of the money that you have in your pockets and shout to the man holding the box, “I will pay you $180 for the box!” The man thinks hard about your offer and eventually agrees. As you hold the hold in excited anticipation, you watch closely as the great wise man continues to check the contents every minute. Finally, the 15 minutes are over and wise man says, “You may now see the contents.” You open the box and are shocked to see that the box is filled with buffalo poop. The crowd lets out a disappointed gasp.

The wise man takes back the box and states again, “Behold this magic box! Every 15 minutes, the box will reveal a prize for whomever is holding the box; sometimes a treasure, sometimes not. But until the 15 minutes have passed, only I can see the contents of the box.” The wise man opens the box, peers inside and exclaims, “It’s a diamond!” and hands the box back to you. The crowd begins dispersing, convinced the wise man is actually a charlatan. You are now sad and broke so you ask the few remaining if anyone would like to buy the box. After a period of silence, one man says, “I will give you 25 cents for the box.” Having no other choice, you take the quarter and walk away.

As the years pass, when you are in the marketplace, you occasionally see the Wiseman with his box. Once you heard that someone actually did get a diamond, but no one has ever paid $180 for the box again. Your only consolation is to warn everyone you meet to not get tricked into playing the wise man’s game.

Thanks to Troy Ussery of B2i Technologies for this anecdote.

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On Dec. 16, 2009, the Securities and Exchange Commission approved rules to enhance the information provided to shareholders so they are better able to evaluate the leadership of public companies.

Beginning in the upcoming annual reporting and proxy season, the new rules will improve corporate disclosure regarding risk, compensation and corporate governance matters when voting decisions are made.

“Good corporate governance is a system in which those who manage a company – that is, officers and directors – are effectively held accountable for their decisions and performance. But accountability is impossible without transparency,” said SEC Chairman Mary L. Schapiro. “By adopting these rules, we will improve the disclosure around risk, compensation, and corporate governance, thereby increasing accountability and directly benefiting investors.”

In particular, the new rules require disclosures in proxy and information statements about:

• The relationship of a company’s compensation policies and practices to risk management.
• The background and qualifications of directors and nominees.
• Legal actions involving a company’s executive officers, directors and nominees.
• The consideration of diversity in the process by which candidates for director are considered for nomination.
• Board leadership structure and the board’s role in risk oversight.
• Stock and option awards to company executives and directors.
• Potential conflicts of interests of compensation consultants.

The new rules, which will be effective Feb. 28, 2010, also require quicker reporting of shareholder voting results.

Specifically, the Commission’s approved rules will:

Require Disclosure of a Company’s Compensation Policies and Practices as They Relate to the Company’s Risk Management:

The SEC approved a rule that would help investors determine whether a company has incentivized excessive or inappropriate risk-taking by employees. Among other things, it would require a narrative disclosure about the company’s compensation policies and practices for all employees, not just executive officers, if the compensation policies and practices create risks that are reasonably likely to have a material adverse effect on the company. Smaller reporting companies will not be required to provide the new disclosure.

Enhance Information About Directors and Nominees:

The SEC approved new rules to improve information about directors and nominees for director. The new requirements include for each director and director nominee, disclosure of:

• The particular experience, qualifications, attributes or skills that led the company’s board to conclude that the person should serve as a director of the company.
• Any directorships at public companies and registered investment companies that each director and director nominee held at any time during the past five years.
• Legal proceedings, such as SEC securities fraud enforcement actions against the director or nominee, going back 10 years, instead of the current 5 years, as well as an expanded list of legal proceedings covered by the rule.

Disclose How Diversity Is Considered in the Director Nomination Process:

The SEC approved a rule that would require disclosure of whether, and if so how, a nominating committee considers diversity in identifying nominees for director.

If the nominating committee or the board has a policy with regard to the consideration of diversity in identifying director nominees, the final rules require disclosure of how this policy is implemented and how the nominating committee or the board assesses the effectiveness of its policy.

Provide Information About Board Leadership Structure and the Board’s Role in Risk Oversight:

The SEC approved rules relating to board leadership structure and the board’s role in risk oversight. The rules require disclosure about:

• A company’s board leadership structure, including whether the company has combined or separated the chief executive officer and chairman position, and why the company believes its structure is the most appropriate for the company at the time of the filing.
• In certain circumstances, whether and why a company has a lead independent director and the specific role of such director.
• The extent of the board’s role in the risk oversight of the company.

