DECEMBER 2020

2020 MIDDLE EAST

RESTRUCTURING:
THE YEAR IN REVIEW
2020 will likely be remembered
as “a big year” for the Middle East
restructuring market!
COVID-19 bit hard in H1 and then started to emerge stronger just in time for a
race-off with mankind’s much heralded vaccines. Governments reacted forcefully
to prevent the spread of the pandemic, with the first lockdowns in modern history.
At the same time taking unprecedented measures to stimulate the economy, to
calm nerves and mitigate the potentially catastrophic impact.

And then, as the world’s attention was focussed on the pandemic some ugly allegations relating to the BR Shetty empire
started to emerge and some “naked swimmers” (as Warren Buffett might call them) emerged as the credit cycle tide
went out. This shook the markets and delivered the first wave of “mega-jobs” for the restructuring community in what
might anyway have been the start of the economic hangover from such a long credit boom, pandemic or no pandemic.

NMC, Finablr, UAE Exchange, Neopharma, KBBO and a few others drove the restructuring space into mid-year excitement
and gave us some new tools to play with – including jurisdiction hopping into the ADGM, and reforms to the UAE Federal
Bankruptcy Law as well. The second half of the year saw the liquidation announcement by Arabtec, the builder of the Burj
Khalifa and so many other iconic UAE landmarks. Meanwhile in Saudi, the new laws were tested quite a lot and seem to
have stood up remarkably well..

Closer to home (our WFH offices at least!) there was also a seismic shuffling of the teams amongst the restructuring
firms as the battle for talent kicked off in earnest and competitors positioned for future growth.

Overall, it was a big year and one worthy of a retrospective. So, here is a quick tour around some of the detail to fill the
duller moments of your holiday season lock down, no matter where you are spending it.

Governments in the region acted swiftly and

successfully to support economies and companies

While the COVID-19 pandemic has adversely impacted a
broad range of industries across the globe, the impact on
Middle Eastern economies could have been particularly
acute, layering on top of a pre-existing economic
slowdown (in part attributable to the low oil price
environment which has prevailed since September 2015)
as well as being a cause for reconsideration for many of
the region’s most important sectors.
The arrival of the pandemic meant even more pain for sectors
that were already facing challenges such as real estate
& construction, oil & gas and manufacturing. But worse,
other sectors which were the focus of efforts to build the
locally diversified economy and provide a sense of safety for
regional economies, such as travel, hospitality & leisure, retail
and financial services, were also hammered pretty hard by
the lockdowns and are now also facing challenges.
In response, Governments in the region launched a
plethora of formal support schemes, such as credit
market initiatives including: COVID-19 loan guarantees,
compulsory loan instalment deferrals and other things
with snappy acronyms like TESS (Targeted Economic
Support Scheme) and PSJRS (Private Sector Job
Retention Scheme); or legal initiatives including the
relaxation of some director duties; or labour market moves
including options around enforced unpaid leave plus
many other things. Equally if not more importantly, these
measures were accompanied by informal measures, such
as encouraging commercial banks to be more supportive
to borrowers. This encouragement worked.
In summary, we can conclude that the “can” was firmly
kicked down the road. The only question is how far down
the road it went and whether it flew beyond the rough
patch we may be approaching in 2021.
While such measures bought many companies some vital
breathing room from immediate liquidity and solvency
pressures, it’s a universally held view in the restructuring world
that these problems have not gone away and businesses will
need to tighten their belts, get fit and adapt to manage cash,
preserve value and maintain their options. Sadly, we do expect
further restructurings and even some more failures to emerge
as some of these measures reverse – like the piper, the banks
will inevitably need to be paid.

