Monday, October 24, 2005

Of Road-Shows, Dream Teams, Foreign Funds & Research

ECM Libra and Merrill Lynch led 'a dream team' to make pitches to players in London on Sep 12 and New York a day later. The team was led by our Prime Minister Datuk Seri Abdullah Ahmad Badawi, atgged along by Azman Mokhtar, the head of state investment agency Khazanah Nasional; Lim Kok Thay, the head of gaming conglomerate Genting; Francis Yeoh, the owner of power and infrastructure company YTL Corporation; Ralph Marshall, the chief executive of satellite TV provider Astro All Asia Networks; Ahmad Zubir Marshid, the chief of Sime Darby; George Ratilal, the finance head of oil company Petronas; Nazir Razak, the head of investment bank CIMB; and Tony Fernandez, the chief of budget airline AirAsia.

A week after the road show, Merrill Lynch downgraded Malaysia to 'underweight' while upgrading that of South Korea. The Singapore Business Times opined: "With one voice the global investment bank Merrill Lynch sings praises of Malaysia as an investment haven and with another it is warning the investors off, much to the irritation of parts of Kuala Lumpur's business and government community... Merrill's regional strategy report dated Sept 20 was essentially a plug for the Korean exchange".

Could that be interpreted as a putdown of the "success" of the road show? I think not. The Business Times reporter did not appreciate the workings of a investment house and the overall purposes of a road-show. There is such a thing called "the Chinese Wall" or the independence of research from corporate finance/investment banking. In fact, International investors will appreciate the independent calls from Merril's Research group which refused to play along with their investment banking counterpart. CLSA and UBS also came out with similar downgrading research recommendations on Malaysia within a couple of weeks of the Merrill's report - should we read something more sinister into this also??!!

Commentators who think that the Merrill's research report is a "slap in the face of the organisers" probably have a naive appreciation of the working of a financial powerhouse and the overall purposes of doing a road-show. Possible reasons for doing the "road show":

1) dream team effect to lure fund managers and bankers to the presentations

2) future capital raising agenda, be it a specific corporate multi billion bond issue or even government bond

3) to generate positive perception for global investors in Malaysian market

4) for organisers to latch onto bigger and more important fund managers and bankers for networking purposes

5) to encourage global investing audience to put these companies on the radar for future "capital raising/investing" purposes

To think of doing a roadshow to encourage more buyers for a certain stock is so naive and 1990s - nobody worth their salt would do that or even need to do that. So, to even link the downgrading of markets is not even necessary. Markets get down graded and upgraded relative to other markets competing for the same group of investors. Now that Malaysia has been downgraded by a few foreign houses, people suddenly are bringing up various factors why they are ignoring Malaysian stocks - low returns, transparency and governance not sufficient, lack of liquidity, blah blah... A year ago, when foreign houses were recommending buys on Malaysian stocks, does that mean these reasons do not apply then.

As for the bumiputra tycoons & CEOs who felt slighted on not being invited to the road-show ... please look at the bio-data of the companies invited to give presentations. It is so obvious from the list that the companies all can/will be raising large sums of funds in the forseeable future (we should be looking at upwards of US$500m bond issues)...or possibly government bonds. So if your company is not invited, well, you are not big enough, and it has nothing to do with race.

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