Considering country governance risk exposure for telecom companies

(Robeco SAM) TeliaSonera. Telenor. MTN. All of these telecom companies have one thing in common: they have recently been levied huge fines relating to their involvement in corruption & bribery cases or the arbitrary application of the law by local authorities. Another factor linking these companies is that they all had operations in countries with relatively high governance risks. Matthias Müller, Senior Research Analyst at RobecoSAM and Jankees Ruizeweld, Credit Analyst for the telecom sector at Robeco, demonstrate how data collected through the RobecoSAM Country Sustainability Ranking can be used to systematically assess telecommunication services companies’ exposure to governance risk and explain how this information is integrated into our investment process.

Over the last few years, several large telecommunications companies have been subject to large fines relating to corruption or arbitrary law enforcement. Companies conducting business in countries with higher corruption levels or where legal security is not fully assured have a greater exposure to risks with a potentially substantial financial impact, as is often the case in emerging countries. Emerging market countries have a lower penetration rate of telecommunication services, implying higher potential growth rates for telecom operators. This, in turn, attracts foreign telecommunications companies. Still, companies must carefully manage potential risks of doing business in emerging markets. Likewise, investors must also understand the telecommunication services companies’ exposure to country-specific governance risk. More importantly, they should be aware how companies have managed governance risks in the past and how they are prepared to mitigate such risks going forward.

Robeco SAMs full report “Avoiding unpleasant surprises” from November 2016 can be accessed here: