Gulf companies challenged by debt and rising interest rates

DXB Entertainments, the operator of Legoland Dubai, last month announced the restructuring of 4.2 billion dirhams worth of debt. (Shutterstock)
Updated 22 April 2018
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Gulf companies challenged by debt and rising interest rates

  • Debt restructurings on the rise, but below crisis levels
  • Central Bank of the UAE has raised interest rates four times since last March

There has been an uptick in recent months in heavily-borrowed companies in the Gulf seeking to restructure their debts with lenders. Although the pressure on companies is not comparable to levels witnessed in the region following the 2008 global financial crisis, rising interest rates will eventually begin to have a greater impact, say experts.
Speaking exclusively to Arab news, Matthew Wilde, a partner at consultancy PwC in Dubai, said: “We do expect that interest rate increases will gradually start to impact companies over the next 12 months, but to date the impact of hedging and the runoff of older fixed rate deals has meant the impact is fairly muted so far.”
The Central Bank of the UAE has raised interest rates four times since the start of last year, in line with action taken by the US Federal Reserve. The Fed has signalled that it will raise interest rates at least twice more before the end of the year.
Wilde added that there had been a little more pressure on company balance sheets of late, although “this shouldn’t be overplayed”.
Nevertheless, just last week, Stanford Marine Group — majority owned by a fund managed by private equity firm Abraaj Group — was reported by the New York Times to be in talks with banks to restructure a $325 million Islamic loan. The newspaper cited a Reuters report that relied on “banking sources”.
The Dubai-based oil and gas services firm, which has struggled as a result of the downturn in the hydrocarbons market since 2014, has reportedly asked banks to consider extending the maturity of its debt and restructuring repayments, after it breached certain loan covenants.
A fund managed by Abraaj owns 51 percent of Stanford Marine, with the remaining stake held by Abu Dhabi-based investment firm Waha Capital. Abraaj declined to comment.

 

Dubai-based theme parks operator DXB Entertainments struck a deal last month with creditors to restructure 4.2 billion dirhams ($1.1 billion) of borrowings, with visitor numbers to attractions such as Legoland Dubai and Bollywood Parks Dubai struggling to meet visitor targets.
Earlier this month, Reuters reported that Sharjah-based Gulf General Investment Company was in talks with banks to restructure loan and credit facilities after defaulting on a payment linked to 2.1 billion dirhams of debt at the end of last year.
Dubai International Capital, according to a Bloomberg report from December, has restructured its debt for the second time, reaching an agreement with banks to roll over a loan of about $1 billion. At the height of the emirate’s boom years, DIC amassed assets worth about $13 billion, including the owner of London’s Madame Tussauds waxworks museum, as well as stakes in Sony and Daimler. The firm was later forced to sell most of these assets and reschedule $2.5 billion of debt after the global financial crisis.
Wilde told Arab News: “We have seen an increasing number of listed companies restructuring or planning to restructure their capital recently — including using tools such as capital reductions and raising capital by using quasi equity instruments such as perpetual bonds.”
This has happened across the region and PwC expected this to accelerate a little as companies “respond to legislative pressures and become more familiar with the options available to fix their problems,” said Wilde.
He added that the trend was being driven by oil prices remaining below historical highs, soft economic conditions, and continued caution in the UAE’s banking sector.
On the debt restructuring side, Wilde said there had been a “reasonably steady flow of cases of debts being restructured”.
However, the volume of firms seeking to renegotiate debt remains small compared to the level of restructurings witnessed in the aftermath of Dubai’s debt crisis.
Several big name firms in the emirate were caught out by the onset of the global financial crisis, which saw the emirate’s booming economy and real estate market go into reverse.
State-owned conglomerate Dubai World, whose companies included real-estate firm Nakheel and ports operator DP World, stunned global markets in November 2009 when it asked creditors for a six-month standstill on its obligations. Dubai World restructured around $25 billion of debt in 2011, followed by a $15 billion restructuring deal in 2015.
“We would not expect it to become (comparable to 2008-9) so barring some form of sharp external impetus such as global political instability or a protectionist trade war,” said Wilde.
Nor did he see the introduction of VAT as particularly driving this trend, but rather as just one more factor impacting some already strained sectors (e.g. some sub sectors of retail) “which were already pressured by other macro factors.”