Require Quicker Reporting of Voting Results:

The SEC approved amendments to Form 8-K that would require companies to disclose the results of a shareholder vote within four business days after the end of the meeting at which the vote was held. This replaces the requirement to disclose voting results in Forms 10-K and 10-Q, which often are filed months after the relevant meeting.

Revise the Summary Compensation Table:

The SEC approved revisions to the reporting of stock and option awards in the Summary Compensation Table and the Director Compensation Table to better reflect the compensation committees’ decisions with regard to these awards.

• The amended rule requires companies to report the value of options when they are awarded to executives (the aggregate grant date fair value), instead of the current requirement to report the annual accounting charge.
• A special instruction addresses performance based awards to address concerns that the new rule might discourage use of these awards.

Enhance Disclosure About Compensation Consultants:

The SEC approved rules requiring disclosure about the fees paid to compensation consultants and their affiliates in certain circumstances. This is intended to provide investors with information to help them better assess the potential conflicts of interest a compensation consultant may have in recommending executive compensation. The final rules are consistent with the rule proposal, but include exceptions for circumstances that should not raise the potential conflicts of interest. (Press Rel. 2009-268)

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During 2009 the SEC released Compliance and Disclosure Interpretations regarding Regulation Fair Disclosure (Reg.FD). The following post is a direct lift from the SEC website but we have deleted some immaterial narrative.

Whilst the stringent laws of Sarbanes Oxley may not apply to African markets insights into US best practice are a useful way of growing awareness of regulatory and governance standards within your company. Our philosophy as an online IR consultancy is to promote excellence in disclosure and communication and this will be rewarded in many ways.

Excellence cannot be pursued unless CEO’s and Chairpersons are well informed and this article should provide some insight into the good and the bad about how the law and regulation in the USA affects the life of senior managements of listed companies.

Question: Can an issuer ever confirm selectively a forecast it has previously made to the public without triggering the rule’s public reporting requirements?

Answer: Yes. In assessing the materiality of an issuer’s confirmation of its own forecast, the issuer should consider whether the confirmation conveys any information above and beyond the original forecast and whether that additional information is itself material. That may depend on, among other things, the amount of time that has elapsed between the original forecast and the confirmation (or the amount of time elapsed since the last public confirmation, if applicable). For example, a confirmation of expected quarterly earnings made near the end of a quarter might convey information about how the issuer actually performed. In that respect, the inference a reasonable investor may draw from such a confirmation may differ significantly from the inference he or she may have drawn from the original forecast early in the quarter. The materiality of a confirmation also may depend on, among other things, intervening events. For example, if it is clear that the issuer’s forecast is highly dependent on a particular customer and the customer subsequently announces that it is ceasing operations, a confirmation by the issuer of a prior forecast may be material.

We note that a statement by an issuer that it has “not changed,” or that it is “still comfortable with,” a prior forecast is no different than a confirmation of a prior forecast. Moreover, under certain circumstances, an issuer’s reference to a prior forecast may imply that the issuer is confirming the forecast. If, when asked about a prior forecast, the issuer does not want to confirm it, the issuer may simply wish to say “no comment.” If an issuer wishes to refer back to the prior estimate without implicitly confirming it, the issuer should make clear that the prior estimate was as of the date it was given and is not being updated as of the time of the subsequent statement. [Aug. 14, 2009]

Question: Does Regulation FD create a duty to update?

Answer: No. Regulation FD does not change existing law with respect to any duty to update. [Aug. 14, 2009]

Question: Can an issuer ever review and comment on an analyst’s model privately without triggering Regulation FD’s disclosure requirements?

Answer: Yes. It depends on whether, in so doing, the issuer communicates material nonpublic information. For example, an issuer ordinarily would not be conveying material nonpublic information if it corrected historical facts that were a matter of public record. An issuer also would not be conveying such information if it shared seemingly inconsequential data which, pieced together with public information by a skilled analyst with knowledge of the issuer and the industry, helps form a mosaic that reveals material nonpublic information. It would not violate Regulation FD to reveal this type of data even if, when added to the analyst’s own fund of knowledge, it is used to construct his or her ultimate judgments about the issuer. An issuer may not, however, use the discussion of an analyst’s model as a vehicle for selectively communicating — either expressly or in code — material nonpublic information. [Aug. 14, 2009]

Question: May an issuer provide material nonpublic information to analysts as long as the analysts expressly agree to maintain confidentiality until the information is public?

