Carl Jackson, Managing Partner at Quantuma takes a look at the cross-border restructuring landscape and makes his predictions for 2020.
We live in volatile times: this is not new news. Geopolitical uncertainty has been prominent throughout 2019; the on/off US-China trade war, the slowing down of the Chinese economy, disruption to oil shipments and international sanctions in addition to global political volatility in a large number of jurisdictions. Closer to home, the pathway to the UK exiting the European Union looks to have finally been paved, following the conclusion of the general election in the UK, although the level and complexity of potential repercussions are yet to be understood.
Global organisations and their supply chains have been founded upon the ability to participate in global trade, which has come under threat thanks to a variety of economic sanctions and the onset of restrictions of the free movement. Longstanding trade agreements are increasingly under scrutiny and tariff hikes in one jurisdiction can trigger retaliation elsewhere. As a consequence, barriers to reaching markets are becoming increasingly complex and challenging.
In 2020 we are likely to see a great deal of harmonisation in Europe, the EU Directive on Restructuring and Insolvency came into force in the summer of 2019 and creates a new platform for the harmonisation across jurisdictions. It is likely that jurisdictions including Germany, The Netherlands and France will see cross border restructurings being carried out domestically. The impact of developments to the restructuring regime in Turkey will likely see the speeding up of restructuring and insolvency processes.
Further into Asia restructuring and insolvency laws are maturing, notably in India, which is likely to see an increasing number of investment opportunities and increased confidence amongst investors. In the middle east bankruptcy laws have undergone major upheaval.
It is likely that interest rates will remain low in order to stimulate economies around the world, which in turn will continue to assist in disguising stressed economies and their constituents.
I expect greater scrutiny by the regulators to continue to fall on non-performing loan books in a number of European, Caribbean and Far Eastern jurisdictions. It is likely that there will be a continuing trend of regulators encouraging the sale of NPLs. The compliance burden placed on lenders has been significant and has provided further obstacles for distressed companies to secure further borrowing. This will, however, be counterbalanced by other jurisdictions such as Canadian, US and other European markets where covenant lite loan agreements will continue into 2020 and beyond – this continuing trend will impact lenders’ ability to enter into early consensual restructuring discussions.
As a result of new capital regulations, businesses with poor or no credit rating seeking funding from European banks are likely to experience an increase in the cost of lending, and negotiations with lenders will become more complex.
Sectors likely to see continuing difficulties will include the traditional automotive sector, as the world wakes up to the environmental crisis, shipping, and retail which has suffered significantly over the last few years as consumers react to increasing economic and political uncertainty and exercise greater levels of caution and discretion in how they utilise discretionary income.
All of the above leads me to suspect that in 2020 we will continue to see an increase in the number of cross border restructurings as the implications of Brexit finally kick in and further afield, there is inevitably going to be fall out with the ongoing US/China trade war and the political uncertainty in Hong Kong. Allied to that, we will continue to see more alignment in Africa and other European countries with the UK Insolvency regime which will assist when looking at global restructuring solutions.
Carl Jackson is Quantuma’s managing partner and has over 30 years’ experience in acting for management teams and financial stakeholders on a wide range of performance improvement and delivering turnaround and restructuring assignments, he also regularly undertakes formal insolvency assignments. He has extensive cross-border experience.