itsupport | World Finance

“Corporate governance has to assure integrity”

Posted on April 20, 2011February 14, 2012 by itsupport

In February 2011, Nestlé, the Switzerland based nutrition, health and wellness giant, announced yet another year of strong top and bottom line performance, increasing investment in its brands, operations and people. Highlights included group sales of CHF 109.7bn, organic growth of 6.2 percent, real internal growth of 4.6 percent and a rise in underlying earnings per share of by 7.4 percent to CHF 3.32. Return on invested capital was 15.5 percent including goodwill. Such strong performance meant that the company was able to propose a dividend increase of 15.6 percent, and return CHF 15.5bn of cash to shareholders.

Nestlé’s well-known products and brands may be the most visible aspect of the business. The firm’s long term success, however, is built on the solid foundations of effective governance and its willingness to take a lead and to innovate, says Chairman Peter Brabeck-Letmathe – rather than being forced follow.

Setting the agenda
Indeed, Nestlé likes to set the agenda. Take its current stance on philanthropy. Chairman Peter Brabeck-Letmathe has said that philanthropy is not a suitable use of shareholders’ funds for corporations. A better approach where possible is to align the interests of the company, its shareholders, and society, in doing good – creating shared value.

It is a concept followed by growing numbers of organisations, but a position that Nestlé arrive at some time ago. The company has already established a Creating Shared Value Advisory Board, publishes an annual report on its efforts in that arena, and has identified the most obvious areas where the firm’s interests intersect with those of society, as nutrition, water and rural development. The company even runs a prize for creating shared value.

It is no surprise then to discover that Nestlé’s lead on creating shared valued is mirrored in its overall approach to governance. In 2004, Brabeck-Letmathe gave a presentation in which he outlined the importance of governance in relation to enhancing shareholder value. In that presentation, he explained how some key decisions around governance were instrumental in creating the successful Nestlé business that exists today.

After the Second World War, Nestlé’s executive management – the Chairman, the CEO and his team, were in the US, while the board of directors remained in Switzerland. The board wanted the management team to return, but they refused. Eventually, though, the board got its way, and the executive team returned in 1947.

This, says Brabeck-Letmathe, typifies the company’s take on governance. The board asserting its independence and taking decisions, underpinned with integrity, that are in the long term interests of the firm.

In that same talk, Brabeck-Letmathe outlined his views on the function of good corporate governance, namely to: set a basic framework of principles for running the company; establish checks and balances and establish responsibilities; and organise flows of, and access to, information. Achieving these aims requires the right people, he added, and also adaptability. Make adjustments when necessary. Drive the process; do not let it drive you – these were Brabeck-Letmathe’s watchwords.

“This proactive approach to good governance has again been demonstrated by the company’s actions over the last few years,” says Brabeck-Letmathe. “I strongly believe that any company must continue to innovate and reinvent itself, and that applies as much to corporate governance as it does other aspects of the business. So, in 2007, for example, we conducted a shareholder survey and we asked our shareholders what they expected from Nestlé’s corporate governance. Then, once we had got the results of the survey in 2008, effectively we rewrote our articles of association.”

It was a major step for a company like Nestlé to make. Especially as it might easily have continued as it was, without consulting its shareholders in this way, or making the fundamental changes it eventually did. The result of the process, though, was the introduction of number of very innovative concepts, says Brabeck-Letmathe.
“For example, we introduced the concept that this company has as its task long term sustainable value creation for shareholders, which clearly shows that we are not looking for short term profit optimisation. That was a major breakthrough,” he says. “Another major breakthrough, back in 2008, was that we were one of the first companies to produce a compensation report for the shareholders’ consultative vote.”

It is essential, says Brabeck-Letmathe, that Nestlé remains at the leading edge on corporate governance. That means constantly updating the company’s Articles of Association and introducing new elements, as required. It also means regularly canvassing the opinions of stakeholders, as well as the governance risk and compliance professionals and experts. Getting a sense check that the firm is still up to date on the issues involved.

“We are in constant contact with our shareholders,” he says. “As Chairman I do investor roundtables, chairman roundtables, one-to-one meetings, I am with companies that are consulting on shareholders votes, and we listen very carefully to what all these parties think about what modern corporate governance should look like.”

A focus on governance
Ask Brabeck-Letmathe what the new focus is and he quickly rattles off a list.

“Well I think for us it is going to be more about how the board works. For example, questions around how people are nominated to the board. How we are ensuring the succession of the board. Whether the different board committees are working efficiently or not. How we can assure that we have board independence. How we are managing the risks in the business. And then finally how the board is really actively participating in defining the long term strategy of the group.

“I think that it is those areas that will be the major governance focus in the coming years.”
In the UK, the Financial Reporting Council (FRC) has introduced a new code of conduct, the Stewardship Code, for institutional investors. Adopting a “comply or explain” approach the Code seeks to promote a better dialogue between shareholders and company boards, and covers issues such as activities taken to protect or enhance shareholder value, and voting policy.

It is certainly an area where there are issues that need addressing, admits Brabeck-Letmathe.

“I think the voting of institutional investors has become a very important aspect of corporate governance. In our case today, some 80 per cent of our shareholders are institutional shareholders, so you can imagine that this becomes a very important matter to us,” he says.

“Personally, I have some questions about this issue. It seems that these days, many of these institutional shareholders may be voting based on recommendations from consultants. If that is the case, effectively the voting decisions of many of the institutional shareholders are in the hands of just a small number of individuals, maybe only three or four people. And I have some doubts about whether that is a good thing, if it is the case.

“Because I think it is very important that each institutional shareholder makes up its own mind about the vote that it is going to cast, and not necessarily just follow the recommendations of a few external consultants.”
Ultimately, of course, says Brabeck-Letmathe, investing in effective corporate governance is not just good for its own sake, but over the long term it is good for business.

“The main reason for good corporate governance is to establish trust – the creation of trust in the company is very dependent on good corporate governance. It starts with your employees. Employees want to work for a company where they know that there is integrity. So corporate governance has to assure integrity,” says Brabeck-Letmathe.

“Then you have shareholders that prefer to invest in companies with good corporate governance, partners who believe very strongly in good corporate governance, and finally even the consumers are asking, more and more, what is the corporate governance like in the business, how is this company being run, is it an honest company, a well-controlled company?

And, as Brabeck-Letmathe noted in his 2004 presentation, you can have all the detailed rules you like but it is the people at the heart of the business, not the rules, that make the difference.

“Risk management, for example, is a hot topic at the moment. Yes, we have a compliance manager, we have compliance system, but at the end of the day it will always be an issue of people, and the leadership that you have in your company,” says Brabeck-Letmathe.

“The people will always look to see how the CEO and the board behave. Do they walk the talk? Or is there a mismatch between what is being said in the documents and what is being practised and experienced in the company. So it comes back to instilling the right values into both the management and the rest of the people in the company.”

Man of the moment

Posted on April 20, 2011February 22, 2012 by itsupport

Shk Khalid Bin Thani Al Thani is a leading Qatari businessman with interests across many areas, including media, real estate and financial securities. He is also the co-founder and benefactor of a number of non-profit organisations and business associations. In banking, however, he is probably best known for having founded a number of Sharia-compliant Islamic banks, including the Islamic Bank of Britain (IBB).

Shk Khalid Bin Thani Al Thani has had a keen interest in business ever since he was a child. “The concept of trading and investing to realise a gain has always intrigued me,” he says. “I started a number of small trading enterprises while still at school. It took a number of trials and some hard lessons to sharpen my skills to analyse an investment proposition and reach a balanced judgement about risk and return.” He feels that these experiences taught him the importance of finance and of sound investment strategies for any business to succeed.

As he grew older, he became increasingly involved with the family business, which would give him a firm foundation for his later years in the banking sector. However, his schooling raised his interest even further in “the considerable role finance and banking play in the economy.” After finishing his schooling, Shk Khalid Bin Thani Al Thani went on to study both undergraduate and post-graduate degrees in Industrial Management and Technology at Michigan University. “I was fortunate to go to college in the US for my undergraduate degree,” he says. “Gaining access to some of the best educational institutions globally has widened my horizons and enforced the idea of an interconnected and interdependent world. I then chose to study a PhD in the UK as it offered me access to a world-class institution in my field of study.”

Shk Khalid Bin Thani Al Thani also feels that these experiences abroad have helped him become a better businessman. “When you live in a different country, speak a foreign language and observe different customs and ways of interacting between people, you become more adaptable and flexible. You learn to accept different views and entertain different ideas and concepts.” During this time, he was also able to learn about different sets of rules, regulations, laws and governing bodies around the world. This has, he says, had an invaluable influence on his business decisions and strategies throughout his career.

