Many corporates in the Middle East will be forced to undergo debt restructurings over the coming 12-18 months as they try to deal with excessive debt levels built up during the region’s economic boom, according to restructuring specialists.

A combination of a poor outlook for global economic growth and increasingly aggressive stance by banks to force corporates to address debt problems is expected to be the driver of a new wave of debt restructurings.

“We are going to see growth in terms of the number of companies restructuring,” says Fouad Alaeddin, Middle East managing partner for PricewaterhouseCoopers (PwC).

Regional debt restructurings
Company Debt size ($bn) Status
Dubai World 25 Completed
Nakheel 16 Completed
Dubai Holding 12 In progress
Al-Ittefaq Steel 2 Completed
Al-Jaber Group 1.6 In progress
Global Investment House 1.7 Completed
The Investment Dar 3.7 Completed
Source: MEED

Several major restructurings have already occurred in the region, most significantly in Dubai where the emirate has spent the past few years working on restructuring the debts at companies including Dubai World, Nakheel and Dubai Holding. Because some of those restructurings were so large, Dubai World alone was $25bn, the new wave of restructurings is expected to be greater in number, but smaller in terms of overall size of debt restructured.

Attention is now shifting to troubled private sector firms, rather than state-owned companies, says Paul Reynolds, head of debt capital markets at the UK’s Rothschild. “2009-10 were the years of government-related entities restructuring, and 2012-13 will be the years of private sector restructuring,” says Reynolds.

He adds that more businesses will decide to go through some sort of restructuring exercise because hopes that 2012 would mark a recovery in their operations are gradually fading.

“Banks have been willing to keep extending loans because company managers have tried to convince them that things will turnaround, but that patience and optimism is wearing thin now.”

In expectation of a growing number of businesses restructuring, Alaeddin says that in late 2010 PwC expanded its Middle East restructuring team to 10 people.

Several large debt restructurings are currently under way, including the $1.6bn restructuring of Al-Jaber Group, an Abu Dhabi family business, and Sharjah’s Fal Oil has appointed KPMG to advise on restructuring the firm’s debts.