'Putting Your Money, Where Your Mouth is'

07 Sept, 2002

Corporate finance and other consulting services have always been derided by the die-hard cynics as activities, where the concerned consultant borrows your watch and tells you the time! Of course this can be extended to castigate all advisory services. Just as a doctor will diagnose the health and the related requirements of his wards, so are the consultants expected to apply their expertise to identify the key issues for resolution. Some will walk away (with the fee cheque!) after producing a report, leaving it to the management and the board of these companies (i.e. the advisees, if that is an appropriate term!), to carry out the remedial measures. In the regional financial sector, advisory services are now becoming increasingly important and sought after. No surprise that many brief case consultants walk in with credentials and insights gained in different parts of the world, and then wish to apply their healing touch with all collective pool of information and experience at their command. In many instances, however reputable they are, they are not able to follow up and provide the money that need to be raised. This is so either because they are pure consulting entities or, for example, happen to be global investment banks operating in the Western world, whose bosses are reluctant to put such regional risks on their own books; even if they are forever ready to proffer advice to all and sundry!

The one exception of course is the IMF, the World Bank and the other multi-lateral agencies, who not only diagnose problems, but can then, put their money and clout where their mouths are. In some instances, they come in, uninvited with a heavy-hand or boot! We have all seen the innumerable controversies, on whether the multi-lateral agency medicines are the most appropriate to developing nations or whether they actually compound the problems further. In some cases, the IMF and World Bank have been accused of administering lethal doses or impose depressing 'diet' regimens that almost kill the patients in the operating theatre!

For instance, Mr. Mahathir Mohammed in Malaysia held out while the rest in the Far East, buckled into the pressures. He is a worthy survivor from the Asean crises, who scoffed at the IMF / World Bank recipes and has been proved right. All said and done, the IMF does pack a powerful punch in terms of the aid and soft loans that they are able to offer, in addition to advisory services. More importantly, they can restore the confidence in the markets and among other international lenders; especially when they certify compliance by the 'donee' countries.

At the corporate level, the situation is somewhat different. We are noticing a number of regional corporations and quasi-government entities keen to raise money from the market. In some instances, these are nothing more than promises on paper or having a state-backing. Their financial forecasts contain all the wonderful things that they may or will do in the future! That alone can be of little comfort to global lenders. Some wish to declare with a flourish that they will settle for nothing less than a full blown global bond!

Others have problems from their previous financial advisor(s) and are now switching to or wish to rescue themselves from unenviable situations. In all such instances, there has been a natural tendency to turn towards proven expertise i.e. to either the Big 5, if financial due-diligence is needed or to the multinational financial institutions for financial restructuring advice. Some of these global players are not present in the region but have been very cleverly stalking the corridors of corporates, wooing and winning friends among the top echelons of directors and government officials. Such cosy relationships prove to be good investments for them to thereafter 'cash' in; by softly nudging their contacts while bidding for assignments of this nature. In some instances, they have clearly targeted key decision-makers i.e. the chairmen, CEOs, directors and the functionaries responsible for fund-raising and critical consulting / advisory assignments in the govt. and corporate world.

These individuals are then personally and professionally badgered. In some cases, even the initial assignments are done without a fee, so as to get their foot / feet in the door.

This is where it is important for a regional entity not to fall a prey to such predatory techniques; given that they will be at the receiving end of much attention and wooing / cooing from the global who's who, whenever advisory mandates are on the anvil. The decision makers will need, in a sense, to detach themselves from the PR, the hype and the attention and develop perspectives as to what are in the best interests of their organisations. For instance, when it comes to fund-raising in the region, international financial institutions prove to be excellent in terms of their structuring advice, the documentation needed and the professionalism with which the entire transaction is executed. However, many of them do not have much of a placement prowess in the region and end up relying on local or regional institutions, with whom, they have cultivated relationships. Effectively, therefore, they are not able to put their money where their mouths are. It is prudent not to be taken in by what they weave and spin yarns of Powerpoint presentations to promise the moon. The 'deliveries' may end up being more than just a shade disappointing!

A second point to be borne in mind by the regional debt-raising issuers and other organisations, is that they themselves would be required to do considerable homework for such market-efforts and many of them may be ill-prepared to be able to do so. Their senior personnel often get ahead of themselves in wishing or committing to tap markets that require considerable transparency and documentation / disclosure and thus the resultant exercise leaves everyone, somewhat dissatisfied. These are issues that need to be carefully planned and correct advice obtained. There is no substitute for recent experience gained on the ground. A foreign label or brand equity in themselves, does not often pay beyond a point; literally!. A number of regional entities that went down this route, are still grumbling about how they were poorly advised and how the costs escalated significantly from where they initially projected them to be. The decision-makers tend to play it safe; as it is easy to deflect blame in the future, if a well-known international entity is appointed. On the other hand, if they go in for a regional organisation that may actually do the job better, they end up carrying some personal responsibilities.

This is a conundrum or a dilemma with which one can have a lot of sympathy but for the effective nurturing of the regional markets, it is essential to encourage a cross-fertilisation of ideas and experience by say forming advisory and arranger groups that bring in good structuring advice from reputable international institutions and at the same time, rope in regional institutions that will deliver. Such a winning combination can produce superior results. Ultimately the proof of the pudding is in the eating i.e. success versus the original objectives.

All such regional initiatives when rolled out, can be cobbled together to form a good case study for the regional academic or business schools to document i.e. how many advisory mandates were successfully concluded, what were the levels of satisfaction and more importantly, the measures and the rate of success against the initial objectives. Indeed there is a need for business schools to develop a range of corporate and financial sector case studies, so as to nurture the national business graduates in the right milieu. Otherwise, you may well have sound theoretical skills and expertise gained, in an external environment not properly grafted to suit domestic or regional requirements. This classic mismatch if entrenched, can result in some costly consequences in both the academic and corporate world.

(The author (sureshk@emiratesbank.ae) is a General Manager in Emirates Bank Group. The views expressed in this article are not necessarily shared by the Bank.)

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