Answer: Yes. [Aug. 14, 2009]

Question: If an issuer gets an agreement to maintain material nonpublic information in confidence, must it also get the additional statement that the recipient agrees not to trade on the information in order to rely on the exclusion in Rule 100(b)(2)(ii) of Regulation FD?

Answer: No. An express agreement to maintain the information in confidence is sufficient. If a recipient of material nonpublic information subject to such a confidentiality agreement trades or advises others to trade, he or she could face insider trading liability. [Aug. 14, 2009]

Question: If an issuer wishes to rely on the confidentiality agreement exclusion of Regulation FD, is it sufficient to get an acknowledgment that the recipient of the material nonpublic information will not use the information in violation of the federal securities laws?

Answer: No. The recipient must expressly agree to keep the information confidential. [Aug. 14, 2009]

Question: Must road show materials in connection with a registered public offering be disclosed under Regulation FD?

Answer: Any disclosure made “in connection with” a registered public offering of the type excluded from Regulation FD is not subject to Regulation FD. That includes road shows in those offerings. All other road shows are subject to Regulation FD in the absence of another applicable exclusion from Regulation FD. For example, a disclosure in a road show in an unregistered offering is subject to Regulation FD. Also, a disclosure in a road show made while the issuer is not in registration and is not otherwise engaged in a securities offering is subject to Regulation FD. If, however, those who receive road show information expressly agree to keep the material nonpublic information confidential, disclosure to them is not subject to Regulation FD. [Aug. 14, 2009]

Question: A publicly traded company has decided to conduct a private placement of shares and then subsequently register the resale by those shareholders on a Form S-3 registration statement. The company and its investment bankers conduct mini-road shows over a three-day period during the private placement. Does the resale registration statement filed after completion of the private placement affect whether disclosure at the road shows is covered by Regulation FD?

Answer: No. The road shows are made in connection with an offering by the issuer that is not registered (i.e., the private placement), regardless of whether a registration statement is later filed for an offering by those who purchased in the private placement. [Aug. 14, 2009]

Question: Can an issuer disclose material nonpublic information to its employees (who may also be shareholders) without making public disclosure of the information?

Answer: Yes. Rule 100(b)(1) states that Regulation FD applies to disclosures made to “any person outside the issuer.” Regulation FD does not apply to communications of confidential information to employees of the issuer. An issuer’s officers, directors, and other employees are subject to duties of trust and confidence and face insider trading liability if they trade or tip. [Aug. 14, 2009]

Question: If an issuer has a policy that limits which senior officials are authorized to speak to persons enumerated in Rule 100(b)(1)(i) – (b)(1)(iv), will disclosures by senior officials not authorized to speak under the policy be subject to Regulation FD?

Answer: No. Selective disclosures of material nonpublic information by senior officials not authorized to speak to enumerated persons are made in breach of a duty of trust or confidence to the issuer and are not covered by Regulation FD. Such disclosures may, however, trigger liability under existing insider trading law. [Aug. 14, 2009]

Question: If an issuer wants to make public disclosure of material nonpublic information under Regulation FD by means of a conference call, what information must the issuer provide in the notice and how far in advance should notice be given?

Answer: An adequate advance notice under Regulation FD must include the date, time, subject matter and call-in information for the conference call. Issuers also should consider the following non-exclusive factors in determining what constitutes adequate advance notice of a conference call:

Timing: Public notice should be provided a reasonable period of time ahead of the  conference call. For example, for a quarterly earnings announcement that the issuer makes on a regular basis, notice of several days would be reasonable. We recognize, however, that the period of notice may be shorter when unexpected events occur and the information is critical or time sensitive.

Availability: If a transcript or re-play of the conference call will be available after it has       occurred, for instance via the issuer’s website, we encourage issuers to indicate in the         notice how, and for how long, such a record will be available to the public. [Aug. 14, 2009]

Question: Could an Exchange Act filing other than a Form 8-K, such as a Form 10-Q or proxy statement, constitute public disclosure?