2020 Middle East Restructuring: The year in review 2

We are seeing an accelerating positive
evolution in the region’s restructuring culture
The restructuring environment in the region has continued
to shift away from the “amend and extend” (aka “extend
and pretend” or “deny until you die”) culture which was
prevalent in the last cycle, towards a more activist
restructuring approach including some interesting things
like the expanding use of Chief Restructuring Officers,
DIP funding (including new money priority and elevation
schemes) and potentially debt-for-equity swaps.
The use of CROs – specialists in taking hands on roles to
deliver turnarounds and restructurings – could be seen as
the Americanisation of the restructuring space, driving a
diminishing role for heavy weight Independent Business
Review reports as a tool to create change. We have seen
such CROs become increasingly prominent in the region,
with appointments at Al Jaber and NMC (both AlixPartners’
own Matthew Wilde), at DSI (Mike Grant) and at KBBO
(Bruno Navarro) to mention a few of the higher profile cases.
We have also seen the emergence of another TLA
(three letter acronym): the Cash Management Office (or
CMO), with their use in cases such as NMC and KBBO,
as further evidence of the role of advisors shifting from
information generators to agents for change, building
windows of opportunity.
The year also saw the “blooding” of a number of new
legal processes which may serve us well in the future
2020 has seen an increasing use of various new legal
mechanisms and processes to resolve complex, high-
profile and often long-running restructuring cases.
In the UAE, we saw the Financial Restructuring Committee
(FRC) take active roles in overseeing the restructurings of
both Drake & Scull and KBBO. Drake & Scull, having been
something of a perennial name in the restructuring space
for a number of years, is now rumoured to be targeting the
finalisation of its deal in Q1 2021.
We have also seen the Abu Dhabi Global Market (ADGM)
show significant flexibility, allowing the NMC Healthcare
companies to “continue” as ADGM entities, for the purpose
of utilising ADGM’s Insolvency Regulations to appoint
Administrators, despite being hitherto UAE onshore
incorporated companies who would otherwise not have had
access to such processes. This took some months to deliver
but sets an interesting precedent for future cases with merit.
2020 Middle East Restructuring: The year in review
That said, its too early to call time on the IBR which
has remained important, especially where borrowers
insist on playing the information game – presenting
no information; weak information; or manipulated
information. We suspect that the IBR will remain a critical
feature in the region for years to come.
This progression towards agents for change is in-keeping
with an increasing shift we have observed in the region,
from stakeholders seeking to defer issues, to instead
seeking more permanent solutions to either turnaround
and restructure the business or to recover value for
stakeholders via a formal process. Maybe this has been
spurred on by the introduction of Basel III or by more
activist central bankers, but the lenders themselves have
not been short of assertiveness in driving the changes
either, looking for de facto changes of control in a number
of businesses, despite still relatively limited tools in their
kit bags, other than their ability to turn off the liquidity tap.
Overall, we see this shift as a good thing. Short-term,
unsustainable, amend and extend deals had often either
kept businesses alive which had no real prospect of
recovery or disarmed those who could have successfully
turned the business around if placed on an appropriately
stable platform. After all, sustainable recoveries must
be underpinned by solid operational and financial
fundamentals, rather than balance sheet hijinks.
Both ADGM and DIFC saw new laws and the recently
launched new Dubai Multi Commodities Centre (DMCC)
insolvency regulations were also quickly utilised in the
cross-border case of Phoenix Global, with Matt Smith
and Ryan Jarvis of Deloitte being appointed as joint
liquidators, and DLA Piper providing legal advice, echoing
the earlier cases of OW Bunker ME and Dynamic Oil
Trading ME which were the first to use the older rule book,
also under DLA’s guidance.
Utilisation of the various on-shore bankruptcy laws,
introduced in recent years, have also increased markedly,
with several hundred cases having now been filed in KSA
and dozens of smaller cases in the UAE – including high
profile, long-running KSA cases such as AHAB and the
UAE’s anticipated test case, Arabtec.
3
The year has also seen investment in the region
by global restructuring firms with a number of new
entrants and movement of top talent
Did the earth move for you? Certainly, the restructuring
landscape in the region shifted markedly in 2020.
2020 saw a number of leadership changes at the major
restructuring advisory firms. New turnaround and
restructuring leaders took roles at FTI (Vikas Papriwal), Duff &
Phelps (Richard Clarke), Alvarez & Marsal (not yet confirmed)
and KPMG (Bruce Matthews), with the appointments at
FTI and Duff & Phelps being their first forceful attempts to
establish a restructuring presence in the region.
The biggest noise was probably here at AlixPartners,
where Matthew Wilde (formerly the leader of PwC’s
restructuring division in the region) joined and rapidly
hired most of the senior talent from Alvarez & Marsal’s
Turnaround & Restructuring Services team in the Middle
As the landscape shifted in the restructuring space,
there were also some notable other events and cases
which saw advisors jostling to position for roles
Throughout the year, the global oil price environment
showed instability, with stakeholders throughout the value
chain being unnerved by uncertainty. In April, oil price
futures for May delivery went negative for the first reported
time, as Saudi Arabia and Russia engaged in a price
war, and producers and traders alike feared the costs of
storage and shutting down wells.
In the Middle East, oil price reliant sectors such as oilfield
services (OFS) faced increasing pressures, including the
reported news of Gulf Marine Services needing to raise
approximately $75 million before 31 December; Shelf Drilling
seeking financial advisors to explore options regarding its
debt stack; and Zakher Marine’s creditors hiring advisors for
a proposed financial restructuring. We expect this sector to
come under continued pressure in 2021.
As the BR Shetty empire rocked financial stakeholders, it
spawned numerous roles for financial and legal advisors
alike. The humbling of NMC brought a positive merry-go-
round of roles for advisors including early roles for PwC,
Moelis, Freeh Group (now part of AlixPartners) and A&O
initially and later roles for A&M and DLA Piper, with Lazard,
Deloitte and Clifford Chance securing creditor side roles.
The erstwhile empires raft of related companies brought
roles for Houlihan Lokey, Duff & Phelps, A&M, KPMG, PwC,
Deloitte, Addleshaw Goddard, CC and many others.
2020 Middle East Restructuring: The year in review
East. Joiners from A&M included some of the top rising
talent in the market (Bill Ozturk, Rehan Arshad, Matti
Kasi, Sean Dedross, Henri Jansson, Rami Arbid and Rami
Said), adding even more firepower to AlixPartners’ already
established turnaround and restructuring presence and
experience in the region.
These changes in personnel clearly demonstrate the
markets’ anticipation of a surge in activity in the turnaround
space. Of course, AlixPartners believes it is now the best
placed firm to support clients at moments when it really
matters, with a senior team bringing the necessary financial
and operational capabilities together, with a hands-on CRO
DNA and relevant sector expertise and depth to help the
region’s leaders navigate the difficulties ahead.
Significant action taken by governments and GREs to
“bolster” or resolve strategically important assets in the
region have also taken place this year, learning from the past
in simplifying the capital structures and concentrating debt
in the hands of fewer and more local banks. Dubai World is
one, DXB Entertainment (DXBE) is another. DXBE refinanced
its debt down from more than ten to just a couple of leading
banks and now Meraas has announced its intention to take
DXBE private via a capital restructuring, involving exercising
an existing convertible instrument, issuing new debt in
exchange for additional shares and acquiring the residual
retail shares. It is hoped that this transaction will bring
stability to a long-running case, which has been inevitably
impacted by COVID-19, allowing it to focus on improving
operations in 2021 and beyond.
Consolidation of assets within sovereign wealth funds
has also been a continuing theme, with market news that
ICD has taken over operational control of Meydan and is
seeking to merge its operations with Nakheel, and ADQ
rebranding and going on a positive acquisition spree,
including the public announcement of stakes in NPCC,
Aramex, Al Dahra and Louis Dreyfus Company.
Hands on involvement from the KSA government in high
profile cases where it has an interest has also seen a number
of roles being created for advisors, including at Saudi Binladin
Group and its related company Abraj Al Bait to name a couple.
4
Looking ahead, we expect companies to focus
on proactively instilling a cash culture and re-
addressing their financial and operational models
to address the challenges we predict

