Financial Communications Attract Foreign Investments

Myron Wasylyk, Senior Vice President and Managing Director, The PBN Company
Oksana Monastyrska, Senior Account Manager, The PBN Company

October, 2003

Financial communications has become one of the most dynamically developing fields of modern Public Relations. New technologies have changed the nature of business, making it more open and accessible to the public. The Internet, for example, allows a company to contact a potential customer offering a wide array of services, including financial services, promptly and on a global scale. There is a direct relationship between corporate PR and financial PR.

Corporate PR is understood as forming and managing a company's reputation, while business/corporate reputation remains an illusion without the financial reliability and investment attractiveness of a company. As a rule, a company's corporate image consists of the following factors: meeting customer/client needs in terms of the quality of services and meeting investors' needs in terms of the management system and financial performance. It should be noted that corporate reputation is the foundation for the successful development of financial communications. The quality and related reputation of a company's services or goods are not separated from the corporate image by institutional and private investors, investment analysts and journalists.

Advice to the Ukrainian CEO

• Reputations are earned, not bought.
• Deal-driven or crisis-driven focus on reputation is costly & ineffective.
• Be as professional about managing your reputation as managing cash flow, growth and profits.
• The CEO's good reputation is essential to the company's good reputation.

Programs in the field of financial communications envisage developing a strategy, organizing and holding public informational and analytical events with a view to establishing and cultivating efficient links between the management of a company and its target audiences: both domestic (internal) and foreign (external).

Internal Target Audiences

• Shareholders (employees)
• Major shareholders (banks and others)
• Government
• Local authorities
• Investment funds
• Mass media

External Target Audiences

• Institutional investors, investment fund managers and financial analysts
• Investment banks and brokerage firms (financial analysts and brokers)
• Mass media (leading international financial and industry editions, international information agencies)

To successfully implement a financial communications program, it is essential that all target audiences obtain a sufficient amount of information about the company's activities. It is critical that the delivery of information to shareholders, investors, analysts, and specialized mass media remains specific in terms of the type of information. Moreover, large institutional investors may seem overwhelming to companies that have no previous experience working with them. Therefore, there is immense risk in spending the time and effort to build a relationship with a person who might not have the authority to make investment decisions. Lack of information simply prevents target audiences from evaluating economic benefits of suggested initiatives and sometimes gives rise to discontent that may lead a company into crisis.

The tasks usually encompassed by financial communications include the coverage of privatization processes, takeovers and mergers, restructuring, additional issuance of securities, clarification of legal initiatives which may relate to ownership structure or management of a company, corporate governance issues (i.e. shareholders' meetings, disputes between shareholders in respect to holdings of securities, preparation of annual reports, etc.). The combination of efforts of the company's management, legal advisors, auditors, financial consultants, and experts in the field of strategic communications is a prerequisite for the successful fulfillment of the aforesaid tasks. Obviously, all this activity should be carried out within the framework of a unified program.

The basic requirements for companies or experts involved in strategic communications are to present information in a timely and correct manner, track feedback, and adjust perceptions of key messages by target audiences. To this end, it is extremely important to gain insight into specific features of the client's business and into financial, economic, and legal aspects of its activities. Correctly choosing the form of communication between a company and a target audience will guarantee a positive outcome. For instance, it is more common for foreign investors to obtain information about the company from the Internet and to communicate via the Internet.

Any communications strategy or program begins with an analysis of the situation and a study of prevailing views. Clear answers to the following questions are indispensable: What is the amount of information about the company that is available to the target audiences? What do they think about this company? What do they know about the state of things in the company? Would they like to become shareholders/partners/clients of this company? Why or why not?

Answers to those questions form the basis for an efficient communication strategy or program. If the answers are correct and positive, then the communication strategy is to help such answers/views establish themselves more firmly. If the answers are negative, then the communication strategy is to correct errors, and if there are no views or answers at all, then the communication strategy is to fill the void with key messages before someone else fills that void.