Answer: Yes. In general, including information in a document publicly filed on EDGAR with the SEC within the time frames that Regulation FD requires would satisfy the rule. In considering whether that disclosure is sufficient, however, companies must take care to bring the disclosure to the attention of readers of the document, must not bury the information, and must not make the disclosure in a piecemeal fashion throughout the filing. [Aug. 14, 2009]

Question: For purposes of Regulation FD, must an issuer wait some period of time after making a filing or furnishing a report on EDGAR that complies with the Exchange Act before making disclosure of the same information in a non-public meeting?

Answer: Prior to making disclosure of this information in a non-public meeting, the issuer need only confirm that the filing or furnished report has been accepted for filing on EDGAR and is publicly available on EDGAR. [Aug. 14, 2009]

Question: During a nonpublic meeting with analysts, an issuer’s CEO provides material nonpublic information on a subject she had not planned to cover. Although the CEO had not planned to disclose this information when she entered the meeting, after hearing the direction of the discussion, she decided to provide it, knowing that the information was material and nonpublic. Would this be considered an intentional disclosure that violated Regulation FD because no simultaneous public disclosure was made?

Answer: Yes. A disclosure is “intentional” under Rule 101(a) when the person making it either knows, or is reckless in not knowing, that the information he or she is communicating is both material and nonpublic. In this example, the CEO knew that the information was material and nonpublic, so the disclosure was intentional, even though she did not originally plan to make it. [Aug. 14, 2009]

Question: Can an issuer satisfy Regulation FD’s public disclosure requirement by disclosing material nonpublic information in a speech at a shareholder meeting open to the public? The meeting will not be covered by the press, or webcast or broadcast by any electronic means.

Answer: No. Under Rule 101(e), public disclosure of information required to be disclosed by Rule 100(a) can be made either by furnishing or filing with the Commission a Form 8-K disclosing that information, or by disseminating the information through another method or combination of methods of disclosure “that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public.” A meeting that is open to the public but not otherwise webcast or broadcast by any electronic means is not a method of disclosure “reasonably designed to provide broad, non-exclusionary distribution of the information to the public.” [Aug. 14, 2009]

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Introduction

We had hoped to post this blog earlier but we had to wait for the presentations that subsequently never arrived. So it’s late and we never got the presentations. This is for an event that will probably be the single most important market development initiative for the ZSE.

The Zimbabwean SEC held a conference at Pandhari Lodge on 11 November 2009 to discuss the implementation of a central securities depository. It was interesting to see vendors of various systems strut their stuff. On one end there were the big boys of CSD systems, STRATE and on the other side Collen Tapfumaneyi, a Zimbabwean. A modern day David versus Goliath scenario appears to be evolving here. Collen knows the ins-and-outs of the transfer and settlement business not only in Zimbabwe but another half a dozen countries in Africa.  His contention is that a solution should be grown locally. I kind of agree. Its like having one of those huge V8 General Motors 4X4 trucks in Africa – yes its cool but it guzzles gas, you can’t get spares and its more than you need. Lets go with a basic Toyota Hilux, its mileage is 456,000 and we made most of the parts ourselves. OK its not the best analogy but I am sure you get my gist.

I have previously covered the problems encountered in using Big Boys’ software in Africa <link>. Key CSD problems experienced when smaller markets are involved with big systems are insufficient cash or skills, insufficient market structures. The current initiative in Zimbabwe is no different. It has significant challenges. There is no financially sustainable business model that can be provided by the bigger vendors in the absence of critical mass of listed companies and liquidity to pay for it.

So lets propose the following:-

• Go with the local solution as it acknowledges the absence of finance – this will force all the players to gather round
• Identify and mitigate every big risk arising from this approach
• Get everyone involved so the solution is truly market-wide
• Then in 10 years or 15 years consider a STRATE system or the like when Zimbabwe’s GDP has recovered to its levels in the 1990s.

We have presented the key highlights below in bullet form. It’s all the good stuff. There’s a bit of competition in the process to discover an appropriate system for Zimbabwe. This is healthy. But there’s no cash to pay for it. This is unhealthy. And listed companies aren’t being consulted. Again, unhealthy.