The endurance of Islamic Finance
While he considers this exposure to other cultures and customs to have been invaluable, he is adamant that this tool should not be used at the expense of one’s own culture and heritage. It is no doubt this attitude which led him to take the decision that he would only be involved in financial institutions that are Sharia-compliant. Sharia-compliant financial services meet with the requirements of the Muslim faith, which prohibits usury – i.e. interest. “Simply put, Islam views the economic value of money from the perspective of what it adds to a business, an investment, a product or a service. Money is not seen as a commodity in its own right,” Shk Khalid Bin Thani Al Thani explains. “In other words, unless money is mixed with other economic resources to create something new, money itself does not create value. Thus, Islam annuls the concept of compensating an investor for a risk-free cash investment and substitutes it with a risk/return shared approach. When applied correctly, this concept offers a tremendously positive impact on the economy. One needs only to consider the huge debt weight in many developed economies and the burden it creates for future generations just servicing the interest on the debt.”

On 1st January 1991, Shk Khalid Bin Thani Al Thani founded Qatar International Islamic Bank (QIIB) and remains its Chairman and Managing Director. The bank now has 12 branches and 50 ATMs in convenient locations across the country. It is a full service institution, offering a full array of both retail and corporate services while still remaining committed to Sharia principles. Now 20 years old, the bank has assets worth over QR16.6bn ($4.5bn). It is also a founding partner of Tasheelat, a Sharia-compliant consumer financing company.

After the success of QIIB, Shk Khalid Bin Thani Al Thani decided to take his experience abroad and found a second Islamic bank, this time in the UK. “Our experience at QIIB has shown a strong appeal for Sharia-compliant financial services not only to Muslims, but among all segments of the population, regardless of faith or belief,” he says. “When we started contemplating expansion beyond the Qatari borders, we decided to expand in the form of stand-alone entities, sometimes in strategic partnerships with domestic partners. When selecting these partners, we would look for companies that shared our vision and that had a proven knowledge of their domestic markets. The UK was a natural choice, as it is considered one of the main global banking hubs.” To this day, IBB remains the only British retail bank regulated by the Financial Standards Authority that is also fully operating as an Islamic bank.

Subsequently, Shk Khalid Bin Thani Al Thani founded the Syria International Islamic Bank (SIIB), which was one of the first entrants into Islamic banking in the country, “SIIB has been successful and we are pleased with the results of its operation,” he says. “We have also been looking at other opportunities in the Middle East, Europe and North America. However, the challenging banking environment over the last three years and the ensuing regulatory changes mandated re-examining each market closely to ascertain the potential and feasibility of an investment.”

Aside from Islamic banking, Shk Khalid Bin Thani Al Thani has set up a number of other financial companies. The Islamic Holding Group is the first specialised Islamic company providing Sharia-compliant brokerage services for its customers. It has over QR116m ($32m) in assets and endeavours to provide the best brokerage services in the Doha securities market. Qatar Islamic Insurance Company started business in 1995. It is a national organisation, but one that has international reach and currently has over QR586m ($161m) in assets with market capitalisation in excess of QR263m ($72m). Other entities include Syria Islamic Insurance Company and two holding companies, Tadawul Holding Group and Mackeen Holding.

Social investments
Shk Khalid Bin Thani Al Thani’s business interests do not begin and end with financial services – he also has business interests in media, healthcare and education. “In today’s interconnected world, business diversification is a must,” he says. “Economic cycles and varying business conditions impact different industries in different ways. Additionally, as good corporate citizens, we believe that we have a role to play in Qatari society and to make strong contributions towards its development.”

To this end, he was one of the founders of Medicare Group (Al Ahli Hospital) and remains a board director. The 250-bed hospital provides complete healthcare services and aims to become the preferred provider of healthcare for patients from the Gulf area. He is also involved with five media entities, Dar Al-Sharq Publishing and Distribution Co., Al-Sharq Arabic Newspaper, The Peninsula English Newspaper, Dar Al-Arab Publishing and Distribution Co., and Al-Arab Arabic Newspaper. Finally, he holds positions with three real estate and housing development organisations: Zenon Trading and Contracting Co., National Leasing Holding, and Ezdan Real Estate Co. In addition to these corporate interests, he is the Emeritus Vice President of the Asian Amateur Athletic Association (AAAA) and sits on the Board of Directors of the Qatar Society for Rehabilitation and Special Needs. “Healthcare, education and media are complimentary to each other and allow us to play an active role in enhancing the lives of Qatari citizens and expatriates,” he says.

When reflecting on his success over the years, Shk Khalid Bin Thani Al Thani believes that his family background and education form the backbone of what he has become today, “I can honestly say I was fortunate to come from a family of business people. Growing up, I was always exposed to how and why business decisions were made. There were many valuable lessons I learned just by observing even at a young age. My education and travels have helped in expanding my horizons and learning about different cultures and people.” Continuing, he says that if he were to pick out one defining factor, it would be that he takes a longer-term strategic view of issues, problems, challenges and opportunities. “My years in business taught me to consider factors beyond immediate gratification. Today’s shortcomings may be tomorrow’s opportunity, so learning from your own mistakes is part of our success. Finally, aiming high and working hard to achieve one’s goals are basic business values that as true today as they have ever been.”

War currencies, not currency wars

Posted on April 20, 2011February 14, 2012 by itsupport

This is no way to run a currency. When Libya descended into civil war in February, central bank governor Farhat Omar Bengdara left the capital Tripoli because communications had failed and he couldn’t carry out the routine daily transactions that the Bank of Libya has to do. Next, he departed the country altogether as Muammar Gaddafi summarily appointed a replacement. Then all the bank’s foreign exchange assets, mostly held in the US and Europe, were frozen. Finally, the British government stopped a ship carrying £900m worth of brand-new dinar notes to Tripoli. As Bengdara points out, Libya is running out of money and the people will suffer.

Once again, the revolutions in the Middle East show how vital a nation’s currency is in the daily lives of its people. Let’s look at how the currencies fared.

For all these currencies, it will be a long fight back for respectability in the markets. Meantime the value of the two dinars and the Egyptian pound shrinks in the populations’ pockets.

– Tunisia’s 50 year-old dinar (TND) isn’t convertible, so it’s hard to tell exactly how it’s survived the revolution but we do know it’s taken a battering. It would be “difficult, difficult”, said central bank governor Mustafa Kabel Nabli about keeping to a deadline of 2014 for full convertibility in the wake of the crisis. Nor will it help that Moody’s has cut Tunisia’s credit rating to Baa3 and could lower it further. A big problem is the strength of the dinar depends on trade with Libya and that’s in a state of collapse.

– When the anti-Gaddafi movement began to mobilise, the 40 year-old Libyan dinar (LYD) held its own and even strengthened for a few days. When the dictator’s air force started strafing his own cities in early March, it went into freefall. The currency’s immediate future looks grim as everybody who can rushes to unload it, including expat workers like the 10,000 Filipinos who fled back home with suitcases full of suddenly unwanted dinars.

– Oldest of the three currencies, the Egyptian pound (EGP) has had a wild ride for nigh on 150 years. It was consecutively tied to the gold standard, the British pound and the greenback before it was floated in 1989, but only in the most technical sense under the Mubarak regime which kept a tight grip on the Gineih, as it’s also known. And the ride is getting wilder as tourism and foreign exchange flows grind to a halt. Trading in the currency, always thin, has also practically stopped. There’s only $35bn in reserves and it now takes nearly six Egyptian pounds to buy a greenback.

AMAN nominated “Best Takaful Provider”

Posted on April 19, 2011June 12, 2013 by itsupport

This global nomination marks a remarkable achievement for a composite insurance company based in the United Arab Emirates. It is truly a testament to Aman’s dedicated team of highly qualified professionals and the security clients feel that Islamic insurance products can provide.

Established in 2002 as a national takaful insurance provider owned exclusively by UAE shareholders, Aman distinguished itself as a pioneer in the Emirates, successfully introducing Islamic insurance to the UAE and in 2004 being listed as a public company. Today Aman comprises one of the largest insurance teams of UAE nationals. Aman’s Takaful policies are backed by the world’s most recognised and top rated Reinsurers consistent with international standards to provide first class security. All investment and insurance activities follow Shariah guidelines under the supervision of a Fatwa and our esteemed Shariah Supervisory Board. With a comprehensive range of fully Shariah compliant products including life and medical insurance, Aman is consolidating its position as a leading composite national Islamic insurer – having generated an annual premium volume over AED 615 million within a short span of eight years. Furthermore, Aman maintains a sound and solid financial position that is recognised by a S&P rating of BBB that confirms its stable financial outlook. Aman was recently named the second largest Takaful Company in the GCC region by Alpen Capital.

