Corporate distress has ‘stabilised’ in Saudi Arabia and the UAE but the latest data indicates an increase in the number of underperforming companies.

 

According to global professional services firm Alvarez & Marsal’s (A&M) bi-annual A&M Distress Alert (ADA), this trend reflects an environment of weakened consumer demand both regionally and in key export markets, coupled with persistent inflation and supply chain disruptions that are increasing input costs and compressing margins.

 

With the impact of higher inflation on asset collateral valuations largely delaying the need for restructurings, the report anticipates more restructuring activity across the region as inflationary pressure eases and interest rates begin to reduce.

 

Persistent inflation

Paul Gilbert, Managing Director, and Co-Head of Alvarez & Marsal in the Middle East, said: “Despite some stabilisation in corporate distress levels, the Middle East is not immune to broader economic challenges. Persistent inflation and stubborn interest rates are putting significant pressure on corporate performance and balance sheet robustness. 

 

“Companies must proactively manage their cash flows and look at all options to maximise operating performance.  Where they can see a debt crunch approaching, companies need to consider early refinancing discussions and take professional advice to support those discussions.”

 

Middle East outperforms European markets 

The number of companies lacking performance in the Middle East has increased, reflecting the broader economic challenges. Notwithstanding this, the region is outperforming many European territories examined in the ADA. 

 

Recorded distress levels were also greater in the Benelux (10.2%), UK (9.9%), Germany (9.4%), and Nordic countries (9.2%) than the Middle East (8.9%). Similarly, a higher rate of companies in these European markets were found to be lacking performance and robustness than in the Middle East.

 

Gilbert said: “While the distress levels in the Middle East will be a concern for companies operating across the region, it remains notably lower than those recorded in several European markets. This indicates that, despite economic headwinds, the Middle East is demonstrating greater resilience compared to European counterparts, underscoring the relative strength and adaptability of businesses in the region, even in the face of significant economic pressures.”

 

The alert assesses the financial performance and balance sheet robustness of more than 8,200 companies across the Middle East and Europe.--TradeArabia News Service