Restructuring of GCC Family Groups

 Page Executive’s Ronan Coyle in conversation with Nicholas Gilani of Cyal Advisors DWC LLC
 
The global economic crisis brought about by COVID 19 will have deep and far reaching economic consequences and will transform the business landscape for the foreseeable future. In the GCC, family groups, corporates and other government affiliated organisations, some of whom were on unsteady financial ground before the onset of this crisis, will now require real and radical change both in terms of financial and operational restructuring, but also organisational design and talent deployment. 

It is critical that these organizations act swiftly to address immediate issues related to debt, cash flow and balance sheet. Ronan Coyle, Partner, Page Executive Middle East adds, ”It is also important that they begin to examine their talent agenda to ensure that they have the type of leadership profiles that will allow them to survive in the medium terms and thrive in the long-term. Whether it’s recruiting a restructuring specialist to address the former or retaining a human capital adviser for the latter, there is one commonality in approach that is vital – business owners and leaders must not tend towards “yes men” (or women as the case may be). “

With over 10 years of executive search and leadership headhunting experience across global markets, including the Middle East, Ronan Coyle speaks with finance and restructuring expert, Nicholas Gilani, Co-Founder & Managing Partner, Cyal Advisors DWC LLC, about the dilemma's facing family groups and other organizations across the GCC due to the Covid 19 crisis, and how they can best navigate their way through this period. Nicholas has over 15 years of GCC work experience performing in senior roles such as Managing Director, National Bank of Abu Dhabi; Chief Investment Officer at a Dubai family office; and Chief Executive Officer at Ajlan Bros, Riyadh, Saudi Arabia.

  
    
Q1. Ronan: What are the main financial and operational issues facing family groups as a consequence of the Covid 19 economic crisis?

Nicholas: The timing of your question is quite un-canny as today is the first day when Dubai officially returned to work. In ways more surreal than real, returning to work is analogous to one’s returning home after the end of a war as Dubai was, for all intents and purposes, shut down. Before we dive in, it would probably make sense to define what we mean by a family-owned conglomerate within the GCC context? 

I define family conglomerates as businesses operating across different sectors and geographies, owned and operated for generations by one dominant shareholder class, the founder-operator patriarch and his/her successors. That said, family conglomerates will be hard pressed to urgently and acutely manage the following pillars of business recovery:

I.    OPERATIONAL PILLAR

• Employee Health & Safety Issues -- Is it safe for our employees to resume work at the workplace? Will there be any residual and current health concerns? How do we handle those employees with pre-existing health conditions whose return to work may be challenging health wise? How many employees are allowed to work remotely and how many must be at the workplace? What factors determine this bifurcation?

• Government Regulatory Compliance – How do we comply with GCC governments' regulations regarding social distancing and office capacity requirements? Do we have to architecturally re-configure our working spaces, such as cubicles?

Human Resource:

Staff Reduction and/or Salary Reduction -- Will there be staff or salary reduction? Do we have enough cash to cover payroll while it may take an extended period of time for business to come back?

Protection of business from disruption -- If staff or salary reductions are necessary, how do we implement these with minimal disruption both to the business and more importantly to the livelihood of employees and their families? After all, many of our employees are expatriates and loss of a job entails them to leave the country.

II. FINANCIAL PILLAR

Short Term Liquidity (less than one year)

• Cash Position & Adequacy (Liquidity) – What are companies’ current cash position that we maintain in our bank accounts? Will cash reserves last until business “picks up”? What is our “cash burn” rate over the few months of summer till September 2020?

• Trade Suppliers and Trade Debtors – What is the status of our accounts receivable? What is the status of our accounts payable? How much do our trade partners owe us and how much do we owe our suppliers? Will we be able to extend payment terms and will they extend their payment terms to us?

• How many days past due are our trade partners and how many days are we past due on their invoices? What is the status of returned checks? Do we have enough cash to cover our monthly payroll?

• Bank Creditors – How much do we owe our banks and have we violated our covenants? Are we past due on our loan installments (quarterly in many cases)? Do we have enough cash to service our loans? What are our options for loan re-financing or modifications?

• Cashflow Forecasting – What do our cash inflow and cash outflow projections look like? Will we have access to bank financing or do we have to inject cash into the business from our own private resources

Q2. Ronan: Do these groups have the specific leadership and skill-sets within their organisations to navigate their way through this crisis?

