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A substantial number of CEOs and business leaders in the GCC expect to see an increase in the number of distressed businesses over the next year.
The Q2 2023 edition of the "Middle East Turnaround and Restructuring Survey" by professional services firm Alvarez & Marsal (A&M) found that 70% of respondents expect an increase in the number of companies experiencing distress in the next 12 months, despite an improvement in the outlook for most sectors.
The sector most likely to be hit in the next 12 months was retail, with 69% of respondents anticipating continued pressures due to tightening consumer wallets and the ongoing shift to digital platforms.
Real estate was another sector of concern, with 44% expecting a negative impact soon.
"Real estate markets in the GCC have been sheltered from macro impacts to some degree due to external factors
such as Russian capital inflows, high oil prices and strong demand for homes in the UAE. I find it hard to believe the UAE can be decoupled indefinitely," said one respondent.
The number of respondents who expect a deterioration in the macro-economic climate over the next 12 months has fallen from 75% to 48%.
The main areas of concern for participants remained cost of capital (61%) and inflation (55%).
Compared to the previous survey, market volatility was ranked higher at 28% and tax and regulatory issues were a concern for 27%. A similar percentage of respondents saw attracting a workforce as a new concern.
While almost "three quarters of respondents emphasised the need for operational restructuring alongside a financial restructuring, fewer than a quarter reported frequently witnessing it in practice. Repayment extension and temporary relief were identified as more common outcomes than formal debt restructuring".
Paul Gilbert, Managing Director and Co-Head of Alvarez & Marsal in the Middle East, commented: “The survey suggests that, while there is less concern (or perhaps more understanding and acceptance) of the macro-economic environment, there remain many business that are likely to become stressed or distressed in coming months. Cash and liquidity management, cost reduction, digitalisation enhancements and revenue/sales improvement were identified by respondents as top priorities.”
“A period of higher interest rates than businesses have experienced in recent years combines with an anticipation by respondents of a stricter stance among lenders toward businesses engaging in perpetual restructuring without a clear repayment strategy,” he added.
(Writing by Brinda Darasha; editing by Seban Scaria)
