No Place for Dirty Games

Munir A. Makki, Managing Director & President of FINCORP, in a freewheeling conversation with Ramesh Kumar and Akshay Bhatnagar, talks about the business ethics and goals of his company besides larger issues related to investment banking and corporate management

How is FINCORP doing?
FINCORP is the single-largest investment banking company in Oman. We provide the full range of investment banking functions, including corporate finance and financial advisory services, asset and fund management, broking services and corporate research.

Currently, major stress in the Sultanate is on privatisation and infrastructure development. We are playing a major role in this process. We have handled the privatisation of Al Maha Petroleum Products company, and with other partners we handled the privatisation of Omantel. FINCORP also handled the government’s partial disinvestment of its stake in Oman Flour Mills Co. SAOG. We have also worked closely with ministries on various projects. In investment banking, especially in corporate finance, there is a shortage of such services in this country. They are primarily fee-based and require high calibre of human resources. We want to grow our fee-based business from 55 per cent to 80 per cent.

Is there a reluctance on the part of your clients to pay?
In general, clients are reluctant to pay for investment banking services. Many corporates in Oman are not fully aware as to what companies like ours can do for them. There is also resistance from the management of some of these companies to engage investment bankers to help them, irrespective of their ownership status. They feel that we are invading their privacy; whereas in reality we can add real value.

Perhaps they hesitate to share information with companies like yours due to the fear that you might play dirty?
We are a public-listed company. We cannot play dirty games. Confidentiality is the guiding factor in our operations. We have to be upright otherwise we will lose our credibility in the market. We have even worked with and done corporate finance deals for many family-owned businesses…we did our job very well.

Don’t you get tempted to do some insider trading as you manage funds running in millions of riyals?
We can’t do that. It will be picked up very easily by our internal auditor or compliance officer or Capital Market Authority (CMA) auditors. Ours is a public-listed company and we spend nearly RO100,000 per annum to adhere to corporate governance norms. We have internal and external auditors, compliance officers, legal advisors and we are subjected to CMA audit every year. They will raise questions – why we manage the portfolios in certain ways and why we buy and sell shares at specific times and whether this is in compliance with the portfolio agreements signed with our clients. These checks and balances keep my colleagues in the company alert and vigilant. The ultimate benefactors of these controlled procedures are our clients, shareholders and stakeholders.

Is there a Chinese wall between your different divisions?
Absolutely. It is never breached. I’ll give you an example. We did the restructuring of a public stock company. At that time, its shares were hovering around 700-800 Baizas. We knew that after the completion of this assignment, its share value in the market would increase substantially. The corporate finance division handled this assignment. However, the asset management division of FINCORP, which functions on the other side of the Chinese wall, was not aware of the assignment and did not pick these shares. They started buying that share when it reached the level of RO1.2 when they found that the price is going up as a result of the restructuring. That is the advantage of dealing with a public-listed company like FINCORP.

What is your assessment of the structure and quality of management in the corporate sector?
The competition is getting stiff day-by-day. FTAs and WTO are opening the doors of competition. And any company that resists change and is not scaling up the competence of its management, will ultimately lose out.

There are issues of favouritism and interference in the functioning of some companies. But the management should remain firm. In fact, the shareholders should be very selective in choosing their board members.

Is there a shortage of quality people who qualify as board members?
I don’t think there is a shortage of quality people. May be, at times, some quality people do not get enough votes to be elected. While selecting a board member, shareholders should ask this question – is he/she going to add value? It is also better to have some independent non-shareholding members on the board.

Applying the same yardstick, how would you describe FINCORP’s board?
Almost 80 per cent of FINCORP’s shareholding is controlled by institutions. When institutions are buying your shares, it is a good sign; it means that these institutions have confidence in the management and the future prospects of the company. We at FINCORP have an excellent Board of Directors who are not only adding value but also challenging the management at all times and keeping us on our toes.

Do you also have independent directors on board?
Out of seven board members, we have one independent director.

How is FINCORP strengthening itself to face the days ahead?
Our strategy is to build the business on the strength of our people. We work towards hiring the people with right blend of professional qualifications and experience and invest back in them to upgrade their skills. With the right team in place, we can maintain high standards of management and cutting-edge customer services to withstand competition from even large multinational companies.

In terms of revenue streams, what is your focus area?
We want to reduce our dependence on revenues coming from asset management and brokerage, as they are linked to the stock market, which, as you know, is volatile. As I said earlier, we intend to move more towards fee-based products and services that are more stable and predictable and therefore less volatile. Corporate finance and advisory services have a lot of potential on that count.

What is the size of the corporate finance market and where do you stand?
The potential size of the corporate finance market is big although many corporates are not tapping it. I believe FINCORP is one of the leaders in providing corporate finance services in Oman today.

How big is the gap between you and the market leader and what is the reason for it?
The gap is there because some banks offer additional services compared to a non-banking financial institution like us. Banks by their nature have an unfair advantage over us as they have access to a larger clientele base. They maintain thousands of savings and current accounts and also have a large loan book. For example, a bank’s asset management division can get to know about individuals/corporates maintaining accounts with high balances with its retail division or corporate division. The asset management division can approach those retail customers with the proposal to manage their unused funds. This is contrary to the regulations in Oman and to professional ethics, but it has happened with some of our customers who maintain current or savings accounts with them. So, I would urge our banking competitors to maintain a strong Chinese wall in their operations.

Have you taken up the issue with the market regulator?
In this particular incident where a bank approached our client, we complained to the top management of the bank about the matter. They reacted
professionally and promised that they will put a stop to this. Our clients come to us for investment banking services, purely based on our marketing skills and the quality of services that we provide. We cannot provide other banking services such as current accounts or credit cards and the like. So, that’s our handicap.

Would FINCORP like to be a bank?
Why not?
Have you applied for the banking license?
No, we have not done that.
Do you intend to apply in the near future?
No. We do not have any plans to do that in the near future but I would not like to exclude the possibility of doing so in the future.

Are you eyeing the insurance sector?
We have got approval from CMA to look into the creation of the first Omani reinsurance company. We are currently working on the feasibility study. The report is expected to be ready soon. We will act as an incubator of this new company and arrange for the private placement of shares if it is feasible.

Top^