Commenting on the growing demand for Islamic Insurance, Husein Al Meeza, Managing Director and CEO of Aman said: “Despite the global slow-down, the Islamic financial assets have exceeded the $1trn mark. The Islamic Financial Industry is definitely resuming its growth path and it is continuously drawing positive attention in media headlines of both Muslim and non-Muslim countries. The industry presents ample opportunities for growth and globalisation, which will spur further demand for Takaful. The main reason for this is because the emerging countries whose population constitute primarily Muslims are in fact witnessing modest economic development while most of the world’s major developed economies are contracting. Moreover, the Islamic Finance industry is becoming more sophisticated and developing new products and services that better address the needs of large corporate as well as mass retail customers. Non-Muslim countries are also supporting the industry mainly through legislation that facilitates the integration of Islamic finance sector into their economies.”

Islamic insurance is a collective system of support for individuals or groups who share the risk of potential loss. The Takaful operator manages their contributions through this shared system of mutual cooperation and distributes the surplus, if any, resulting from insurance and from premiums invested for policyholders on an annual basis. In the event of claims, the participants settle the cost incurred amongst themselves from their collective contributions. The profits from shareholder capital investments in excess of expenses are distributed evenly amongst them. Islamic Insurance is a proven cooperative system that supports social solidarity, helps protect the community and the fortunes of many pay for the misfortunes of the few.

Under the hybrid Takaful model, Aman manages the insurance operations for the insured as their agent under the Wakala system of Islamic Insurance. Aman invests funds on their behalf as fund manager, employing the Islamic Mudaraba system, combining a fixed fee for managing insurance operations and a share of profits for investing funds. This system enables policyholders to benefit from risk protection and investment services at the same time.

Bancatakaful is another model pioneered by Aman which is gaining popularity within insurance circles.

Takaful operators have played a key role in promoting Bancassurance within the Middle East and Asia Pacific region to meet the growing demands of Islamic banks and financial institutions. Aman is one of the first insurers in Bancassurance in UAE and since 2006 provides Shariah compliant products and services to ten of the largest Islamic Banks and financial institutions in the UAE, generating an annual premium volume of more than $50m. Aman has strategic partnerships with key corporate entities throughout the region as well, providing them with Islamic solutions for their employees and protection for assets.

Today as one of the largest BancaTakaful providers in the United Arab Emirates, Aman offers a range of Shariah compliant investment linked products and high quality savings programmes to banking customers and to other financial institutions through their own distribution channels. Aman also provides group family takaful, credit family takaful, critical illness and involuntary loss of employment coverage and home finance family takaful.

“Being a fundamental part of the Islamic finance industry, the takaful business would certainly benefit from the positive drivers of the industry to carry on the superior growth level registered in the past few years,” said Husein Al Meeza.

Aman also offers general insurance products for individuals, corporations and industrial businesses and various levels of risk protection for many different hazards to minimise financial consequences. These products include general accident and liability insurance, travel insurance, haj and umra protection packages for pilgrims; fire insurance, fidelity and banker’s blanket cover; engineering and construction insurance; marine and aviation insurance; motor insurance for both private and commercial vehicles; and healthcare, offering a broad coverage to protect individuals and company employees with both voluntary and mandatory coverage. In addition to its standard general takaful and family takaful insurance products, Aman can customise innovative insurance solutions to suit the individual requirements of customers.

Aman’s remarkable success is attributed to its strategic and transparent approach to Islamic insurance across the region, the capable leadership of its board and the visionary guidance of its management. Personal lines insurance remains an untapped market within the UAE and across the region for takaful operators to address. As Aman has proven the soundness of the Takaful business model, the company will now be looking forward to exploring regional expansion of its successful operations. Supported by an ambitious and dependable workforce, Aman is known for establishing enduring relationships with clients built on trust, confidence and expert understanding of risk. Aman remains resolutely focused on offering a unique line of Islamic insurance services to provide communities with a greater sense of security and stability. Adhering to the takaful concept, Aman upholds a distinctive responsibility to share profits with its stakeholders and policy holders in an honourable Islamic manner.

For more information Tel: 00971 (0)4 3193111; Fax: 00971 (0)4 3193114; Email: info@aman.ae; www.aman.ae

Peru: Capital goods sector looks to CG

Posted on February 18, 2011June 12, 2013 by itsupport

Ferreyros is a Peruvian company founded in 1922 and has been a Caterpillar dealer in Peru since 1942, being today the leading distributor of capital goods in the country. It serves key economic sectors such as mining and construction, and along with the country, has grown significantly in recent years, tripling its size in revenues in the last four years to show revenues of $1bn in 2010.

During 2010 Ferreyros acquired the Caterpillar dealerships in Guatemala, El Salvador and Belize after receiving an invitation from Caterpillar to service its brand in new territory.

In the last few years the corporation’s activities have been related to the development of important mining, construction and hydroelectric projects. It employs more than 4,000 people, including Ferreyros and its subsidiaries in Peru and subsidiaries in Central America, all of them linked to the capital goods business, which consists not only of selling machinery but also providing value added services to its customers.

After registering its stocks in the Lima Stock Exchange (BVL) in 1971, the shareholders decided to attract new investors committed to the company’s future and growth. Therefore the company changed its nature, going from a family owned company to a public company. Today there are more than 1,500 shareholders.

In 1994 Ferreyros decided that the capital market should become one of its key funding sources and placed its first issuance of corporate bonds for $5m with a two year maturity. Today, after 25 years it has placed more than $250m in corporate bonds. Responding to the growth experienced, in 1997 the company successfully placed shares locally and abroad, increasing its net worth by $22m.

Today, after the issuance of corporate bonds, securitisation bonds, commercial papers and new shares Ferreyros is recognised as an important player in the Peruvian stock exchange and is well known by investors.

Ferreyros understood the value of good corporate governance practices implementation from the beginning.

Although at that time the company did not use the term ‘corporate governance,’ its performance had always been lead by ethical principles gathered today in the corporate governance concept. In order to attract investors and differentiate itself from other companies participating in the capital markets, it was important to constantly adopt changes that ensure transparency, equitable treatment of shareholders and efficiency in its operations.

This ongoing commitment to continuous improvement was possible because members of the board and top management have always been clear on the role of corporate governance.

In 2001, Ferreyros joined an association with other firms interested in good corporate governance practice. Each company in the group was asked to complete a governance self-assessment questionnaire looking at several areas: transparency of ownership, financial transparency, board structure and procedures and shareholder relations. The company scored well on the assessment and the leaders used the results as a starting point to implement improvements in some of its governance processes.

In 2006 Ferreyros participated in a corporate governance contest organised by Procapitales (a private association of key players in local capital markets that actively promotes best corporate governance practices) and Universidad Peruana de Ciencias Aplicadas. This contest required the presentation of information related to shareholder treatment, board practices including independent directors, board committees, transparency of information, management structure and risk administration, and finally relations with internal and external stakeholders.

The completion of the required information helped the company to again assess its current status and determine more positive changes to be implemented in the future. Ferreyros participated in the contest with both the desire to be recognised as a leader in the field, considering that at the end investors will pay back for good corporate governance practices, and secondly to receive a feedback from the organisers on its practices.

Ferreyros obtained different awards in every edition of this contest: in 2006 the Shareholder Rights prize, in 2007 the award for Best Annual Progress in Corporate Governance, in 2008 the awards for Shareholder Rights and Best Board of Directors Practices and in 2010 it again received the prize for Shareholder Rights (there was no 2009 contest).

However, Ferreyros was aware that its endeavours in good corporate governance matters should continue and even go beyond the frontiers of Peru. That is why in 2006 it joined the Companies Circle of the Latin American Corporate Governance Roundtable. The Companies Circle was launched in 2005 by the Organisation for Economic Cooperation and Development (OECD) and the International Finance Corporation (IFC) along with eight founder members. Composed of 20 Latin American companies that lead in good corporate governance practice, the circle seeks to: (i) be a forum for the discussion of the challenges and achievements reached in the improvement of corporate governance, (ii) share practical solutions to corporate governance challenges to the Latin American business community, and (iii) contribute to the work of the Latin American Corporate Governance Roundtable by offering the vision and experience of companies that have already undergone a number of reforms.

Ferreyros has been part of the Corporate Governance Index of the Lima Stock Exchange since the index was established in 2008. Just 10 Peruvian companies are listed in this index, after the validation of the questionnaire of the 26 corporate governance principles that each company published in its annual report.

Among other subjects, these principles include protecting shareholders’ rights (including equitable treatment of minority and foreign investors), providing appropriate disclosure of the company’s outstanding concerns (including the financial situation, performance, risks and shareholding), and the responsibilities of the board of directors to the shareholders.

According to literature on the subject, the improvement in corporate governance can be driven by the following motivating factors:
1. Ensuring company sustainability and commercial strategy
2. Improving institutionalisation process to ensure less dependence on specific people to run the business
3. Increasing market value and attracting new investors
4. Increasing share liquidity
5. Achieving better operational results and improving business processes
6. Confidence in carrying out mergers and acquisitions because of standards of transparency
Ferreyros’ efforts to maintain good corporate governance have brought many benefits, including better investor confidence and recognition from stakeholders, including local and international institutions.

