Targeting international investors

Frank Ford

Director, Middle East & Africa

Setting the scene:How is Palestine viewed?

NO Classification: MSCI Frontier, S&P, DB Trackersmeans no/limited ‘passive’ investment

Limited historical financial data available

‘Active’ investors will show interest = stock pickers

Whilst ‘standalone’, useful to benchmark against mixture of MENA peers

Iran, Iraq, Saudi Arabia, Yemen, Syria, Jordan^,UAE^, Lebanon^, Palestine, Kuwait^, Oman^, Qatar^,Bahrain^, Tunisia^, Algeria, Morroco*, Libya, Mauritania

* Emerging Market, ^ Frontier Market

Source: Factset

RegionMENA country investment

Number of institutions & SWF’s

Middle East $173,727,801,307 51

North Africa $6,166,175,529 4

UK/Ireland $3,004,185,298 92

North America $2,623,560,836 86

Asia $795,992,798 19

Europe $792,706,469 123

South Africa $11,984,700 2

Oceania $6,830,531 4

Latin America $696,276 1

Grand Total $187,129,933,744 382

Total ex MENA $7,235,956,908 327

Total US/UK/EU $6,420,452,603 301

Setting the scene:Current Intl investment in peer set

Large retail base

Saudi – 91% trading on Tadawul is retail

UAE – 80% of entire trading is retail

66% of ME Institutional assets located in Saudi Arabia*

Why target Intl investors?Middle East

* Shuaa Capital – MEIRS conference

Additional source of capital

Encourages transparency & corporate governance

Credibility

Valuation

Liquidity

Stability (Institutional vs. retail)

Why target Intl investors?Benefits

In an ideal world a company would have a clear objective of the types of shareholders they would like to have in the future

The targeting process should be based upon anticipating what is likely to happen and not based ONLY upon what has happened

The challenge is to find investors whose investment profile matches your future investment proposition

The better the Targeting, the better control there is over the shareholder structure

Targeting – A strategic Planning discipline: Taking control

Are you looking for liquidity or stability? Are you looking to diversify the shareholder base? Which shareholders are likely to rotate out and

when? Which current investors could buy more shares? Who is not investing yet but could be? Where are the strengths and weaknesses in the

shareholder base?

7

Structuring the shareholder base:Some questions to consider

The starting point for developing your Targeting Programme

Step 1 - The “stock take/health-check” – Where are you now? A clear understanding of this will help guide your targeting

The first step is to have a clear understanding of who is already holding your stock and why

The second step is to identify which shareholders could rotate out of the stock in the future

The third step is to determine the impact that this selling activity is likely to have on liquidity and smaller investors

Points for consideration - Investors Geographic Distribution

% Outstanding Standard Deviation% Outstanding

-0.2

-1.3

0.3

2.1

-0.7

-3 -2 -1 0 1 2 3

18%

9%

5%

28%

35%

20%

13%

4%

30%

38%

0% 10% 20% 30% 40%

Domestic

UnitedKingdom

Rest of World

NorthAmerica

Cont. Europe

High-Risk Typical Client Value Peer Median

Investor Geographic Distribution

Although increased foreign investment is often very much desired, dependence on any one region for support can have significant impact on the turnover of your shareholder base.

Geographic considerations

Perceived strength of your company’s country or region Regional/Global stability concerns Currency strength/weakness Governmental and/or regulatory impact

Points for consideration - Concentration of Shareholders

0.2

0.2

2.2

0.6

-3 -2 -1 0 1 2 3

63%

85%

22%

39%

60%

80%

35%

45%

0% 20% 40% 60% 80% 100%

Top 5

Top 10

Top 25

Top 50

High-Risk Typical Client Value Peer Median

% Outstanding Standard Deviation% Outstanding

Concentration of Shareholders

Although it is often typical and potentially beneficial to have a few “anchor” investors at the top of the shareholder register, a shareholder base that is too concentrated can be cause for concern.

Pricing impact

Potential to trade in large blocks in the event of a bid or corporate action

Disproportionate affect on voting

Lower “real” float; liquidity

Higher likelihood of regional concentration (as per previous page)

Points for consideration - Current Shareholder Entry Points and Trading Exposure

0

10

20

30

40

50

60

70

80

C urrentQ1-09Q4-08Q3-08Q2-08Q1-08Q4-07Q3-07P revious0

10

20

30

40

Shar

e Pr

ice

New

Ent

rant

sShare Price

Price Paid by New EntrantsPricing Trend Number of Entrants

Current Shareholder Entry Points and Trading Exposure

It is assumed that investors which have suffered large losses or benefited from large gains are more likely to part with their shares.

