Implementing IR for all classes of capital

IR practice has been built primarily around equities, but other types of corporate capital are increasingly requiring the attention of finance and IR professionals, as Susan Davy and Sarah Heald report.

We know the role of IR is expanding rapidly, with directors and heads of IR increasingly being encouraged to work closely with corporate finance and treasury teams in the development and execution of financial strategy. 

The job today is far more than managing the financial calendar and making sure the roadshows run smoothly. Knowing how and when to access the capital markets and for which product is becoming an important part of an IR professional’s role. 

Susan Davy: the CFO’s perspective...
As CFO of an infrastructure company, we’re in the business of investment. Large funding requirements are a fundamental part of our day to day business and require a constant balancing act. It’s my job to maintain an efficient balance sheet, but one that’s flexible enough to enable us to grow. Part of that is selecting the right type of finance – long-term debt for long-term assets, shorter-term for liquidity and working capital management and equity as an important feature of a water company’s capital structure. Institutional investors are increasingly sophisticated and collaborative, they work across product types and themes so we need to think about the fact that the debt investor speaks to the portfolio manager of the income fund and both seek the views of the in-house analyst. Given that is how our investors operate, my team needs to work more closely too. I don’t see a lot of distinction between debt and equity IR anymore, I just see IR as a core part of successful corporate finance. We look to our IR team to help us match the right investor to the right product.

The capital markets provide an excellent source of additional funding for companies like ours. In the last few years, we have raised both equity and debt. I’m often asked why we don’t have a credit rating and whether that has an impact on our ability to raise debt at attractive rates. We have considered the option of a rating, but they do have a significant cost attached. When we have one of the lowest costs of funding in the water sector, why would we seek a rating. That said, we do keep it under review. I would encourage companies, even unrated ones like us, to look at the capital markets. 

My experience has always been that when a business with a compelling investment case and a strong IR function goes to the capital markets, it should achieve a good mix of interest between existing investors and new ones. Since I’ve been at Pennon, the overwhelming response we have had to equity and debt placings have been an important indicator of investor backing for our strategy. That said, as CFO I wouldn’t have been confident going forwards if I didn’t have the IR intelligence and support I have. Within corporate finance, we rely on IR to provide the guidance and insight that helps to inform timing and investor appetite for an issuance, that’s ultimately what helps build an oversubscribed order book and deliver a successful outcome. 

Sarah Heald: the IR director’s perspective...
Working with corporate finance is an exciting opportunity to develop a wider skill set and play a greater part in shaping the future of a business, which can ultimately put you on a path to the C-Suite. At Pennon we’ve regularly accessed the capital markets to finance our growth plans. Since I joined as IR Director, I have been part of the core team working on M&A, an equity placing, covenant renegotiations and most recently a £300 million hybrid that made history with the lowest ever coupon in the sterling market.

When we were acquiring Bournemouth Water in 2015, a number of financing options were open to us. After careful consideration we chose an equity placing. It made sense to pick equity not debt as water businesses need equity in perpetuity. It was a very good example of why we work hard day-to-day in IR to make sure we know our investors and our company’s investment case is well-understood. Investors understood and supported our strategy, so they were ready and willing to participate in the placing. The order book was substantially oversubscribed and the placing shares had a minimal discount to the share price. 

Similarly, in September this year we wanted to raise funds for an additional £430 million of investment into two new Energy from Waste plants. This time, we were looking for a shorter funding duration to manage our liquidity. We assessed the options and decided on a three-year equity-accounted hybrid. With a debt investor target list, IR, treasury and finance worked hand in glove to identify the right mix of investors, many of them the same institutions we have in our shareholder register. The individual investors may be different, but institutions are sophisticated and they work increasingly closely with their colleagues across product types and themes. It’s the IR’s job to understand this and manage the relationship. 

For companies with a strong investment case, a clear strategy and a great IR team, the capital markets are very much open and ready to be accessed.

Susan Davy is chief financial officer and Sarah Heald is director of corporate affairs & investor relations at Pennon Group.

Published 17 October, 2017