European bankers eye India, Middle East

Posted on August 19, 2010October 10, 2012 by itsupport

Mr Peters, how would you present your group, KBL European Private Bankers?
In Europe, KBL European Private Bankers S.A. is the only network where private banking forms the core business. In effect, we have given our 485 private bankers, key elements in our strategy, the task of putting the client at the centre of our concerns. To do this we put emphasis on being close to people and on respecting local cultures and identities wherever we are.

Historically focussed on the countries of western Europe (Germany, Belgium, France, the Netherlands, England, Spain, Switzerland, Monaco) our network of private bankers has recently opened its doors to central and eastern Europe, further strengthening our identity of European private bankers.

Since May this year you have had a new shareholder, the Hinduja family group. What was the determining factor in attracting this family, well-known for its cautious approach to investments, to you?
The Hinduja Group bought us for what we are. They fully endorse our entrepreneurial model, localised decision-making at the most appropriate level in each subsidiary, great confidence in the people, our private bankers, who work there and our client-based strategy. These values are very important in the eyes of the Hinduja family. I also think that it is this corporate culture, focussed around our human capital which creates our wealth, which attracted the Hinduja Group.

What are the advantages for you in having Hinduja by your side?
Firstly, it’s a family, not an anonymous financial group. The different generations within the family play an important role. With them it is personal contact which is most important. Private bankers like us feel very much at ease with this type of investor.

Then the Hinduja Group shares the same entrepreneurial philosophy as us. Like us, it is in favour of local empowerment.

Lastly, with the Hinduja family, we have a relationship of mutual confidence which is going to allow us to build with them for the future.

The group has interests in over 100 countries which gives us privileged access to the rapidly growing markets of the Middle East, India and Asia.

How do you see your development in the next few years?
It is precisely thanks to the network of business relationships that the Hinduja Group has in Europe, the Middle East and India that we are going to be able to take the development of KBL European Private Bankers along some new paths. Among these I am thinking of the Indian diaspora which accounts for many businessmen and industrialists in Europe and the Middle East and to which we will be able to offer private banking services from all locations in our network.

Finally, I’m convinced that we are going to be able to build a bridge between Europe and India, a region where wealth is being created, as I’m sure you don’t need reminding. I think we will be able to offer various financial products in which we have developed expertise in Europe. Through the intermediary of Indusind Bank we will be able to meet the investment needs of the burgeoning Indian middle classes. We are also going to be able to play the role of banking adviser to European companies wanting to invest in the Subcontinent. For us it will be a complementary business line for the private bank.

You have developed an original model of a group of private bankers. Is this model going to carry on?
Yes, of course it is, but with some new ambitions. The Hinduja Group is, above all, interested by our core business, private banking, whose core target is a clientele with between €500,000 and €5m. This is very encouraging when you know that €500,000 is a reasonable figure for the Indian middle classes. We are going to continue to do what we do well but we are going to be able to offer products to new markets. An example is Asset Management, in which many synergies are planned since Indusind, like other Indian banks, does not have the capacity to offer this at an international level, unlike KBL. Don’t forget that our Global Investor Services platform manages some €47bn across themed or sectoral funds developed in Luxembourg or in our various European subsidiaries. The KBL fund range consists of more than 100 funds which could be adapted and marketed in India tomorrow. One more reason to let new clients benefit from the experience we have gained.

The Hinduja Group has developed Trade Finance in its bank in Switzerland. This is due to the origins of the Hinduja family’s activities which are not to be found in industry but in financing import-export. At the moment this is something that KBL does not offer, but in the near future we will merge our activities with this bank and will be able to offer this type of service to existing and future clients.

You’ve talked to us about your ambitions, supported by the Hinduja Group. But what is the exact role of KBL European Private Bankers going to be within the Hinduja Group?
All the Group’s banking activities are going to be placed under the control of KBL. In other words we are going to become the headquarters for the Hinduja Group’s financial and banking activities around the world. Not only will Hinduja Bank Switzerland and its Dubai subsidiary come under our control but we will also have direct access to a network of 1,225 points of sale and 2 million clients in India through Indusind Bank.

If I understand you correctly, Europe has become too small for you and the Hinduja Group is opening the door to a much larger geographical area, an area which extends as far as India?
Yes, thanks to the Hinduja bank in Switzerland we are inheriting a banking licence in Dubai. The Middle East will be the first stage in our development but other options are already being looked at. Up to now we have been unable to access this market, which includes the Gulf, Saudi Arabia and the Emirates, due to our lack of contacts in the area.

We are carefully examining the needs of clients in this region and we are implementing appropriate formulas to meet their expectations. Of course the Indian market will also be one of our targets thanks to the support and the local market presence of Indusind Bank in which the Hinduja family already holds an interest.

I would also remind you that if we speak more and more of the “old” Europe, this is not without reason. Our continent, and I’m including Great Britain here, is suffering from slow growth to say the least. However, the Middle East, just like India, is still enjoying double-digit growth. So it’s quite natural for us to have our heart set on expanding there.

Guinea must review mining deals – Diallo

Posted on August 2, 2010February 14, 2012 by itsupport

Guinea must review billions of dollars worth of mining deals signed since a coup in 2008 to make sure the West African state is getting its fair share of revenue, election front-runner Cellou Dallein Diallo said.

Contracts signed by multinationals such as Rio Tinto, Vale, and Chalco should be reviewed fairly, in a way that encourages foreign investment vital for the country’s development, he said.

“We will do things in a calm manner. And if we find Guinea has been taken advantage of we will open talks with our partners,” UFDG party head Diallo told reporters.

“We must protect (investors) because we need them to create employment, to create wealth in the country. These investors should be encouraged, protected and reassured by a government that does not discriminate but which is transparent and fair.”

Guinea’s election is seen as its best chance at drawing a line under decades of authoritarian rule since independence from France in 1958, and could help cement fragile gains in stability in a region rocked by three civil wars in a decade.

Diallou, who took nearly 44 percent of the vote in first round elections held in June, will face second-place finisher Alpha Conde, head of the RPG party, in run-off elections expected later this month. No date has been given yet.

But Diallo said he expects an easy road to the presidency after negotiating a political alliance with third-place finisher Sidya Toure and sixth-placed Ibrahima Abe Sylla that would bring him another 13 percent of the vote.

“I am confident,” he said. “I am approaching the second round with a comfortable margin compared with my adversary.”

Later in the day, Diallo warned authorities against indefinitely delaying the second round. “This vote must take place in a reasonable timeframe – by the end of August.”

Stability key
Months before Guinea’s election process began Rio Tinto and Vale surprised many by saying they would spend billions on iron ore projects there, betting that contracts would be upheld by the next government.

“The issue is to ensure the interests of Guinea are protected by the deals,” said Diallo. “That requires verification, an audit to ensure that Guinea is not taken advantage of in these deals, and we need to do that.”

Recently, Rio signed a $1.35bn joint venture deal with Aluminum Corp of China Ltd, known as Chalco, for Guinea’s huge Simandou iron ore deposit.

Diallo said that if he wins the presidency, he will push continued reforms needed in the military – notoriously rife with alcoholism and prone to random violence.

A faction within Guinea’s army took power in a coup in December 2008 after the death of strongman president Lansana Conte, and forces under coup leader Moussa Dadis Camara earned pariah status after killing 150 protestors in September 2009.

Camara was since shot in the head by one of his soldiers and evacuated for medical treatment. His deputy, General Sekouba Konate took control, stressing military discipline forming a transitional government charged with setting up elections.

“I think the general has already started the reform. It must continue,” said Diallo. “The state must try to provide this army with the conditions of a republican army, a good structure, good equipment, discipline. I think this reform is absolutely indespensible for the stability of the country.”

German army cuts to push Europe closer on defence

Posted on July 28, 2010October 10, 2012 by itsupport

Germany, increasingly active in international military missions in recent years, is poised to shrink its army by up to 40 percent to help consolidate its finances at a time when the global economic downturn is encouraging restraint.

France

and Britain, with the most powerful armed forces in Europe, are also contemplating cutbacks.

“Budgetary and security considerations will raise pressure to find a joint defence and security policy,” said Elke Hoff, defence policy spokeswoman for Germany’s Free Democrats (FDP), coalition partners to Chancellor Angela Merkel’s conservatives.

“Financial stability is increasingly being regarded as a key security issue in a globalised world,” she told reporters.

German Defence Minister Karl-Theodor zu Guttenberg and his French counterpart Herve Morin recently said they would set up an informal working group to target joint efficiency measures.

