Deloitte plays down pos­i­tive fore­cast for SA this year

The Star Early Edition - - NEWS - Sizwe Dlamini

RE­STRUC­TUR­ING pro­fes­sion­als ex­pect an im­prove­ment in the coun­try’s eco­nomic en­vi­ron­ment this year, in line with the wider trend seen across de­vel­op­ing economies.

This was ac­cord­ing to the fourth an­nual South African Re­struc­tur­ing Out­look 2017 sur­vey re­leased by Deloitte last week.

Deloitte, how­ever, noted that an im­por­tant caveat was that this pos­i­tive sen­ti­ment might have weak­ened in the wake of South Africa’s sov­er­eign debt rat­ing down­grades by S&P Global Rat­ings and Fitch Rat­ings, which oc­curred shortly af­ter the sur­vey was con­ducted.

“We sur­veyed a cross-sec­tion of re­struc­tur­ing spe­cial­ists in South Africa to ob­tain a bet­ter un­der­stand­ing of where the in­dus­try is now and what their ex­pec­ta­tions are for the next 12 months,” said Deloitte’s as­so­ciate di­rec­tor of re­struc­tur­ing ser­vices, Daniel Terblanche.

“Re­spon­dents rep­re­sented a se­lected mix of com­mer­cial banks, de­vel­op­ment fi­nance in­sti­tu­tions, lawyers, busi­ness res­cue prac­ti­tion­ers, academia and other key pro­fes­sion­als.”

The re­sults high­lighted the im­por­tance of iden­ti­fy­ing dis­tress early and the risks of value ero­sion that busi­ness res­cue could bring if not man­aged care­fully, such as the dis­con­tin­u­a­tion of sup­plies into a busi­ness or higher em­ployee at­tri­tion rates.

Pro­tect­ing the busi­ness was still ranked as the top pri­or­ity of a re­struc­tur­ing project, with the preser­va­tion of employment be­com­ing in­creas­ingly prom­i­nent.

Early iden­ti­fi­ca­tion of fi­nan­cial dis­tress re­mained one of the main ar­eas where re­struc­tur­ing pro­fes­sion­als be­lieved the lo­cal re­struc­tur­ing in­dus­try could be im­proved.

“An in­crease in volatil­ity can be ex­pected across the South African econ­omy and the abil­ity to iden­tify fi­nan­cial dis­tress early by man­age­ment and boards of di­rec­tors, ac­com­pa­nied with the im­per­a­tive need for re­struc­tur­ing prac­tices, both informal and for­mal, to de­velop and be­come more dy­namic, is more crit­i­cal now than ever be­fore” said Deloitte’s head of re­struc­tur­ing ser­vices, Nisha Dharam­lall.

Re­spon­dents be­lieved that the re­tail sec­tor was the most at risk of dis­tress in the next 12 months, fol­lowed by the agri­cul­tural and con­struc­tion sec­tors.

The in­creased fo­cus on the re­tail sec­tor fol­lowed the highly pub­li­cised re­struc­tur­ing and the on­go­ing busi­ness res­cue of well-known house brands in the lo­cal mar­ket.

Agri­cul­ture was fore­cast to be the next most-at-risk sec­tor, hav­ing been cho­sen by 53.6per­cent of re­spon­dents, even af­ter the El Niño drought came to an end in the sum­mer rain­fall re­gion. While the rains in this re­gion might have helped grow­ing con­di­tions, the ap­pear­ance of “zom­bie com­pa­nies” as con­di­tions im­proved re­mained a risk. Fore­cast­ers pre­dicted a re­turn of ad­verse weather pat­terns in the 2017/18 sea­son, which would cause se­ri­ous con­cerns again for this sec­tor.

The con­struc­tion sec­tor re­mained one of the sec­tors most at risk of fi­nan­cial dis­tress in the next year, re­tain­ing its topthree po­si­tion for the fourth con­sec­u­tive year.

Re­sources re­mained a con­cern for 42.9per­cent of re­spon­dents as a re­sult of mar­ket prices re­main­ing rel­a­tively low com­pared with the com­mod­ity price boom of 2000 to 2014. The lack of com­pet­i­tive­ness in sec­tors such as steel glob­ally was iden­ti­fied as a con­cern.

Sol­vent re­struc­tur­ings were ex­pected to be the most com­mon route to res­cu­ing a com­pany in dis­tress, with the in­jec­tion of new eq­uity via the sale of the busi­ness, a new eq­uity raise or the sale of non-per­form­ing as­sets be­ing the pre­ferred route.

Busi­ness res­cue was ex­pected to be the next most used mech­a­nism.

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