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A frequent comment (or rather criticism) from bond investors based outside the Gulf is that entities within the region are not transparent enough.
The perception of these investors is that Gulf entities don't provide enough information (by way of financial and other disclosures) on a regular basis, don't make it easy enough for investors to have access to senior management officials, and don't keep investors informed about strategy and future plans.
In fact, occasionally, the insinuation is that Gulf entities are deliberately being opaque and may be trying to hide something.
What is really annoying about such comments is that in most cases they are unsubstantiated and completely without foundation. The people making these comments often seem to have little or no knowledge of the Gulf markets or indeed the entities that they are criticising. Furthermore, their views on lack of transparency are not formed after extensive research but instead a mere perception.
In reality, it can be argued that the situation isn't nearly as bad as some investors seem to believe. First of all, it can be argued that transparency is a relative concept. Here in the region there is a fairly broad spectrum among GCC entities. At one end there are some entities that provide insufficient transparency (but these are in the minority and are diminishing). Conversely, there are many entities which provide acceptable levels of transparency, and there are even some entities for which transparency levels can be classed as very good indeed. Overall, it is evident and encouraging that transparency among Gulf entities is certainly improving and will continue to do so with time.
Learning
We shouldn't forget that this is a relatively young market and therefore the entities concerned are on a steep learning curve. For many of them it is a new experience to issue bonds in the market and then be expected to provide bond investors with regular financial information, access to management, and to answer questions from these investors on an ongoing basis. For many of these entities, receiving calls from investors in say the US or the Far East and being asked detailed questions relating to financial, operational or strategic matters is a new and challenging concept.
That said, many entities in this region are making good progress along the learning curve and are able to furnish investors with a decent amount of information. In such situations, there is room for improvement, but nevertheless investors should be able to obtain the key information that they need. In some cases, companies are providing levels of transparency and investor relations services that are comparable to benchmark standards in more developed and mature markets. DP World is a good example of this.
Clearly there is room for improvement in terms of transparency among some Gulf entities, but it is important to bear in mind the context (that of a relatively nascent market wherein the entities are on a steep learning curve) and to acknowledge instances where entities have made excellent progress within a very short period of time.
Furthermore, investors can and should explore other avenues in terms of obtaining information about Gulf entities, such as contacting credit rating agencies and credit analysts (such as myself) - both of which have an important role to play in helping the region to remove the veil and stigma of perceived lack of transparency.
- The writer is head of credit research at HSBC Bank Middle East Ltd.
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