Today, the boundaries for various types of communications have become transparent and so-called "internal communications" within one country have practically ceased to exist. Ukrainian companies and officials are constantly in the process of exchanging information, regardless of whether they realize it or not. Sometimes companies make the mistake of believing that they deliver information only to their local audiences. Information about a company reaches investors, analysts, and mass media outside any particular country. Unfortunately, it often happens that the information that reaches foreign target audiences was initially intended only for domestic target audiences and, therefore, this information is inefficient.

Successful implementation of a program related to financial communications provides an opportunity to take advantage of the situation and present the client's history from his own standpoint. Efficient financial communications are a strategic tool that, if used correctly and with due experience, can help companies and organizations to achieve their business objectives.

Similar to legal advice or financial consultation, which may help attain specific objectives, communications also have their specific canons:

• The press, financial analysts, and observers do not like an information void. If a company does not tell about itself then someone else will do it instead. Errors or false information must not be left without response. One should identify the source of erroneous understanding and rebut such information.
• Accessibility and readiness to train the press. Bad news especially requires clarifications.
• Analysis and warning of a situation. Development and differentiation of key messages.

For example, one company is in the process of taking over another company. Both companies are located in different countries. Undoubtedly, this news is "hot" for many periodicals. In this case, an efficient matching of interests of the company itself with interests of specific groups through mass media rather than a wide coverage of the event is required: commercial partners expect changes in strategy, shareholders expect guarantees against dilution of their capital due to the purchase, employees expect changes in personnel policies, etc.

Let us draw an example of a most remarkable project: the 100% share purchase of Ukrainian Mobile Communications (UMC) by Russia's Mobile TeleSystems (MTS). The transaction occurred in two phases: during the first phase (November 2002), the shares of UMC were sold by three co-owners of the company: Ukrtelecom (25% of shares), Deutsche Telekom, a German telecom operator (16.3%), and Dutch KPN Telecom (16.3%). During the second phase (April 2003), MTS purchased the remaining 42.3% of the shares of UMC. The sellers were represented by two national telecom operators: TDC (Danish shareholder of UMC) and Ukrtelecom. The first sold 16.3% of its shares, while the second sold 26% of its shares.

This very complex transaction between five parties is phenomenal. It is obvious that each of the shareholders had its own views about the future of the joint venture. Financial conditions and a diverse mentality among shareholders should also be considered. However, the fact that the transaction proved to be beneficial and successful for all its parties and stakeholders, including UMC subscribers, is even more surprising.

ING Barings was MTS's financial consultant in respect to preparing for and concluding the transaction. In addition, each of the participants hired its own appraiser of UMC, and then the result obtained by each party was reduced to a common denominator. For instance, Raiffeisen Investment AG, an Austrian company, made the appraisal for Ukrtelecom. MTS's program of financial communications was fulfilled successfully by the company's internal resources.

Analyzing articles, comments, and interviews published in the local and foreign press in relation to the transaction, one would clearly distinguish the basic key message that the purchase of shares of UMC was beneficial for all the participants and stakeholders:

• Ukrtelecom's participation in the transaction alongside with the worldwide telecom operators, shares of which are quoted in world stock markets, will produce a positive effect on Ukraine's investment image.
• In terms of foreign investors, all of them benefited from the sale of their shares. Title to 16.3% of shares did not allow KPN Telecom, TDC, and Deutsche Telekom to implement their decisions, and the sale of each of those three shareholdings was a super-beneficial way out of an uncontrollable business.
• For UMC, the change in the owner is good, as MTS will provide the Ukrainian partner with access to world financial markets (shares of MTS have been quoted on the New York Stock Exchange since June 2000).
• With its new shareholder, UMC will be able to offer reasonable roaming rates throughout Russia and various new services to subscribers.

The market for financial communications in Ukraine currently remains narrow. However, more and more local companies are engaging in an open and confident dialogue with foreign investors and creditors. Many companies understand not only the cost of capital or comparative advantages from loans and shares but also use modern methods of financial management. Under these conditions, a company's internal resources may not always be sufficient for work with domestic and foreign investors, creditors, potential shareholders, and stock analysts. Therefore, the Ukrainian market will see an increased demand for financial communications services in the near future.

Read the original article in Ukrainian, as published in Strategii #10, October 2003.

Articles is reprinted with the permission of Strategii.