70pc Gulf CEOs expect rise in distressed businesses

Nearly three out of four (70 per cent) chief executives in the GCC expect to see an increase in the number of distressed businesses over the next year, according to a survey by Alvarez & Marsal.

The Q2 2023 edition of the Middle East Turnaround and Restructuring Survey by the professional services firm has thrown up this somewhat surprising finding, given that the outlook for most sectors in the GCC has improved in recent months.

However, there are a number of factors that could contribute to an increase in distressed businesses, including: the rising cost of capital, inflation, market volatility, tax and regulatory changes and the difficulty of attracting and retaining talent.

The survey also found that the retail sector is the most likely to be hit in the next 12 months, with 69pc of respondents expecting continued pressures due to tightening consumer wallets and the ongoing shift to digital platforms.

Real estate was another sector of concern, with 44pc expecting a negative impact soon. However, some respondents believe that the UAE real estate market may be insulated from the global economic downturn due to external factors such as Russian capital inflows, high oil prices, and strong demand for homes.

The number of respondents who expect a deterioration in the macro-economic climate over the next 12 months has fallen from 75pc to 48pc. However, the main areas of concern for participants remained the same: cost of capital (61pc) and inflation (55pc).

Compared to the previous survey, market volatility was ranked higher at 28pc and tax and regulatory issues were a concern for 27pc. A similar percentage of respondents saw attracting a workforce as a new concern.

Most respondents believe that operational restructuring is essential alongside financial restructuring, it is not often done in practice. Instead, businesses are more likely to seek repayment extensions or temporary relief.

This suggests that many businesses in the GCC are not prepared for the challenges that lie ahead. Businesses that want to avoid distress should start planning now by implementing operational improvements and strengthening their financial position.

Commenting on the findings, Paul Gilbert, managing director and co-head of Alvarez & Marsal in the Middle East, said: “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.

The firm surveyed C-suite executives based in the UAE, Saudi Arabia, Qatar, Oman, Kuwait, and Bahrain.

Source: https://www.gdnonline.com/Details/1289680/70pc-Gulf-CEOs-expect-rise-in-distressed-businesses