Choosing winners among UAE businesses

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Assuming the Targeted Economic Support Scheme (TESS) launched by the UAE Central Bank ends in December, the last few months of 2020 will determine the fate of hundreds of companies that have benefitted by it.

Their fate will, in large part, be adjudged by their lenders, who will have to decide which ones are worth supporting and nurturing back to normalcy over time versus those that will be deliberately allowed to die, albeit over time. They will also have to decide on which ones they consider “zombie” companies, of which there are hundreds - those that have been surviving on ever increasing bank debt over the past few years.

These have long since outlived their economic life, their viability emaciated years ago, kept alive in hope by owners too fearful of the consequences of shutting them down. Well, that judgement day will soon be here, but my guess is that the plugs will not be abruptly pulled. The game will continue for a while due to self-interest of all involved.

Making a case for the enduring

In any case, this article is not about these dead men walking. It is for those fundamentally sound businesses that have a decent chance of long-term survival. Those that have been gravely affected by the pandemic or those that have taken refuge under it to wash old, dirty linen now.

Both categories are deserving of support, as long they are viable in the long term and deserve to endure. Lenders will, however, reduce their exposures to the sick entities. They will also use the opportunity to exit undesirable accounts or reduce exposures to them whilst they can still benefit from the Central Bank leniencies shown on provisioning allowances to banks.

This process will commence shortly, as the “payment holidays” of the maximum permissible six months lapse, peaking probably around October/November. Some lenders have already begun reaching out to borrowers, to proactively ask if they needed restructuring of their liabilities to ensure long-term survival.

Don’t get selective

As well intentioned as this may be, it will be in the interest of multi-banked borrowers to take a more holistic or “all-lender” approach, rather than rush into isolated, bilateral discussions with multiple lenders at different points in time. Let me explain why this is more desirable despite the overwhelming attraction of bedding this prickly problem with at least one bank to start off with!

* Firstly, a restructuring solution offered by one may not be optimal for a company’s needs in terms of a workable solution.

* Secondly, if you agree a certain set of terms with the first bank, that will become the benchmark for the banks that follow. One cannot be certain that the first set of terms is the ideal one.

* Thirdly, a restructuring with one bank, in isolation, will raise many questions and doubts with other lenders unless all are offered identical explanations (and possibly, terms) simultaneously.

Therefore, it makes eminent sense to adopt a comprehensive, all-lender approach after thorough analysis of your current state and future requirements. Banks are now interested in how you as a borrower will survive the ongoing effects of the pandemic and your plans for long-term survival.

Business of convincing

Questions are being asked about shifts in strategy, steps that have been taken to trade differently in a changed world, and about owner’s commitment to the business, evidenced by equity injections, partnerships and so on. The luxury of resting on past laurels and a long history has long disappeared.

Lenders will now require a brutal analysis of your company’s strengths and weaknesses, a clear path into the future backed by robust financial projections that justify seeking redress and assistance from them. Banks will also welcome a multi-bank approach that assures them that no one institution will be short-changed.

Borrowers will therefore be well advised to come up with a robust plan and approach banks, perhaps in a mildly phased manner, with the ‘friendlies” being approached first.

It is well worth seeking professional help at this juncture, to assist with the entire restructuring process. It is worth remembering that dozens of companies will be in this very situation and the ones that approach lenders with the most detailed and vigorous plans are most likely to obtain quick and favourable solutions.

Once there is a deluge of such requests flooding banks, then patience is bound to fray. And banks will be less willing to listen and negotiate beyond a point.

\- Vikram Venkataraman is Managing Director of Vianta Advisors.

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