The two allies had decided “to look together for what resources we can pool or share … to make efficiency gains, budget savings and economies of scale,” Morin said.

In a speech in June, Britain’s Defence Secretary Liam Fox called for bilateral co-operation on defence to be stepped up “particularly with nations who share our interests and are prepared to both pay and fight, such as France”.

Though NATO Secretary-General Anders Fogh Rasmussen has argued member states in the military alliance must combine their resources more, it may be slow to materialise.

Nick Witney, former head of the European Defence Agency, now a senior policy fellow at the European Council on Foreign Relations, said governments would initially probably try to avoid making any binding international commitments.

“I hope that … once the dust has settled from this financial collapse people will look around and say, ‘We will have very little defence capability left if we continue to duplicate it all on a national basis’, so the logic of pooling efforts and resources will, I hope, reassert itself,” he said.

In Britain, analysts see scope for cooperation with France over combat jets. Some say Britain may pursue savings by buying French Rafale fighters built by Dassault, perhaps as part of a deal with France on a British air-to-air refuelling project.

Deepest cuts in Germany
The deepest cuts in troops numbers are likely to come in Germany, which unlike France and Britain still has compulsory national service in the armed forces, or Bundeswehr.

Germany has resolved to find 80 billion euros worth of budgetary savings in the next four years to help underpin the euro currency. Defence cuts could save up to 13 billion euros over the next few years, said Hoff of the FDP.

Under the command of Guttenberg, Germany’s most popular politician, the defence ministry has offered to lead the consolidation charge, which could reduce the size of the armed forces to as little as 150,000 from around 250,000 at present.

Merkel’s centre-right coalition aims to agree an overhaul of the Bundeswehr by the end of September, said Henning Otte, a defence policy expert in Merkel’s Christian Democrats (CDU).

“A Bundeswehr with 150,000 soldiers would be the absolute limit. I suspect 170,000 or 180,000 is more likely,” he said.

Until the fall of the Berlin Wall in 1989, the Federal Republic shied away from participation in armed conflicts, and foreign deployment of the army was limited to humanitarian aid.

However, in the past two decades, German soldiers fought on foreign soil for the first time since the war in international missions in troubled regions like Somalia, Kosovo and Congo.

Today Germany has some 7,000 troops stationed abroad, with the third largest international presence in Afghanistan.

The deployments are not popular with voters, however, and ex-President Horst Koehler stood down in May after coming under fire for comments that suggested the army could be used to enforce Germany’s economic interests.

Robert Hochbaum, a CDU member of the Bundestag lower house of parliament’s defence committee, said given the financial constraints facing them, Germany and its allies needed to explore potential synergies for their armed forces.

“It’s high time for this. We’re not talking about creating new structures, it’s about supplementing each other,” he said, noting that naval operations were particularly well suited.

Hoff’s FDP is also pushing hard for an end to national service – already due to be cut to six months from nine – which supporters say would enable the army to focus on foreign deployments by freeing up soldiers used to train recruits.

Yet the cuts may also reduce Berlin’s ability to steer debate on military deployments, said Berthold Meyer, an analyst at the Peace Research Institute Frankfurt.

“Whoever has the most troops has the most say,” he said.

China visible in eurozone bond buys – EU trade chief

Posted on July 22, 2010February 14, 2012 by itsupport

“China’s presence in Europe is visible across the board whether in China’s recent purchase of several hundreds of millions of euros of government bonds in the eurozone, particularly Spain or Greece, or in other large-scale investments too, such as the acquisition of Volvo by the car maker Geely,” European Trade Commissioner Karel De Gucht said.

Speaking at the Shanghai World Expo, he said he was confident Europe’s salvage package for 860 billion euros ($1,097bn), has been very effective in easing the sovereign debt crisis.

“I am quite confident that the euro is in good shape again.”

The trade chief added that the eurozone bonds China had been buying from Spain and Greece were a good investment and would keep their value.

He estimated that China had spent around 420 million euros buying Spanish and Greek bonds, but could not confirm it.

“There is no risk at all to the Chinese treasury.”

Global concerns over China’s protection of intellectual property has flared up in recent months and De Gucht said European companies were becoming increasingly worried.

Indigenous innovation policies, where China encourages government departments to buy locally made products from Chinese companies, would force European firms to register as a Chinese company in order to get access to the public procurement market.

However, De Gucht said China had already started to respond.

“Some changes were made to the indigenous innovation legislation that is certainly accommodating to a certain extent some European worries,”

China has revised its offer to join the World Trade Organisation’s government procurement agreement. De Gucht said the opening up of the public procurement market would help resolve the ongoing Doha saga if a substantial package was reached.

“The proposal that China has been putting on the table is largely insufficient, so we think additional offers should come on the table,” he said, without specifying what they should be.

Rare earths
Access to China’s raw materials is a hot topic in Europe and De Gucht said the current case the EU had against China was a case they would win at the WTO.

“We have a lot of understanding that a fast-growing economy needs a lot of raw materials but it is not the right way because it creates monopolies which distort the market.”

China holds about 90 percent of the world’s reserves of rare earth materials, which are used in a number of electronic devices, digital displays and military applications.

Foreign traders, manufacturers and military strategists have grown increasingly vocal about Chinese moves to reduce the volume of exports of rare earths.

However, China says export controls prevent wasteful exploitation, support volatile international prices and encourage high-tech manufacturers to shift operations to China, where rare earth prices are cheaper.

China will not block exports of rare earth metals, premier Wen Jiabao told a German trade delegation earlier in July.

KKR flotation takes it back to the future

Posted on April 20, 2010February 14, 2012 by itsupport

An analysis of the firm’s listing documents underlines the way the industry has changed in the years since it was forced to withdraw its 2007 listing as the financial crisis set in.

A comparison of the two documents also shows the changes to the firm’s ambitions and the way it does its business as it adjusts to the post-crisis world.

At the time of its first attempt, in July 2007, it was flexing its muscles as the world’s largest buyout house. It had just signed the largest buyouts in Europe and the US: in the year to August 2007 it was to deploy more than $20bn (Ä14.7bn) of equity in private equity deals according to research by Private Equity News.

Its prospectus promised access to a firm with “a history of landmark achievements in private equity”.

KKR is returning to New York a second time, yet it is not raising extra capital, unlike the $1.25bn it intended to raise then.

With an eye on current market hostility, the company’s historic private equity achievements are relatively downplayed and the firm instead highlights its greater diversification and growing capital markets and public markets’ businesses.

This apparent strategic shift and its relocation to New York takes the firm directly head to head with its bigger rival, Blackstone Group.

Its rivals believe KKR may be laying the ground for an attempt to create an opportunity for the founders to exit from some or all of their stake should the company’s shares perform well and market appetite for a rights issue increase.

One rival said: “That’s something they missed at the top, which Blackstone pulled off.” However, a person close to the listing played down an exit by the founders as the motivation for the float, instead saying it was an attempt to provide capital to grow the firm and incentivise staff.

How the firm has changed since 2007:
Ambition
KKR has scaled back its capital-raising ambitions since its last tilt at a listing. Three years ago, the firm planned to raise $1.25bn (Ä922m) of new capital by listing its management company, according to an SEC filing dated July 3, 2007. This time, it will not raise any additional capital, but rather transfer its Euronext-listed vehicle, KKR & Co, to New York, valuing it at $2.2bn.

KKR expects its New York-listed shares to be traded more frequently than its Euronext-listed stock because there are many similar listed management companies in the US, according to a source close to the matter.

The flotation could also help address the low price of its Euronext-listed shares, which trade below book value, the source said. By improving its stock’s liquidity and price, KKR will provide founders Henry Kravis and George Roberts with a possible improved exit route.

Unlike last time, the latest plan will not allow the founders to sell stakes at the time of the float. By contrast, Blackstone co-founder Stephen Schwarzman reaped $309m in cash from his firm’s IPO and retained 22 percent of its stock. A source close to the matter said the founders’ ability to exit was not the primary motivation for the flotation. Rather, the source said, the wish to incentivise staff and provide capital to grow the business.

Strategy
KKR has emerged from the financial crisis bigger and more diversified. Compared with 2007, the firm’s assets under management have increased 10 percent to $52.2bn from $47.2bn following a decline in 2008, while its focus has shifted away from mega-buyouts.

The new prospectus suggests the firm is making greater play of its other business lines. Back in the glory days of 2007, as deal sizes hit new highs almost weekly, the firm’s prospectus used the words “private equity” 638 times and “buyout” 52 times.

The latest prospectus tones down the emphasis on its core private equity business, with just 436 mentions of “private equity” and 12 of “buyout”. In an economic environment where diversified strategies and other business lines are arguably more highly valued by investors, KKR mentions its now flourishing “capital markets” 118 times in its 2010 document, three times more than in 2007.

