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Secondary players prove to be game changer for Middle East restructuring – MENAT Weekly Comment

Distressed debt investors are growing in influence across the Middle East restructuring scene, with the result that deal making has become more efficient, according to market participants at the Abu Dhabi Finance Week (ADFW) conference.

Special situation funds are increasingly providing DIP (debtor in possession) financing in distressed situations which is a welcome addition, as liquidity is often needed in drawn out deals, said Matthew Wilde, senior managing director at Teneo during the panel discussion titled “Corporate Restructuring: Converting Pitfalls into Opportunities.”

In light of this, credit and hedge funds are now setting up shop in the Middle East, with the recent or expected entry of SC Lowy, Balyasny Asset Management, Millenium Management, ExodusPoint Capital Management and BlueCrest Capital Management to Dubai. A number of funds have also set their sights on Saudi Arabia, Debtwire reported in September.

“The increasing prevalence of DIP financing in the UAE provides for greater opportunity to put in place much needed liquidity for businesses, thereby enabling them to negotiate a restructuring on a stable platform,” added Naveen Bhojwani, managing director at Rothschild & Co on the same panel.

“The sooner you bring in secondary market participants into a restructuring the better,” noted Esteban Buljevich, vice chairman at Rothschild & Co, on a panel titled “Restructuring & Turnaround: Stakeholder’s Perspective.”

“The reality is that sharing an information platform for selective reputable secondary players active in the market is key as it provides a liquidity option for lenders who want to exit,” added Buljevich.

Two of the most prominent cases where new money was key was on the NMC Health restructuring, through its DOCA agreement, and on KBBO Group, with an injection from Fidera Limited.

The presence of secondary debt players in the restructuring of NMC Health for example allowed for a much smoother process, according to Buljevich.

“By allowing banks who wanted to exit to find enough competitive liquidity demand for the NMC debt instrument, many incumbent banks were able to exit at best possible prices and at their will and with that we were able to preserve the co-ordination and focus of core lenders to push constructively for an exit on record time,” Buljevich added.

Bankruptcy legislation

There was also high praise for the progress made in bankruptcy legislation over the past few years across the Middle East at the ADFW conference.

Reform has come from across the Middle East, especially in the ADGM, DIFC, UAE onshore, Saudi and Kuwaiti legislature, according to Wilde.

Such legislative change has been “incredibly transformative for the region” and will serve to attract foreign funds looking to invest in the region, noted Dilip Massand, chief executive officer at Phoenix Advisors, on a panel titled “Distressed Debts in Emerging Markets: Asia & GCC.”

Others agreed. “Most of the reform has been very positive – and moves us towards a more recognizable DIP model which has been favourable from a restructuring point of view and promises more for the future as the laws are further developed and refined,” said Wilde.

Debtwire covered the perks of the UAE’s new bankruptcy legislation earlier in the year, as well as detailing what fine tuning is needed.

Restructuring Insights

In addition to the discussions surrounding recent legislative changes in the region and the entrance of DIP financiers, Debtwire’s Restructuring Database presented some of its findings over the past few years.

The real estate sector was the most distressed sector in the MENAT region in 2020, with 14 large scale restructuring, shown below. The next most distressed sector was oil & gas, with six large scale restructurings.

Between 2016-19, conglomerates played a much more prominent role in the MENAT restructuring space, as shown below.

Comparing insights from the MENAT region to the rest of the world from 2016 to the present day showed that education was particularly more exposed outside the region, as well as industrial products & services.

Within the MENAT region, Saudi Arabia once again proved to be the hot spot for large scale restructuring, with Saad Group, Saudi Binladin and Ahmad Hamad Algosaibi and Brothers (AHAB) leading the way as the largest restructurings since 2016 to present.