Our comments on a few basics:-

• In order to get the word out and for people to consider seriously the impact of a CSD, full information should be provided. In other words, the SEC should submit the presentations of the speakers as promised. That way interested parties (like us) can present a balanced view to those that might pay for it one day: investors and listed companies.
• Importing external software may not be justifiable in the absence of a holistic business model. It is absolutely necessary to have a sustainable business structure.
• Many vendors offered funding to the SEC should their systems be chosen. What about in 10 years time?
• Collen Tapfumaneyi provided key practical insights into the core key issues that highlight what the key CSD factors are in a country like Zimbabwe. We like this approach. Everyone treats local markets from a top-down perspective rather than bottom-up i.e. what does the market need?

Key highlights of the presenters

Opening remarks – Willia Bonyongwe, SEC Chairperson

The SEC was established in September 2008, primary objectives:

• Encourage and promote full disclosure
• Regulate brokers, transfer secretaries, asset managers, the ZSE e.t.c.
• Contain systematic risk in the equity markets
• Create an enabling environment for the capital market to operate efficiently
• Promote provision of required investor information.
• Ensure investor protection
• Pioneer and advocate for the commodities exchange

Lamented the manual trading on the ZSE yet is the second largest market in the SADC region

(No e-copy of the opening remarks available)

Creating an enabling legislature – Charles Selemani

• Regulation compliance is best practice
• Move from certificated certificates to book-entry CSD to achieve investor protection through elimination of fraudulent certificates, duplicates e.t.c.
• Need to harmonise the Companies Act and the Securities Act
• The two pieces of legislature contradict themselves to some extent, e.g.:
• Section 99 of Co.s Act states that there should be an instrument of transfer before effecting trade, while
• Section 70 of the Securities Act states that no instrument of transfer is required for trade to take place. Just book-entries will suffice.
• Argues that there was no need to have a new Act altogether, but amending the Companies Act to cater for electronic trading would have been enough
• Ownership of the CSD can be a combination of several players, e.g. Gvt., major banks, the ZSE and the SEC
• Legislature states that issuers can issue either certificated or un-certificated securities, but to trade the securities, they must be dematerialised first.
• Also a shareholder cannot vote at the AGM unless his/her name appears in the CSD system at least 48 hrs before the AGM commences – loopholes/cost to shareholders if the CSD or the brokers are inefficient.
• Securities Act does not render commissioners immune from liability, but it provides for the immunity of the CSD staff – commissioners may not take risky decisions

(E-copy of the presentation to be emailed to us by the SEC on Friday, 13 Nov 2009 – this was not done)

Current trading and settlement platform – Murray-Lynton Edwards

• Dwelled on the basics of the three main branches of securities trading:
• Trading – open cry system
• Scrip – manual
• Settlement – T+7

(No e-copy on this section provided. None requested)

User of CSD in Kenya – Rose Mambo

• CSD was implemented in 2004
• In 2007, electronic trading was introduced
• In 2009, bond electronic trading was introduced
• Worried about the investor protection
• They don’t have the investor protection fund as we have in Zimbabwe, but
• They have a Guarantee Fund to guarantee settlement
• 2010 to implement settlement caps, where the max value of trades by any broker should not exceed the value of LCs deposited by the broker with the Settlement Guarantor
• 3 brokers closed for trading securities belonging to clients
• There was a lot of investor and issuer resistance to use the CSD for quite some time
• Now about 50% of the securities are in CSD
• Trying to integrate the use of the CSD system into the region (Tanzania, Uganda e.t.c.) to enable free trade of cross-listed securities
• Engaged by Rwanda to help and manage the Rwandan CSD
• CSD being managed by MIT
• MIT was bought by the London Stock Exchange
• Spoke at length about the challenges they faced throughout the project phases
• Most of the interesting information was tabulated stats which are available in the presentation – a long one.

