Qatar is set become one of the restructuring hotspots of the Middle East this year as levels of distress start to unravel in the aftermath of the FIFA World Cup 2022, market participants told Debtwire.

In what has been tipped as the world’s most expensive World Cup, with a hefty USD 300bn price tag, work surrounding the event has been big business. But a financial fallout lies ahead.

Developing the infrastructure for the event has been no mean feat, with the construction of eight stadium projects, Hamad International Airport, Doha’s metro system, a fleet of hotels and its now extensive road network.

The ongoing viability for many of the companies that helped develop that vast infrastructure network now lies in question though, with inbound enquiries to restructuring and turnaround advisers already starting to come in, said one Dubai-based financial adviser.

As the work for contractors in Qatar winds down, many are retrenching, said a local lawyer.

“We are seeing a number of construction companies withdrawing from the market completely. Some of the biggest contractors involved in the construction of the metro and football stadiums have left the country completely or are winding down their operations,” said the lawyer.

“We expect to see an increase in distress and restructuring for companies in Qatar,” the lawyer added.

But Qatar-based construction contractors are not the only ones having sleepless nights. Hotels in the country lay 44% empty in November, according to a report by Hotelier Middle East, and restaurants and shopping malls will undoubtedly suffer as the number of tourists fall.

International consultants who visited Doha over the past few weeks told Debtwire that the city was “totally empty” with “all traces of the World Cup gone.”

Despite the obvious economic challenges, it won’t be easy for financial advisers to drum up work though. With a lack of effective Qatari bankruptcy legislation covering the country, and in a market where banks would rather amend-and-pretend than recognise bad debts, the country has not historically been a restructuring hotspot for the Middle East, market participants told Debtwire.

Things might be about to change though. The Qatar Central Bank is starting to encourage banks to adopt international standards in terms of recognising and addressing stressed and distressed borrowers, said the lawyer. In addition, new legislation is also being planned in Qatar to facilitate debt restructurings, he added.

With what is a quiet and low-margin restructuring market for the Middle Eastern advisers too, many may also scramble to get what work they can.

The initial remnants of distress are starting to come through. First Qatar Real Estate, a Kuwait-headquartered real estate company with Qatari operations, was one of first companies linked to the country late last year to be tipped for restructuring.

It has KWD 89.35m (USD 292m) in non-current loans and KWD 3.82m in current loans at FY21.

In addition, Cimolai, a distressed Italian construction giant involved in the construction of stadiums in Qatar, was studying a capital increase and hired Lazard in October, according to a report by Reuters.

For what has been a historically muted restructuring market, it is contentious as to how far banks will push through fully fledged restructurings though.

“I think there will be a combination of supported restructurings and some tolerance in terms of rescheduling debt. But also, a recognition that there will be bankruptcies. Some of the names that have operated here for some years will cease to operate here,” said the lawyer.

Others were sceptical about the extent to which bad debts will filter through to full-blown restructurings in a historically reluctant market.

“So far, we are seeing waivers being signed and more flexibility – this is happening already. But these are not full-fledged restructurings as in international markets. Instead, they are more amend-and-extend, trial and error,” said one Doha-based banker.

The distinct lack of sound bankruptcy legislation in Qatar also stands in the way of more efficient debt restructurings and bankruptcies across the country, said the banker.

There are two jurisdictions in Qatar regarding bankruptcy legislation, said the lawyer.

“The insolvency regulations in the Qatar Financial Centre more closely mirror the regime in England and Wales,” the lawyer said.

“Outside of the Qatar Financial Centre, the insolvency regime does not at the moment encourage debt restructurings in the manner of, for example, the English administration process with its moratorium, making restructurings more challenging,” the lawyer added.

The lack of sound bankruptcy legislation in the country has led to many so-called ‘zombie companies’ in Qatar that need to be restructured or dissolved, said the first adviser.