The aim is to best estimate when the current shareholders entered the stock so as to estimate the number of investors which would be considered likely to be at risk.

The analysis should be viewed in the context of the general market and sector performance and be read in conjunction with the active versus passive analysis to give a picture of those individual investors at risk.

Mixing art & science

Value orientated investors hold 51% of shares, GARP = 20%, Growth = 15%, remaining Hedge Funds, Income, Index

Top 20 investors hold 66% of the shares

Top 10 investors hold 53% of the shares

Top 4 investors hold 30% of the shares, all value investors

Concentration &

Rotation risk

Step 2. Identify targets with the “Appetite” to buy

Monitor current buying and selling activity in the peer group

Monitor current capital flows across the sector

Monitor current capital flows across the region

Monitor qualitative sentiment – VERY important to balance this with quantitative data

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How can targets be evaluated?

Step 3. Identify Targets with the capacity to buy

Net asset value of the fund % Fund exposure to the sector % Fund exposure to the country % Fund exposure to the rest of world Top 10 holdings of each individual fund

17

How can targets be evaluated?

What information sources can you use to determine who to Target?

The Share Register

A Broker / Bank

A “Public Filing” Database

Bespoke Analysis

The “Weighting” objective

Most Targeting methodologies rely on a “Weighting Principle”

This is achieved by identifying funds/institutions that are currently overweight in the peers/sector/region but underweight in you

The goal is to be at least fairly weighted

The objective is to identify funds/institutions that are currently buying into the peers/sector/region

There exists a lack of both “up to date” and complete information. Also, public data sources do not identify who makes the investment decisions for multi-managed and outsourced funds

Why? It’s driven by the US 13F Mutual Fund Filing mechanism which only stipulates 4 filings per year, there is a lag time of 45 days in which to file and “portfolio washing” or “window-dressing” is clearly evident. Quarterly EU Mutual Fund filing is limited to only Sweden & Spain. The rest are mostly twice per year.

Europe: Mutual Funds only represent (approx) 25% of investments Pension Funds Insurance Funds Sovereign Wealth Funds Hedge Funds Stock Lending Accounts Prime Brokerage Accounts Market Making Positions Private Equity Funds Retail

Few if any “file” or appear in public databases

The problem with “Public data”

Bespoke vs. Public DataSouth African Case Study | Buyers

21

Bespoke revealed the above named investors as the five largest buyers into South Africa and in every case public information has failed to pick up the true magnitude of the share acquisition by these investors.

293

130 126 119101

31

91

24

83

-2-50

0

50

100

150

200

250

300

350

NWQ Investment

Management Co. LLC

Franklin Advisers, Inc.

Capital International,

Inc.

Barclays Global Investors NA (California)

T. Rowe Price Associates, Inc.

USD

(m

illio

ns)

Bespoke

Public

Bespoke vs. Public South African case study clients - Sellers

-59

-50 -48 -47

-33-37

2

-11

-70

-60

-50

-40

-30

-20

-10

0

10

D. E. Shaw & Co., Inc.

Lazard Asset Management

LLC

Emerging Markets

Investors Corp.

Batterymarch Financial

Management, Inc.

Federated Investment

Management Co.

USD

(mill

ions

)

Bespoke

Public

Bespoke data reveals the above named investors as the five largest sellers of South African stocks while public data is yet to be updated with their latest holdings

Identify current holders

Communicate story to the market

Evaluate success

Reassess goals & perception

INVESTOR RELATIONS

Identify potential holders

Targeting: A continuous cycle

Targeting – In Summary

Take control Determine who you want as shareholders…and why? Determine what is likely to happen to your existing

shareholder base going forward – “Stock take” Identify those institutions who are going to be most

interested in your FUTURE investment proposition…and check your messaging!

Segment the investment community based upon where you believe you will get best future traction

Balance quantitative ‘weighting’ with qualitative sentiment Use as many different sources of help possible to maximize

the success of your targeting programme A constantly evolving process