(E-copy of the presentation to be emailed by the SEC on Friday, 13 Nov 09 – this was not received a pity)

Strate, SA – Anthony van Eden

• Now considered among the top 5% best CSDs in the world
• Proposed to finance the project should they the SEC opt for them
• Highlighted on the lengthy walk to being where they are – the presentation shed more light

(E-copy of the presentation to be emailed by the SEC on Friday, 13 Nov 09 – this was not received)

Role of the transfer secretaries – Collen Tapfumaneyi, Corpserve

• Proposed the establishment of an independent CSD company
• Highlighted the need for stakeholder engagement
• Indicated that the transfer secretaries do have some in-house software which can serve the purposes intended by the CSD
• Highlighted that the systems might not be perfect, but they are the starting point, then do a Gap Analysis to determine what else is missing but required, so that they can be upgraded to meet the local needs
• Feared that the human capital might not be available to fully implement the CSD system in Zimbabwe
• Also indicated that the costs of doing this might outweigh the benefits in the interim if software is outsourced at such high costs
• Lamented the effectiveness of managing parallel runs, where CSD manage the uncertificated securities while transfer secretaries manage the certificated shares – creates loopholes for fraud and confusion

(E-copy of the presentation is available online view here)

Chartered System Integration – Sam Dimairho

• Only Microsoft accredited vendor of MS software in Zimbabwe
• Have done CSD jobs in several markets
• Proposed funding should they get the job.

In short, the CSD issue in Zimbabwe is a complex one. Good stakeholder communication and consensus building is required as is a healthy mix of long termism.

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My nine tips to increase your investor relations awareness are:

1. Join NIRI or the UK Investor Relations Society. Review their online resources and best practice notes.
2. Join linkedin.com and sign up to the biggest investor relations groups online. Track discussions and IR news.
3. Buy the Intelligent Investor by Benjamin Graham and read it from cover to cover.
4. Set up a free google alert for investor conferences and find out whether they serve your needs.
5. Sign up for the AIC online IR newsletter and blog but more importantly sign up for Dominic Jones’ IRwebreport alerts and blog.
6. Sign up to receive weekly SEC news alerts – there’s interesting information on how IR and your relationship with regulators should work. Just scroll through the hundreds of court cases and actions against professionals that have been naughty in the USA.
7. Read your corporate governance code and search for the words ”website”, “investor relations”, “Internet”, “online” and “communications”. Here is a link to the King Code on Corporate Governance III
8. Download a free RSS reader and set your RSS to cover the following websites Q4, Irwebreport, Agora.com, Africaniscool.com,AfricanIR.com and other IR resources.
9. Set up a free google alert to track IR awards and have a look at what the best companies in the World are doing under the various categories of awards.
10. Personally ask what investors would like to see more of in your company every time you meet them. Ensure that every investor request is attended to or at least reviewed by you.

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Since August 14, quoted companies at the Nigerian Stock Exchange have been battling with cleaning up the books of some of their infractions, which got some of their banking colleagues into troubles.

The Chief executives of some of these banks, about nine of them, are still paying for their sins one way or another. The great discovery made with the audit of the banks’ accounts is one the full stories may never be heard, but the little that was heard were enough to make the financial service regulators wake up from their slumber, during which they allowed the practice of “business as usual” to prevail in financial transactions.

But the story has since changed, and with the new policies on financial operations, operators have begun to appreciate the need for full disclosures, so that concerned parties can discover when things are going wrong on time, and possibly salvage the situation before it gets out of hand.

However, recognising that the battle is not yet won, the Central Bank of Nigeria, in conjunction with the Securities and Exchange Commission and the Ministry of Finance, all regulators of the financial services industry, are currently putting heads together on how to tighten the remaining loopholes that helped plunge the sector into crises thereby eroding public and investors confidence
in the capital market.

The
measures are expected to be made public in the next fortnight or so.

Commenting on the awaited measures, members of the Association of Stockbroking Houses of Nigeria, say this will further instill transparency in the financial system.

The association’s chairman, Ola Yussuff, who spoke to NEXT, said what the Central Bank aims to achieve with the Nigerian Stock Exchange (NSE) and the Securities and Exchange Commission (SEC) is “a good development that must be encouraged.”

Mr. Yussuff, who is also the chairman of Trust Yield Securities Limited, said he believes that the aim “is to improve on the existing requirements for all quoted companies at the Exchange and also increase the level of enforcing those requirements.”

Shunning responsibility

The chairman of the stockbroking association said every quoted company signed an undertaken with the NSE, which requires them to disclose information about themselves to the Exchange on a quarterly basis.

