The coronavirus pandemic has revealed a major divergence between companies in the Arabian Gulf and their peers around the world, and the divergence is about their appetite to discuss the impact of coronavirus.
While some sectors have been ordered to take emergency action – airlines grounded, restaurants closed and large firms suspending dividends and buybacks in some markets – the extent to which companies disclose and report the impact of the pandemic on their business is not mandated by any exchange or regulator. Some regulators have even encouraged listed companies to delay the publication of their first quarter results by giving them a reporting extension. Companies are free to choose how much – or how little – they wish to reveal about the impact of COVID-19 on their business.
This has led to a wide variety of responses from listed companies in terms of how they communicate with their investors. With a few honorable exceptions, GCC companies have not performed well when compared to their global peers.
While the majority of companies in North America, Asia and Europe have posted COVID-19 updates on their websites, many GCC firms are silent on the issue. Where many western firms are filing regulatory updates on the financial and business impact of the crisis, the GCC’s regulatory filings adopt a business-as-usual tone: upbeat press releases, calendar announcements of AGMs and dividend payments.
A case in point is Qatar National Bank, by some measures the largest bank in the region. Coronavirus is not mentioned once in its latest results presentation. Its first quarter 2020 results press release, dated April 12 (the day that global deaths from the virus passed 100,000) mentions the pandemic fleetingly, saying merely:
“Thanks to QNB Group’s robust risk management practices, the first quarter results of QNB Group were not materially impacted by the sudden onset of the COVID-19 pandemic. QNB Group has taken all the necessary actions to protect the well-being of its employees, customers and shareholders.”
Compare that to the opening sentence of Jamie Dimon’s letter to shareholders last week, as he announced a sharp fall in profits at JP Morgan:
“As we prepare this year’s annual letter to shareholders, the world is confronting one of the greatest health threats of a generation, one that profoundly impacts the global economy and all of its citizens.”
The somber tone leaves his audience in no doubt: these are not normal times, and results should be viewed accordingly.
Another good example is Emirates NBD, the UAE bank, that discussed the impact and its response to COVID-19 in an earnings call with investors and analysts that lasted no less than an hour and 40 minutes. The bank covered in a lot of detail how it protects its assets, how it approaches provisioning amidst the crisis and answered around 40 questions from analysts and investors. Importantly, the bank continued to provide its guidance, albeit with caveats that it is still too early to estimate the trajectory of non-performing loans.
With forecasts painting an increasingly bleak outlook for industry and commerce, all stakeholders – including investors, customers, staff and suppliers – are well aware that companies are under stress. To remain silent on the issue is to do them a disservice.
As the first quarter earnings season gathers steam, some difficult questions must be asked in the region’s boardrooms: How accurately can we predict the impact of the crisis on our business? What have we done so far to protect our customers, people and stakeholders? Should we be doing more? What will be the cost of doing the right thing?
The debate in developed markets has already moved on from “how much should we disclose?” to “how much pain can we take?”
This silence from the region’s private sector on the biggest challenge facing humanity for a generation is baffling. GCC firms are going to be hit by the economic impact of the virus, the same as all companies around the world. But for Gulf firms the impact from the pandemic will be joined by a hit from the current tumult in the oil markets. Public and private sectors in the oil-producing nations of the Gulf are facing massive disruption to business as usual from two fronts. Only you wouldn’t know it from their financial reports and investor relations.
And this leaves investors to draw their own conclusions, which they must draw from alternative sources. Oil price down by 50 percent? How much of a revenue drop should we pencil in? Economies in lockdown? Let’s use the same metrics that show Europe’s economy will go into deep recession and apply them to the GCC.
The point is that without guidance and insight from companies, investors will rely on alternative sources to inform their investment decisions, and these sources are never as accurate or as trusted as the companies themselves.
Earnings announcements have continued as the virus rages, but clearly this is not a business-as-usual cycle. Bank of America’s first quarter earnings presentation opens with the actions taken by the bank to help and protect its staff, customers and communities; it details the donations made to charities and community causes. The first slide in JP Morgan’s earnings presentation is titled “Here to Help: Our Response to COVID-19.” One in four CEOs of FTSE 100 companies have taken pay and bonus cuts. Large banks have suspended dividends and share buybacks.
The momentum is for listed companies to show solidarity with their stressed stakeholders through their actions, then to disclose these actions. There really is a growing sense that ‘we are all in this together.’
And markets have been forgiving, indicating that they will reward truth with trust. This is a lesson that corporates in the GCC region should heed quickly because, after the crisis has passed, a judgement will await on corporate conduct and many in this region could be found wanting.