FASTFACTS

Four

The number of interest rate rises in the UAE since March 2017.


England’s northern ports look to prosper from Brexit

Updated 15 October 2018
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England’s northern ports look to prosper from Brexit

  • Tens of millions of pounds are being invested to prepare for a potential increase in shipping in northeast England
  • A pro-Brexit MP said the area would “without doubt reap a Brexit dividend”

IMMINGHAM, United Kingdom: Brexit has brought hope to the windswept docks of the Humber River, a key goods gateway in northeast England where tens of millions of pounds are being invested to prepare for a potential increase in shipping.
In Immingham, a gritty town of around 11,000 inhabitants in the shadow of the sprawling port and oil refineries, former dock worker Willie Weir said business was already “picking up.”
“I think we’ll end up a very rich country,” the 54-year-old, who now owns a hotel and lorry park, told AFP. “Within a couple of years I think we’ll be trading with a lot of other countries.”
Associated British Ports (ABP) — which owns four Humberside facilities — is spending big to attract new business, raising hopes for a return of the area’s former industrial glory.
The company is betting the country’s departure from the EU next March will snarl southeastern hubs like Dover, where limited space and hourly sailings could bump up against post-Brexit bureaucracy, leaving traders looking for alternatives.
“There are certainly some opportunities available for the Humber ports,” ABP’s head of Humber communications Dafydd Williams said during a recent tour of its vast Immingham complex.
The company reckons Humberside can better handle the burdens and delays that Brexit may bring, with space available for new customs facilities and waiting areas for trucks.
It believes the longer shipping routes across the North Sea from Europe will allow new bureaucracy to be done aboard vessels, which is difficult during a 90-minute crossing from Calais to Dover.
ABP has dedicated £50 million ($66 million, 57 million euros) to expanding its container terminals, spending £14 million last year at Hull, which led to several new European routes.
It now hopes for similar results in Immingham, Britain’s biggest port by tonnage, with investment in loading cranes, tugs and a re-engineered dockside.
Unifeeder — a shortsea carrier that imports most of its Britain-bound cargo through Immingham — said it is seeing more container customers switching from southern ports.
“The cargo naturally finds the easiest course,” said the company’s UK manager, Andrew Ellis. “It’s just economics.”
Amar Ramudhin, a logistics expert at Hull University Business School, believes leaving the EU creates “big potential” for a shift to the north.
“Brexit just gave a bigger chance for these ports,” he said.
Peter Baker, an industry analyst, said Humber ports offered better value, as they are closer to a raft of distribution centers for firms like Amazon and Ikea.
With more of the journey done at sea, costs, congestion and CO2 emissions all fall, he said.
But Baker said he doubted the Humber ports will be less adversely impacted by Brexit.
“If there are customs checks and port health (checks) and everything else, it’s going to be just as difficult in Immingham as it would be in Dover,” he said.
Andrew Byrne, managing director of DFDS Seaways — Immingham’s biggest shipping line with its own terminal and 35 sailings a week on eight vessels — also called talk of a Dover exodus “misguided.”
He said his company had also seen “no evidence” of a big shift to containers among its customers.
“We’re hoping for the best but preparing for the worst,” Byrne said of its Brexit preparations.
Brexit sympathies run high in North East Lincolnshire, the region where Immingham is located.
In the 2016 referendum, 70 percent voted to leave the EU — one of the highest results in the country and much higher than the overall national result of 52 percent.
Martin Vickers, a pro-Brexit MP from the ruling Conservatives representing Immingham, wants the government to spur regeneration by giving the region freeport status.
He predicted the area would “without doubt” reap a Brexit dividend.
But across the Humber, staunchly pro-EU Hull MP Karl Turner, who represents the most pro-Brexit constituency the opposition Labour party holds, is skeptical about Brexit benefits.
He predicts Britain leaving the EU next March without any kind of deal would be “an unmitigated disaster for the ports.”
“There’s a bigger risk to the wider economy which I think ABP have not really taken on board,” he said.
Back at Immingham’s waterfront control tower, where the Humber’s 40,000 annual shipping movements are directed from, Williams defends his company’s positive outlook.
“We can adapt our space to accommodate whatever the arrangements are and that’s why we’re confident about the future.”