However, he said many companies have not been really complying with the agreement, while some are still struggling to meet the deadline given to them.

“We (market operators) need to tell those in authority to enforce requirements, and when they need to be strengthened, they should be strengthened,” Mr. Yussuff said.

Also confirming the legality of full disclosure, Oladele Odusanya, a member of the association and chief executive officer of Quantum Securities Limited, said account disclosure “is one of the main requirements of the Exchange for any company to be in the first tier market,” but many of the companies in this category do not obey the rule.

“That is why some companies get delisted from the Exchange when they continue to default,” he added.

Apart from failing to make quarterly disclosures, Mr. Odusanya noted that there are still many other ways companies hide information from the regulators. But he believes the CBN and other regulators can check these if they really wanted to.

Global change

As bad as it seems, financial impropriety is not restricted to the Nigerian economy alone, as the global financial crisis revealed that many issues needed to be reviewed. Analysts argue that there is the need for all corporate organisations to review bookkeeping methods in the light of the various developments in the economy, both locally and globally.

They added that policies, all over the world, are changing because development is occurring on a daily basis.

For the capital market to perform effectively this year, analysts said market requirements for must also be changed; because what companies are disclosing presently is relative to the requirement given to them in time past.

Mr. Yussuff said if any company thinks it has perfected its disclosure level, “it should think twice because things can happen tomorrow that will make such disclosure outdated.”

“No company can never at any time say it has gotten it all,” he said.

Central Bank’s promise

The CBN governor, Sanusi Lamido Sanusi, on Wednesday, said the bank is currently working on a number of guidelines to be issued in two weeks, to regulate information disclosure by quoted companies.

Mr. Sanusi said the bank was working with other regulators like the SEC and the NSE, “to prepare detailed information disclosure requirements for the banking sector and quoted companies to ensure that end of year figures to be published every December, are accompanied with enhanced information disclosures beyond the normal NSE requirements to help restore investors’ confidence.”

Broking firms also to disclose

Meanwhile, Daisy Ekineh, the acting director general of the SEC, recently directed stock broking firms to make full and immediate provisions for their capital adequacy, which should reflected in their latest accounts.

Ms. Ekineh also said that the commission conducted series of inspections on some categories of market operators to ensure transparency and accountability in the Market. She added that the scrutiny led to the suspension of a number of operators from market last year, while a few were referred to the Economic and Financial Crimes Commission.

“As a matter of fact, in the last 20 months, various enforcement actions including the suspension from participating in the capital market activities were taken against over 77 operators,” she said.

Source: Next.com

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In December we completed our first conference call for a client in Zambia Zambeef plc.com. Here are a few insights:-

• Having an identified online investment community to which to advertise the event had a significant positive impact in ensuring wide institutional investor participation.
• Our online conference call software identified who was on the line, who wanted to ask a question, who had disconnected. When time ran out management was able to identify those investors whose questions had not been asked and contacted them later.
• Over 25 emerging market institutions participated and over two thirds of them remained online for the duration of the one-hour call. Retail shareholders could listen to the conference call live through our online investor relations software.
• The quality of the telephone connection was exceptional irrespective of the country investor location.
• The event was held at 5pm Central African Time to cater for the USA and European and African markets.
• The level of appreciation of investors participating was very high.
• The event was broadcast live through an AIC investor relations website for all retail and other investors to hear and within 12 hours a written transcript of the event was available for download.
• The audio of the event is available on the client website

Lots can go wrong but did not! Small, somewhat apparently arbitrary things can ruin a professional presentation and conference call – experience in these events is vital and a well-prepped CEO is must.

In future, I suspect that there is scope for many companies in Africa to scale back direct investor interaction in favour of more transparent events such as a conference call. Yes this is to manage disclosure risk, but I see it as an opportunity for listed companies to excel in investor communications. Higher transparency, equality and all those good things….

Our experience and that of other IR professionals has been written up into a guideline for our clients and future clients. All-in-all the experience was an eye opener for all and I expect conference calls will grow into a key tool for listed companies to bridge the communications gap effectively.

John Legat, CEO of Imara Asset Management, a pan African fund manager said of the event:-

“I thought it was excellent and well organized. I hope that other African companies can follow in Zambeef’s footsteps. Amazingly my Zim line was not cut off half way through which was a result.”

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