Meanwhile, the share of KKR’s portfolio accounted for by core private equity fell to 74.3 percent from 77.3 percent between 2007 and 2009, despite a $2.3bn increase in its private equity assets, to $38.8bn. Instead, the firm is focusing more on its nascent capital markets division, which analysts say should generate strong revenues, and its public markets unit, which invests in debt and has assets of about $13.4bn under management.

Structure
The latest prospectus envisages a more complex listed structure than that outlined three years ago. Then, the firm planned to list its management company in New York and a separate funds vehicle on Euronext in Amsterdam. This time, the New York flotation will include exposure to the group’s underlying funds as well as its management company.

That means three years ago investors would largely have acquired links to the firm’s fee revenues. This time they will get a mix of revenues, including fees from the management company and returns on investments from the portfolio if its companies increase in value.

The volatility of private equity company fees make the hybrid business model potentially more attractive to public market investors. The new strategy will create a listed firm with a bigger balance sheet than was previously envisaged, according to a source close to the listing. It will also leave the listed company and KKR’s executives as the biggest investors in the firm’s funds.

Fees
The latest prospectus would appear to raise questions around the viability of KKR’s large buyout model. As dealmaking has dried up, fees earned by the firm – including more stable management fees and more volatile transaction fees, have slumped 62 percent from the market peak, to $331m last year, compared with $862m in 2007. Transaction fees alone fell 87 percent to $91.8m last year from $683.1m in 2007, although management fees have increased.

The firm’s efforts to diversify may help stymie that decline. According to Sandler O’Neill analyst Michael Kim, the firm’s capital markets division might fill the gap. The division’s star has risen of late, particularly since it emerged as an underwriter of football club Manchester United’s bond issuer earlier this year.

Portfolio companies
The firm’s biggest challenge will be to prove it can generate returns from its high spending levels at the top of the market.

KKR was the only private equity firm to deploy more than $20bn in equity in the year to August 2007, according to research by Private Equity News. The firm’s 2007 prospectus claimed that it had closed “the largest leveraged buyouts completed or announced in each of the US, the Netherlands, Denmark, India, Australia, Singapore and France”.

New records followed after the firm published its prospectus: its £12.4bn acquisition of UK pharmacy group Alliance Boots was the largest European and UK buyout, while its $45bn purchase of US energy company TXU remains the largest buyout globally. This time the firm is still one of the biggest private equity participants, but its largest deal since the collapse of Lehman Brothers in 2008 is the under-$2bn buyout of Korean company Oriental Brewery, less than a twentieth of the size of TXU.

The firm has since taken markdowns on Alliance Boots and TXU. But a source close to the listing said the firm expected to do better from its boom-time acquisitions than market sentiment might suggest.

Management
Henry Kravis and George Roberts remain the driving force behind KKR. But as top private equity executives begin to make way for the next generation – including Tom Attwood, who stepped down as chief executive of debt specialist Intermediate Capital Group last week – many observers wonder how long the cousins’ dominance will last.

The firm has long sought to move towards a more normal corporate structure, giving different executives responsibility for operations in individual countries and sectors. The flotation could simplify that transition by providing the founders with a simple exit route.

But a person close to the company said Kravis and Roberts could be expected to remain at the top for some time. Investors will focus on how KKR manages its succession.

Ownership structure
KKR’s ownership has changed since 2007. Once having a reputation for secrecy, the firm is now majority-owned by its staff and public shareholders.

Public investors acquired a 30 percent stake in the firm last year, after KKR merged its management company with Euronext-listed KKR Private Equity Investors to create KKR & Co.

That publicly-held stake is likely to increase after the firm lists in New York.

It is unclear when the firm’s partners, who hold the remaining 70 percent of the management company, might sell their stakes, but a person close to the listing said they would look to raise more capital from the public markets over time.

International expansion
Overseas expansion has continued apace since 2007 despite the financial crisis. The firm has doubled its international offices from seven to 14 over the period, according to the latest prospectus. That expansion helped the group seal the $1.8bn acquisition of Oriental Brewery last year.

The overseas drive was made possible by aggressive hiring. The firm boosted its workforce by 50 percent since 2007, to 600 from 399, during a period in which many rivals pared their staff.

© 1996-2009 eFinancialNews Ltd

Banking on transparency

Posted on April 19, 2010June 12, 2013 by itsupport

The Middle East and North Africa (MENA) region has been one of those emerging markets in which corporate governance is seen as a relatively new concept; indeed it is only in the last ten years that an Arabic word, “hawkamah” for ‘corporate governance’ has emerged. But despite its infancy in the region, corporate governance has been making significant headways.

Hawkamah Institute for Corporate Governance is an international association dedicated to the advancement of good corporate governance across MENA. Hawkamah has been at the forefront of corporate governance debates through conducting studies on the state of governance in the Middle East, identifying gaps, outlining areas for reform, providing advice and assistance, and working with companies and regulators to bridge the corporate governance gap.

According to a 2008 joint study by Hawkamah and the International Finance Corporation (IFC) only three percent of listed companies and banks in the MENA followed good corporate governance practices, with none complying with international best practices. Much of this stems from a combination of facts such as the ownership structures of MENA companies (mainly family or state-owned), the ready availability of liquidity and financing from regional banks, and the relatively underdeveloped capital markets. Consequently, the benefits of good corporate governance have been typically seen by companies in terms of better strategic decision-making and regulatory compliance rather than being associated with better and cheaper access to credit and capital.

This mindset has traditionally had a direct bearing on the level of regional transparency and disclosure practices which seriously lag behind international best practices. Similarly, the compositions and practices of the region’s boards leave much to be desired. Most of the boards have been dominated by majority shareholders or their representatives, and according to the 2008 study, 57 percent of listed companies in the MENA had a single or no independent directors on their boards. The same study also indicated that boards needed to do better in terms of overseeing risk management and control. In fact, less than half of the surveyed companies had a risk management function in place.

Comprehensive corporate governance improvements do not happen overnight but there is evidence that there have been substantial improvements in the past two years. Although the region as a whole has yet to internalise that good corporate governance is a competitive advantage to be exploited, an increasing number of MENA companies have began investing in better governance and addressing their corporate governance shortcomings.
Hawkamah, in cooperation with The National Investor, assessed all Gulf-listed companies measuring their “investor friendliness” and transparency practices on an annual basis since 2008. Their 2009 study indicated that two-thirds of the companies showed year-on-year improvement and 26 companies increased their score by 100 percent. This trend is encouraging, although it should be noted that the improvements stem from a low base and that the gap between international best practice and regional practices remains substantial.

Reforming the framework
Traditionally, the MENA region has looked for change and reform to be signaled and enforced from the top, with government and regulators taking the lead. And governments and regulators across MENA recognise the role governance malpractices and failures played in the lead up to the financial crisis as well as in some regional corporate scandals.

A number of MENA countries have been active over recent years in developing corporate governance codes. Oman has been ahead of the curve with the Omani Capital Market Authority announcing corporate governance standards for listed companies as early as 2002. Both Qatar and Morocco issued governance codes in 2008, Bahrain has put draft corporate governance codes for public consultation, a code is also forthcoming in Lebanon while in the UAE, the corporate governance guidelines introduced by the Emirates Securities and Commodities Authority in 2007 will become mandatory for listed companies in 2010. The Central Bank of the UAE has also recently issued draft corporate governance guidelines for bank directors in the Emirates, while in Saudi Arabia, the Capital Markets Authority has started a gradual process of making some corporate governance regulations compulsory.

Better corporate governance
These mark important milestones in the development of corporate governance in the region. However, it is noteworthy that many of these initiatives pre-date the crisis, and the region would benefit from revisiting some of these guidelines in the light of recent international developments, especially in relation to risk management.
Important as it is to have such guidelines in place, challenges remain. It is one thing to have regulations issued, it is quite another to have them implemented. The financial crisis stemmed from markets where the corporate governance codes were the most advanced, but evidently not followed. The challenge across MENA is to create a culture of enforcement and compliance.

Hawkamah encourages regulators, whether bank regulators or capital market authorities, to set up specialist corporate governance departments to monitor the implementation of corporate governance in the entities they are supervising. The objective is not to shackle corporations but rather to balance the promotion of enterprise with greater accountability. Regulators must also be careful not to turn corporate governance into a box-ticking exercise. The objective is not governance for the sake of governance. Enforcement of compliance, in particular, is called for in three key areas: transparency and disclosure, risk management and board practices.
For this to be effective, regulators themselves need to ensure that they are both transparent and accountable, that their responsibilities are well-defined and not conflicted, that they are not subject to political intervention or ‘regulatory capture’ and that they are staffed with competent and experienced personnel.