The kicking of the can down the road once again was a There is likely to be a continued willingness to utilise
good move from an economic standpoint, but the now the various new bankruptcy laws throughout the region,
somewhat dented can will settle somewhere and the as both creditors and debtors get comfortable with the
issues it represents (weakened demand, broken business robustness of the processes, but also as the laws are
models, over-leveraged balance sheets) will have to be refined through amendments and the establishment
addressed at some point. We guess this starts in 2021! of clarifying precedent cases, defining the playing field
going forward. Debtors and creditors should be looking to
We hope to see an increased receptiveness to proactive consult restructuring and insolvency specialists early to
restructuring discussions when the forecasting landscape better understand the tools available to them under these
becomes clearer as the fog caused by COVID-19 eventually laws, as it’s never too early to prepare (the old cliché… fail
thins, and with lenders continuing to be encouraged to to prepare, prepare to fail applies here too).
support businesses. Proactivity is the name of the game
for 2021. The winners will act now, the losers will wait for
their miracles. Our recipe? Companies should continue
to carefully manage cash, build optionality, become more
rigorous in their forecasting capabilities and engage openly
with lenders as soon as possible and before their lenders
write them off as incapable of addressing the challenges
of the landscape changes.

So have a good holiday period

and come back refreshed and
ready to make 2021 an even
more productive year.

2020 Middle East Restructuring: The year in review 5

CONTACT THE AUTHOR:

Sean Dedross
Senior Vice President
+971 56 199 9946
sdedross@alixpartners.com
FOR MORE INFORMATION CONTACT:

Matthew Wilde Matti Kasi

Managing Director Senior Vice President
+971 56 188 8381 +971 56 199 9952
mwilde@alixpartners.com mkasi@alixpartners.com

Elie Fakhoury Rami Arbid

Director Vice President
+971 56 179 1007 +971 56 398 3939
efakhoury@alixpartners.com rarbid@alixpartners.com

Bill Ozturk Henri Jansson

Director Vice President
+971 56 199 9964 +971 56 199 9947
bozturk@alixpartners.com hjansson@alixpartners.com

M. Rehan Arshad Rami Said

Senior Vice President Vice President
KSA +966 59 158 0777 +971 56 546 3520
UAE +971 56 188 8832 rsaid@alixpartners.com
marshad@alixpartners.com

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