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Why you should focus on debt investor relations

Publication Date: 06 Sep 2018 - By Lorraine Rees By Lorraine Rees
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Macro Equity Fundamental Environmental, Social & Governance Multi Asset Equity EU ex-UK MENA USA Asia ex-China China UK Financial Services

Debt is a critical source of company funding, and the benefits of an effective debt investor relations (IR) programme are increasingly being recognised. Debt investors are an important community, as well as being an engaged and receptive audience.

Companies who engage with debt investors regularly, and not just during issuance, demonstrate best practice, plus good debt IR could potentially help reduce the cost of issuing debt, increase the demand, and have a positive impact on the company reputation and even the equity share price. Taking a proactive approach to debt investor relations is not difficult, but it does differ from equity IR in several key aspects.

The appropriate amount time invested in a programme of meetings will need to be agreed between the Treasurer, IR, CFO, and others if appropriate. It will depend, amongst other things, on the complexities of the story and whether you are, or plan to be, a frequent issuer as there is a cost-benefit analysis to consider.

The first challenge with debt IR is to identify who your debt investors actually are. Unfortunately, there is no share register like there is for the ordinary shares. With a new issue you will know the initial allocations, but as soon as trading commences this quickly becomes out of date with 'xxx%' trading in the first few days. The only solution to this dilemma is regular communication with the market and developing a relationship where debt investors will let you know (even if only roughly) what their current holding is.

Once you are engaging with debt investors, you can start to build an effective communications plan. In terms of activities, this would look very similar to a typical equity IR programme, including roadshows and events. These would be aimed at existing holders as well as potential new investors. There is an added benefit that when you do come to market with a new issue, many of the potential investors will already understand the strategy and investment case. This can then facilitate their investment decision.

Another difference to equity IR is the focus of the investors. Of course they will still want to hear about the group strategy, but they will also have additional questions which are more balance sheet focused, and an interest in the specific terms of any instrument. Andy Mead, former Treasurer and IR Director at National Grid, says "80% of questions in a debt investor meeting will be identical to in an equity meeting, but you need to be prepared for the remaining 20%.”

This leads us on to the question of disclosure.

Clear, useful, and relevant information should be available for debt investors, just as it is provided to help equity investors. Yet the quantity and quality of debt information published by FTSE 100 companies still varies significantly, with much information directed primarily at equity investors.

In fact, many of the routine debt questions, the questions that make up the 20% that Andy Mead referred to above, can be addressed through simple disclosure. For example, presenting information on debt maturity profiles, gearing, pricing, terms, holding structures, etc.

The actions outlined above are an excellent place to start building your debt IR capabilities from. One final thought to leave you with; as with equity IR, work done when times are good, will stand you in good stead in the event of more challenging times.

 

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London, United Kingdom

info@reachx.co
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