Financial institutions
Regulators should particularly focus on the region’s banks and financial institutions. Hawkamah and the MENA-OECD CG Working Group with the Union of Arab Banks have recently issued a policy brief on corporate governance of banks in the MENA region, designed to address governance challenges of a variety of banks, whether listed or private, family-owned or state-owned, Shari’a compliant or conventional. The brief recommends, among others, that more detailed codes be introduced at the national level and that each bank regulator develops its own corporate governance expertise and issues specific guidance against which banks could be assessed. Hawkamah also advocates that bank regulators introduce guidelines requiring banks to introduce corporate governance criteria in their lending and investment decisions, aiming to extend good corporate governance from banks to their corporate clients.

State-owned enterprises
The region’s regulators also need to address corporate governance standards in State-Owned Enterprises (SOEs) which are a major and pervasive part of the economic system. Improving the corporate governance of SOEs will lead to mutually reinforcing multiple rewards of significant efficiency gains, improvement in the quality of public services, increased foreign investment and ultimately improved growth prospects. In many instances, better performing SOEs can have positive fiscal implications, insofar as government budgets are all too often called to the rescue of large SOEs. Many argue that a level playing field with the private sector, reinforced SOE ownership function, improved transparency, empowered SOE boards and improved accountability is needed.

State audit institutions who act as guardians and protectors of the state and public interests can and should adopt corporate governance principles in their review of and assessment of SOEs, their performance effectiveness. Adopting the OECD SOE Corporate Governance principles would be a natural extension of the role and mandate of State Audit Institutions, beyond the strict and traditional boundaries of financial audit and recognition of the fact that better corporate governance results in improved financial and risk management and results.

Insolvency & creditor rights
But it should also be remembered that although corporate governance codes form an important part of the overall governance framework, legislative reform in related areas is also needed to make the region more investor-friendly. There is a clear link between insolvency practices, the protection of creditor rights, corporate governance, foreign investment and access to credit and capital.

Currently, in the MENA region, insolvency systems function less effectively than they do in many other regions across the globe, yielding extremely low stakeholder returns. Throughout MENA, it takes 3.5 years for a company to go through insolvency, which is double the OECD average of 1.7 years. On average, one might expect to recover about 29.9 cents on the dollar (OECD about 68.6), at a cost of 14.1 percent of the estate, while in Bahrain (the highest) you would expect to recover 63 cents on the dollar.

It has been said that the region requires effective debtor-creditor regimes and modern insolvency regimes to address the weaknesses that have been uncovered by the crisis. To this end, Hawkamah has launched – with the World Bank, IFC, OECD and INSOL International – a Regional Forum on Insolvency Reform in MENA (FIRM). FIRM aims to engage, educate, and inform stakeholders about the reform process, serve as a platform for sharing international and regional best practices and provide technical assistance for countries wanting to reform.

The MENA region has been striving to improve governance standards and much has been achieved in a relatively short period. However, there clearly is no room for complacency. The region’s regulators need to build on this momentum for corporate governance to take root, especially in the areas of transparency and disclosure, board practices and risk management, whether in the realm of listed companies, banks or state-owned enterprises. This will require that the region’s regulators themselves embrace highest governance standards – accountability and transparency. This, of course, is something that not just the MENA regulators should aspire to.

Gulf values to catch up with emerging markets

Posted on April 12, 2010June 12, 2013 by itsupport

Though foreign investors have slowly started coming back to the region, there still exists a 40-50 percent discount between the Middle East markets and that of the emerging economies, mainly the BRIC nations, said Zin Bekkali.

“BRIC is still beautiful, the fundamentals are similar to the region but it has got expensive now. So that valuation gap has to bridge and the discounts will disappear,” said Bekkali, who heads the asset manager focused on the Middle East, Central Asia and Africa.

The MSCI Emerging stocks Index, gained more than 78 percent in 2009, significantly outperforming the MSCI Arabian Markets Index, which rose only around 22 percent.

Bekkali said traditionally Arab markets have shown a strong correlation with those of BRIC economies with both regions following a similar performance pattern till 2008.

But in 2009, when emerging economies witnessed huge inflows, Gulf markets got little attention from foreign investors who stayed away mainly due to concerns about Dubai’s debt issues.

The executive believes that with limited opportunities existing in emerging markets currently and improved risk appetite among foreign investors, valuation discounts will disappear.

“It can disappear in the next three months or it can take two years but it will disappear as fundamentals remain the same,” he said.

Silk Invest runs a Middle East-focused equities fund along with two other funds. It also recently launched a new private equity fund focusing on the food sector in Africa.

Perception problem
Bekkali said the Middle East markets also face a perception problem as most investors overlook the fundamentals of the economy and strength of its corporations while perceiving them to be too risky.

“The Middle East has a big perception problem. From a risk point of view, it is not higher than any other emerging market like India, China,” he said.

Bekkali believes that the region is not doing enough to explain to foreign investors about the diverse set of companies or growth opportunities.

“A lot of people when they think about Dubai, only think real estate and tourism. They don’t understand the number of strong companies in the region,” Bekkali said.

The CEO also said that long-term investors like pension firms and sovereign wealth funds need to increase their regional allocation as they understand the region better and have burned their hands previously investing abroad.

“They (sovereign funds) have lost lots of money by investing in the western world and they have a long-term horizon and from that sense it pays off to be investing in higher perceived risk markets,” he said.

Southeast Asia could grow 5.6% this year – ASEAN

Posted on April 6, 2010February 14, 2012 by itsupport

Southeast Asian economies will grow up to 5.6 percent this year but the expansion could be jeopardised if economic stimulus is withdrawn too early, according to a report by a regional body.

Nevertheless, the governments of the 10-member Association of Southeast Asian Nations (ASEAN) need to design an orderly exit strategy to show that they have inflation expectations under control, said the latest draft of the ASEAN Surveillance Report. “Following the pace of growth in Asia, the ASEAN economy will grow by about 4.9 percent to 5.6 percent in 2010 with ASEAN economies recording moderate to strong growth,” it said. The report was presented at a meeting of deputy finance ministers and central bank governors.

ASEAN comprises an array of economies at different stages of development including Brunei, Cambodia, Laos, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Asia is leading the global recovery, in part thanks to robust stimulus policies launched during the financial crisis.

All eyes are now on how and when these countries take back the stimulus and address what some economists see as a rising risk of inflation.

The ASEAN report said “the urgency for exiting from stimulus measures was not high as the inflation risk remains benign, debt levels are sustainable and there is little evidence that private demand is self-sustaining”.

The region needed to design an exit strategy “to anchor expectations and to assure the community that expansionary policy settings will not lead to inflation and further financial instability”, it said.

“Timing is crucial as moving too early could undermine economic recovery while prolonged action could create costly distortions and volatility.”

The report advised countries to remove special financial and credit support before raising interest rates. So far, Malaysia and Vietnam are the only two ASEAN members who have raised rates.

“As economic growth is far from self-sustaining, the fiscal stimulus should continue, though fiscal consolidation measures should also be put in place,” it said.

Authorities needed to use monetary and exchange rate policy to “minimise the incentives for volatile capital flows and cross-border transactions”.

It said it might help to “tighten prudential limits on capital inflows and to monitor highly leveraged institutions and to ensure that excessive risk taking is not happening”.

Blazing a trail

Posted on February 22, 2010February 9, 2012 by itsupport

Winner of this year’s World Finance award for corporate governance in Turkey, it is no surprise to Turkcell’s stakeholders that the telecoms giant would receive such acclaim. After all, Turkcell is the only Turkish company to attain listing on the NYSE (TKC), which occurred in 2000, the same year as it joined the Istanbul Stock Exchange. Since its formation in 1994, Turkcell has been the leading communications and technology company in Turkey and a major international operator.

Turkcell is the market leader in five of the eight countries in which it operates (Azerbaijan, Belarus, Georgia, Kazakhstan, Moldova, Northern Cyprus and Ukraine.) In Turkey alone, Turkcell has 36 million subscribers (as of September 2009), making it the second largest European mobile operator.

In 2008, Turkcell’s revenues reached $7bn (with a 37 percent EBITDA margin) yielding a net income of $1.8bn. In the first nine months of 2009, Turkcell recorded a gross revenue of $4.3bn (with a 34 percent EBITDA margin) and a net income of $922.9m.

Corporate governance
Being the only Turkish company to be listed on the New York Stock Exchange, it stands that the company’s corporate governance standards are exceptional and adhere to the requirements that come with NYSE membership. The company discloses information on a regular basis to conform with the regulatory requirements of Turkey’s Capital Markets Board (‘CMB’), the Istanbul Stock Exchange, the Securities and Exchange Commission and NYSE Euronext.

The company’s disclosure policy ensures active and transparent communication which is complete, fair, correct, timely, clear and cost-effective and equally accessible for all stakeholders. Turkcell’s interim and annual financial statements are prepared in accordance with the regulations of the CMB and IFRS published by the International Accounting Standards Board. Turkcell management host global teleconferences with analysts and investors following the release of its financial results and engage with the media both in Turkey and internationally.