Nicholas: The short answer is a “no”! The sudden occurrence of and the extended duration of Covide-19 has left many a family conglomerate un-prepared at the C-suite level to assume crisis leadership; and the mid-level management to assume crisis management. Besides, the required skill sets are specific both quantitatively and qualitatively. Quantitative, as family conglomerates need more than ever not a CFO type of professional but a crisis manager who understands both accounting and finance. The skill sets of accounting are at times “static” in nature and lack “dynamism” in times like this. In fact, a hybrid type of a professional is needed to embark on the financial restructuring/turnaround of the firm. A professional who not only understands numbers but also finance and banking; someone who speaks the language of the bankers, commercial and investments bankers. And finally, someone who is comfortable with the language of lawyers and negotiation (in the majority of cases negotiating with the firm’s commercial bankers in order to re-finance or re-structure existing funded and non-funded credit facilities)

Q3. Ronan: As a financial restructuring professional what are your main priorities when you begin a new restructuring project and what are the key steps you take?

Nicholas: First and foremost, win the trust and the “buy-in” of the incumbent management team, the CFO as well as the principals (the owners) of the firm. Their appreciation of the firm’s critical conditions, their concurrence with the restructuring plan and their active assistance in the execution of the restructuring/turnaround is vital. Next, as soon as humanly possible, get a firm grasp of the nature of the firm’s cashflow, both inflow and outflow; control outflow except for absolute expenditures and act quickly to stop cash hemorrhaging. In short, “steady the corporate ship”!

Q4. Ronan: What key experience and skills do you need to perform a restructuring project effectively?

Nicholas: You would need the following skill sets:

• Business Acumen - Understanding the nature of the firm’s businesses, their clients and suppliers and the markets in which they operate

• Accounting and Finance – so that you could look under the “bonnet/hood” of the firm and diagnose the issues that have beset the right and left sides of the firm’s balance sheet. Do not forget, restructuring is essentially a balance sheet and cashflow-focused discipline

• Psychological – Quickly grasping the inner dynamics of the firm and wining the firm owners' and C-suite level leadership, especially the CFO, to your side. And on the bank creditor’s side, generating trust and respect of the RM, the relationship manager as he/she would be the one advocating/championing your firm’s case.

Of course, in any restructuring case, both the CFO and the lender’s relationship manager (the RM) have institutional memory of what caused the problems in the first place, namely, over-leveraging and over-collateralizing the firm (land and property, pledging of rents and account receivables, personal and corporate guarantees)

Q5. Ronan: How important is it that family groups act quickly during these unprecedented times?

Nicholas: Extremely important. These times as you rightly refer to them are un-precedented and require quick formulation of an action plan and its effective and efficient execution. Time is of the essence. As weeks go by, the financial obligations either become due or past due and accumulate. And finally, the reputation of the firm will be the first item to suffer as words of financial ailment quickly spread amongst the regulators, clients, employees, creditors and suppliers.

Q6. Ronan: What advice do you have for owners and chairmen of family groups who are trying to protect their interests in the face of very challenging economic conditions?

•    Do not procrastinate; do what is right for your business. Recognize, it is now or never
•    View this period as the “perfect opportunity” to position the company on a stronger platform
•    Hire the right specialist to help you formulate and execute the firm’s rescue
•    Do not be blind-sided by the fees you may have to pay to recruit that talent, if the talent saves you multiples of the fee you will be paying in terms of cash savings, debt reduction or interest rate reductions and loan term extension. Recognize that any delay or procrastination may expose the firm to the bankruptcy courts, a destination that should be avoided at all costs. The recently enacted but not much understood UAE bankruptcy law, “Federal Law by Decree No. 9 of 2016 on Bankruptcy”. Bankruptcy whether by re-organization or by liquidation should be the last resort. It is expensive, little tested in the courts of law and potentially reputation damaging, especially in the conservative and informal business corridors/majleses/divans of the Gulf Cooperation Council countries.

To learn more about Page Executive's dedicated business turnaround and restructuring offering, and for a confidential discussion about the most relevant senior talent in the market, please contact Ronan directly on 056 687 9519 or email [email protected]