Dubai: The publicly-listed UAE and Gulf companies have been coming out with solid-to-spectacular numbers at the halfway mark of the year. If these results are anything to go by, those businesses and groups not on the stock markets, too, would have some fancy numbers to show (if they were so inclined).
A lot of the upside has been brought on by oil prices, above or near $100 a barrel, and whose effects are pouring through the various layers of the economy. (Sure, there are the side-effects of higher fuel costs at the local level.) With oil giving such a boost to local and Gulf economies, are companies giving any thoughts to streamline or restructure their operations? Or find some ways to whittle down debts? Paul Gilbert is Head of Turnaround and Restructuring at Alvarez & Marsal, the UK consultancy that specialises in these sort of matters. Paul was directly involved in the turnaround of fortunes at NMC Healthcare, the Abu Dhabi headquartered hospital operator and one of the biggest such in the region.
In an interview to ‘Gulf News’, Gilbert gives an insight on what UAE and Gulf companies are thinking about restructures.
Are current oil-fuelled gains allowing companies to think short- to medium-term?
I think it is important to differentiate between the different types of restructuring. If we take operational restructuring, the best companies are constantly restructuring as their products and markets evolve. Restructuring in that sense needs to be seen as a positive management step to improve the operations and enhance the company’s longevity and its attractiveness in the market.
All companies should continue to look at the need to restructure operations or product portfolio regularly, particularly in a market where maybe there has been a little bit of uptick locally. It’s the ‘fix the roof when the sun is shining’ approach.
But when you look at financial restructuring, which tends to be a reference to too much debt on the balance sheet, that is often what gets the headlines. Companies often avoid talking about restructuring because it has a negative perception when associated with excess debt.
Restructuring really should not be seen as a dirty word - the leading and progressive companies do it all the time.
However, when you get to restructuring of debt, while no forecast is ever 100 per cent accurate, the best companies are forecasting cash flows so that they can see when they potentially will reach a pinch point and they’ll show a range of outcomes to try to accommodate what may happen in the market.
About oil prices, an uptick in performance can mean that actually they’re better able to service debt. So, they perhaps don’t need to restructure their debt in those cases. What you don’t want to be doing is papering over the cracks and kidding yourself that that there’s not going to be action needed around the corner.
Do you face reluctance when you initiate talks on restructuring?
I do not think we can generalise. The difficulty for management teams can often be an initial inability to focus on the value and the outcome, and how much positive impact it will make to their business going forward. There is frequently a tendency to focus on the disruption and the cost of carrying out a restructuring.
Those are the areas where you get a reluctance, before the board or management is able to focus on the benefits.
But there are strong (corporate) boards who do see the benefit. For instance, we’re working with one client at the moment that has requested us - before there is any kind of a crisis - to help them to restructure one of their problematic offshore businesses.
Are you concerned about the level of debt that businesses - listed and unlisted - are carrying in the Gulf? Or would you say that’s a problem of the past?
I would not differentiate between listed and non-listed. It is usually the businesses that have an inappropriate capital structure, or a capital structure where they are constantly battling to service the debt or approaching some kind of a wall.
There are plenty of companies struggling with debt levels that should be really trying to resolve those issues. It is far better to reach an agreement with lenders or carry out some form of restructuring to allow the company to properly service its debt and with debt being at the right level to enable the business trade successfully.
The aim is to enable management to focus on the market, the operations and the product, rather than just focusing all its efforts internally on how to service its debt next month.
What is the resistance that you receive from potential clients who understand they have a problem but don’t seem to be doing the right thing to fix it?
In most cases, we don’t face any resistance. Once we’ve got to the point of making a set of recommendations to help a business then the management generally sees the value we bring to the table and understands the benefits of implementing it. It is the initial stages where it is sometimes harder to break through and overcome the stigma of seeking external support and bearing the financial cost for it.
However, once we have been able to showcase the benefits and value that can be achieved from carrying out a turnaround plan or restructuring then it’s much easier by the point you come to recommendations.
If you were a betting man, do you think what was happening on the global market would kind of slow down IPO activity in the Gulf?
There is clearly quite a bit of volatility in the in the global markets at the moment, and we do see a little bit of bucking the trend with one or two IPOs here. So really, I wouldn’t bet on it.