Growing operations
Overall, Turkcell serves a population of 160 million customers in eight countries. Turkcell’s international presence dates from 1999 when it formed KKTCell in Northern Cyprus. Since 2000, Turkcell has been operating in Azerbaijan, Kazakhstan, Georgia, and Moldova through its 41.45 percent stake in Fintur. Turkcell has also had operations in Ukraine since 2004 and in Belarus since 2008.

Turkcell and has made $8.2bn US worth of investments since its foundation − excluding license fees – and remains opportunistic about M&A. In 2010 and beyond, Turkcell’s growth strategy will continue to be focused on organic growth, whilst selectively seeking and evaluating new investment opportunities in international markets and adjacent and new business opportunities.

Innovations in technology
Turkcell’s strong infrastructure, innovative products and commitment to provide high quality services are the reasons behind the company’s success and market leadership.

The huge customer interest in Turkcell’s 3G offering exceeded expectations and the company has been able to offer increasingly innovative mobile services to its consumer and corporate customers. Turkcell’s high quality network enables it to further build its wide portfolio of products and services. Innovative services Turkcell has launched include videocall, mobile TV, video surveillance, video chat and video messaging. Turkcell distinguishes itself from its competitors through its massive distribution network: a full 87,000 sales points. The company’s distribution channel acts as a sales force, equipped with all the latest technology.

A good example of Turkcell’s technological leadership is a recent initiative in collaboration with Turkey’s Directorate General of Coastal Safety. Together, they pioneered the “Remote Management of Lighthouses’’ project to bring the latest technology to lighthouses and reinforce existing infrastructures.

Turkcell’s technological leadership has also been recognised internationally. At the GSMA World Congress in Barcelona in 2009, Turkcell won the award for Best Mobile Advertising Service, honoring outstanding achievement in an industry renowned for its innovation. Turkcell also received an award for the “Best Mobile Content Development” for its ‘Turkcell NTV VIDEO News’ service at the prestigious Mobile Excellence Awards programme.

Turkcell has always led the way in bringing new technology to Turkey. The company is passionate about encouraging innovation and values external sources to generate ideas for new products and services. Turkcell promotes platforms to encourage innovation, making Turkcell a product and services “idea-sharing” hub. The company has established internal teams of employees from different areas to evaluate ideas. Periodically, it runs evaluation meetings to select the best ideas and to decide how to develop them into competitive offerings.

Turkcell’s recently launched partner portal (turkcellpartner.com) serves its existing partners, as well as potential new partners, with content reflecting its technical and business know-how, partnership mechanisms and procedures, and technical capabilities. Turkcell Technology, founded in 2007, aims to provide world class technology through a local work force. Turkcell Technology’s success is reflected in the fact that, on average, it has filed for a different patent every month of its existence. The trail blazing continues and Turkcell doesn’t disappoint.

3G Revolution in Turkey
While 3G mobile may be “old hat” in Europe since its launch early in the new millennium, and had a lacklustre launch in those times, the launch in Turkey in July, 2009 further cemented Turkcell’s hold against its competitors, Vodafone and Avea. With more than 19,200 base stations, Turkcell has the best mobile coverage (99 percent of the population) and highest quality network in Turkey. Today, with 36 million subscribers, Turkcell provides 3G services to a whopping 65 percent of the Turkish population.

Turkcell’s VAS revenues comprised 15 percent of its consolidated revenue in the third quarter of 2009, compared to 14 percent one year earlier. Going forward in this new 3G era, Turkcell’s 3G business model is forecasted to drive growth in its VAS revenues through increased use of mobile broadband and services.

Leading emerging markets

Posted on February 22, 2010February 9, 2012 by itsupport

Founded by entrepreneur Laércio Cosentino in 1983, TOTVS is the largest emerging markets software firm and the world’s seventh largest firm specialising in the development and sale of Enterprise Resource Planning (ERP) software. The company has five thousand direct employees and another four thousand indirect employees, operating 208 franchises in Brazil and around the world.

Focused on the IT segment, TOTVS’s growth has been fast, well structured and transparent. As early as 2005, the company adopted an external auditing procedure and it was the first private company to win the national prize awarded by the Brazilian Institute of Corporate Governance (IBGC) recognising the company with the best corporate governance practices in Brazil. Transparency has always been a core value at TOTVS, which sells more than software; it also sells longevity – its own, by investing in research and development, as well as that of its clients, who can count on the company to provide durable and constantly updated solutions.

In 2006, TOTVS became the first Latin American IT company to hold an IPO and to list its shares on the Novo Mercado segment of the São Paulo Stock Exchange. To this day, the company maintains its listing on the Novo Mercado segment, the Bovespa corporate governance category with the most stringent requirements.

The company’s concern for its management is reflected in the composition of its board of directors, which has been comprised of at least 70 percent external members over the past seven years, as well as in its decision to create Auditing and Compensation committees.

Intent on leading the consolidation of its sector, TOTVS has acquired several important competitors in Brazil (such as Logocenter, RM Sistemas and Datasul) significantly increasing its portfolio and its vertical operations, which are divided into specialised market segments and have the ability to serve any client, regardless of size. TOTVS also entered into a joint venture agreement with Quality, creating TQTVD, giving it a presence in the digital television segment. All told, the company is comprised of a total of 23 individual firms and has more than 9,000 employees.

The experience TOTVS has gained through its acquisitions and mergers have positioned the company as an Administrative Operator, an intelligent and challenging concept. More than just supplying software, the company focuses itself on best business practices and positions itself as the provider of a variety of solutions that, in addition to software services, include consulting, technology services and value-added services such as BPO, infrastructure, educational and service desk solutions.

TOTVS is the only Latin American company with a proprietary technology platform for use in the development of its software solutions and it possesses operational expertise in the following 11 segments: health care, agro-industry, legal, financial services, distribution and logistics, retail, education, construction and projects, manufacturing, small businesses (series 1 and 3) and services.

The company currently has operations in 23 countries and owns six units in Brazil and 15 others distributed throughout Argentina, Mexico, Portugal and Angola. TOTVS’s portfolio totals 24,200 clients.

Strength in operations
TOTVS’s goal is to expand its operations in specialised markets, and the company has defined business segments to which it can offer software solutions with specific characteristics. The company’s segment-specific solutions go beyond the automation of back-office operations to include applications with specific functionalities for each of the segments. In order to advance in each of the segments, the company is among the biggest spenders on research and development investment in Brazil. Last year alone, the company allocated $65m to R&D.

An intelligence unit has been created for each segment that, among other activities, is charged with elaborating its operational strategy and is responsible for maintaining relationships with the market, identifying strategic partnerships and communicating material facts and information to the sector. The company’s goal is to offer personalised software solutions for the market in which its clients operates, while taking into consideration the specific challenges and compliance with the legal requirements pertinent to each segment.

Accomplishments
The past year was a period of growth and accomplishment for TOTVS. The company celebrated record sales, an increase in market share (it leads the market with a 38.7 percent share), new acquisitions, brand consolidations, the announcement of new products and the strengthening of its business segments.

In the first nine months of 2009, TOTVS posted $366.6m in net revenue, a 7.6 percent year on year increase. EBITDA totaled $94.1m in the 9M09, a 32.5 percent jump over the 9M08. In the same period, net income came to $58.2m, a 7.9 percent increase over 2008. EBITDA margin rose by 490 basis points relative to the 9M08.
The group’s 26 years of market operations led to a number of prizes in 2009, including Best Corporate Governance in the Technology Segment category and, for the second straight year, recognition in the top five Corporate Governance – Best of Brazil and of Latin America ranking by MZ Consult, a leading investor relations and financial communications firm.

In 2008, the company won IBM’s international award for “Best Partner – Innovation That Matters,” having been identified as one of 50 “local dynamos” in a listing of case studies of successful businesses published by Boston Consulting Group (BCG), one of the largest consulting firms in the world. The company was also mentioned in an article published in the Harvard Business Review that highlighted its business model and the aggressive strategies it has employed in its consolidation of the Brazilian market.

TOTVS is also active in the communities in which it operates. The company understands that corporate social responsibility is an integral part of its business, which is why it has operated the Social Opportunity Institute (IOS), a professional training programme for low-income youths, for 10 years. More than 18 thousand students have already completed the programme. IOS gets help and support from TOTVS’s clients and partners.

Entrepreneurship, leadership, a consolidating spirit and transparency are among the core values of TOTVS, a company that operates in a broad and still little-explored market. These credentials, along with the fact that TOTVS is the only emerging markets company to develop state-of-the-art technology from which to develop its software solutions, are fundamental aspects of the company’s long term prosperity and that of its clients and investors.

For more information, visit: www.totvs.com