This stands in stark comparison to Saudi Arabia, who’s new legislation has led a boom in bankruptcies last year in the country. In addition, the United Arab Emirates (UAE) is set to usher in further new reforms to its bankruptcy legislation next month.

An adviser’s dream

In what has been a quiet Middle East restructuring market, such market dynamics could be seen as an oasis in the desert. But advisers will have their work cut-out.

The Big Four, particularly Deloitte and PwC, have long dominated the restructuring scene in Qatar with both having a large on-the-ground presence, said the first adviser.

Dubai-based advisers, with little presence in Qatar, will struggle to muscle in on the incumbent territory dominated by the Big Four unless they establish themselves there, added the first adviser.

In addition, many financially distressed clients often fail to recognise the value that restructuring experts can bring to a deal, said the lawyer.

“There is not the same familiarity with restructuring advisers here, and what value they can bring. Whereas typically in the UK, lawyers would be appointed after debt advisors have been instructed, in Qatar many negotiations with lenders are led internally by the companies,” the lawyer added.

The Big Four should not rest on their laurels just yet though. Competitors such as Consulting HAUS LLC, an advisory outfit in Doha offering services in debt and M&A, has established itself in recent years.

Laith Dajani, managing partner at Consulting HAUS LLC, established the firm in 2019 after serving as a Director in EY’s transaction advisory services team in Qatar, according to LinkedIn.

“We are indeed making a mark and giving the Big Four something to think about on the back of having a highly specialized team (most of whom have big 4 backgrounds) and are able to offer the same level of service at a more palatable fee level,” said Dajani in a statement to Debtwire.

In the Dubai market there are also other advisers jostling for the Big Four’s market share, including Teneo and Alvarez & Marsal, as well as potential other entrants including Ankura and Interpath.

Prospective advisers eyeing entry to Qatar’s restructuring market might also be mistaken if they think that it only offers mid-market smaller deals.

“Deal sizes typically range, we’ve seen mid-market deals under USD 100m, but also plenty in the hundreds of millions,” said the lawyer.

Litigation bonanza

Whilst financial advisers are watching Qatar’s restructuring market like hawks, there are also litigation opportunities as the aftermath of the World Cup unfolds.

“The primary area that we are expecting disputes is construction related. These [relate] to delays in the completion of hotels, issues relating to stadium cost overruns and liquidated damages. This can be for construction projects, including work related to the metro and airports,” said the lawyer.

Contractors of the World Cup stadiums include Galfar Al Misnad, Salini Impregilo Group (now Webuild Spa), Cimolai, Midmac Contracting, Six Construct, according to a report by Arabian Business.

Meanwhile Doha’s metro system awarded its design-and-build contract to a consortium including Larsen & Toubro, Aktor, Yapi Merkezi, STFA Group and Al Jaber Engineering, according to a report by Railway Gazette.

“We have seen the number of enquiries and matters starting to gather pace, with approaches from all parties involved in construction projects,” the lawyer added.

Financial advisers will also be paying close attention to such disputes as they could have very real financial implications on the viability of those companies involved, said the first adviser.

A USD 12bn Sharq crossing project, which is comprised of three bridges connected by undersea tunnels, was delayed in 2015 until after the 2022 World Cup, according to a report by Arabian Business. Its initial announcement had planned for this to be completed in time for the games.

There is also a crack-down happening within Qatar by its government surrounding “wasted money, projects that were over budget, shady approval processes […] both at the government level and the private level,” said the banker.

Such a crackdown could come with legal or financial implications for those companies, said the first adviser.

Following investigations into the 2014 Brazil World Cup, six out of 12 stadiums were under investigation for irregularities and bribery, as well as there being controversy over the tendering of other large scale infrastructure project, according to a report by The Guardian.

As fee-hungry advisers look to Saudi Arabia as the next-big-thing, Qatar presents an exciting opportunity. Challenging advisers to the incumbent Big Four will have their work cut out though and restructuring legislation still has some way to go before it matches that of Saudi or the UAE.