NEW YORK, May 21, 2014 (GLOBE NEWSWIRE) -- Key Findings:
- 70% of respondents believe restructurings are likely to increase over the next 12 months
- Macroeconomic conditions, regulatory and political developments, and debt and liquidity issues are the top three drivers
- Countries and industries expected to see the most restructuring are India followed by Japan, South Korea and Greater China; and financial services and industrial products
- 93% cite private equity as the likely funding source for restructurings
- 82% say 'unrealistic expectations' among stakeholders the most-likely cause for a restructuring to fail
AlixPartners, the global business advisory firm, has announced the findings of its annual experts survey and accompanying study into the outlook for corporate restructurings across Asia-Pacific. The report, "Seize the Day: An Outlook on Turnaround and Restructuring in Asia-Pacific 2014," is based on interviews with 150 bankers, lawyers, fund managers, government officials and other restructuring experts from across the Asia-Pacific region and highlights that levels of corporate stress are expected to continue to rise across a number of countries and industries, with 70% of respondents expecting restructurings to increase in the year ahead, compared with 67% saying that in last year's survey.
According to the survey, for 30% of respondents less-than-stellar macroeconomic conditions ranked first, marginally less than in last year's survey (39%), among the top drivers of expected restructurings, followed closely by regulatory or political developments affecting business performance, which claimed 28% of respondent sentiment. Meanwhile, 22% of respondents say high debt and low liquidity will continue to weigh heavily on Asia-Pacific companies – an issue, according to the AlixPartners study – exacerbated by European financial institutions retreating from the region of late as well as continued lackluster of Western consumer demand for Asian products.
In terms of industry vulnerability, the financial-services and industrial-products sectors were singled out by the respondents as the top two industries across Asia-Pacific in need of restructuring, with particular stress expected in local businesses and MNCs. Eighty-one percent of respondents cited financial-services firms as most in need of restructuring -- likely due to the recent growth in non-performing loans in the region, according to AlixPartners' accompanying research -- while Asia-Pacific's industrial sector is likely to be impacted due to the continuing shaky economic recovery in the West, says that same accompanying research.
As in last year's survey, private equity was once again highlighted as a growing source of funding for corporate restructurings, with 93% of respondents citing it as the most-likely provider of funds. Banks operating in the region have likely seen their influence wane, according to the study, where only 38% of respondents cited banks as the likely primary funding source, down from 81% in last year's survey. Furthermore, respondents interviewed commented that those banks that have not already scaled back in Asia-Pacific will likely take a more cautious approach to lending into distressed situations going forward. This could leave ample room for private-equity firms to fill the void, says the accompanying AlixPartners study.
The survey found that over the coming 12 months the greatest percentage of experts believe restructurings will increase in India, followed by Japan, South Korea, Greater China, Australasia and Southeast Asia, respectively.
According to the survey, 87% of respondents believe that India will witness an increase in restructuring situations in the year ahead, a substantial jump from 60% who said the same last year. Various events in the past year have thrown the Indian economy into turmoil and, with corporate debt reaching new highs, an increase in restructuring seems a certainty as respondents stated that companies in the subcontinent could be the most likely to be distressed among their counterparts in Asia-Pacific.
Regarding China, respondents cited the real estate, automotive and pharmaceutical industries as the most likely to see restructuring activity, apart from the top two sectors - financial-services and industrial-products - under pressure in the region. Likely in light of uncertainty over mainland China's cooling in economic growth and tighter credit conditions of late, 74% of respondents stated that restructuring situations there would increase over the next 12 months. Though down from last year's 86%, the study notes that China's central government has announced plans to restructure the country's economy overall, which itself could lead to more corporate restructurings. Meanwhile, 33% of respondents in this year's survey said China would provide the most accommodating jurisdiction in the Asia-Pacific region for debtors and creditors, up from 15% in last year's survey, and a higher percentage than those who picked Japan (28%) or South Korea (13%).
Sentiment from survey participants regarding corporate outlooks in Japan and South Korea was also pessimistic. While a small portion of respondents expect a decrease in distress in those two countries, the vast majority -- 76% and 73%, respectively -- anticipate an expansion in corporate restructurings in the year ahead.
A 'Holistic' Approach to Make Restructurings Work
The report's findings also show that operational restructuring will continue to be essential to a successful turnaround, with 45% citing it as a needed, primary focus for companies in trouble. However, the importance of alleviating ongoing financial constraints, such as onerous debt loads, as well as (when appropriate) strategic management changes in companies were cited as critical factors as well. Together, these three processes create what AlixPartners calls a "holistic-turnaround" approach, which seeks to address all critical areas, at once, to correct a company's course.
According to the survey, 51% of the respondents stated that the primary focus for distressed companies in the year ahead should indeed be a holistic turnaround. The survey also suggests that, although currently uncommon in Asia, more external advisors, including chief restructuring officers ("CRO"), are likely to be employed in the year ahead, with 89% of respondents saying they believe that in the future distressed companies in Asia-Pacific are more or equally likely to employ a CRO than are their U.S. or European counterparts.
The AlixPartners survey also notes that the Asia-Pacific region presents unique challenges that may prevent companies from successfully restructuring. In particular, 82% of respondents said "unrealistic expectations" among stakeholders and business leaders is the most likely cause for a corporate restructuring to fail. The accompanying AlixPartners study notes that some of these unrealistic expectations often include the timing and resources necessary for the endeavor. In this same vein, 63% of respondents say that there is a general inexperience among restructuring stakeholders in Asia-Pacific.
CV Ramachandran, managing director and co-head of Asia at AlixPartners, commented, "With a continuing uncertain economic situation around the world, the year ahead may prove particularly challenging for Asia-Pacific. To overcome its challenges, each country, industry and company will require a customized approach and tailored execution, but most of all, will need to act as proactively as their counterparts in the rest of the world already are."
Commenting on the restructuring environment in Asia, Masa Fukasawa, managing director and co-head of Asia at AlixPartners, said, "Given the macro uncertainties in the United States and Europe, exacerbated by the recent slowdown in mainland China's economy, corporates in Asia are facing a challenging year. For all stakeholders involved in the restructuring efforts necessary to meet these challenges, it's critical to keep in mind that a truly successful restructuring needs to be a holistic one."
About the Study
AlixPartners' "Seize the Day: An Outlook on Turnaround and Restructuring in Asia-Pacific 2014" is the result of a December 2013 to January 2014 survey AlixPartners commissioned with Remark, the publishing division of the Mergermarket Group, to capture and analyze the perspectives of 150 corporate-restructuring experts in the Asia-Pacific region who had completed a turnaround or restructuring. They included 30 respondents from law firms, 24 from investment banks, 30 from corporate and commercial banks, 39 from private-equity funds, 15 from hedge funds, six from sovereign-wealth funds, and six from government bodies and others.
AlixPartners is a leading global business-advisory firm of results-oriented professionals who specialize in creating value and restoring performance at every stage of the business lifecycle. We thrive on our ability to make a difference in high-impact situations and deliver sustainable, bottom-line results. The firm's expertise covers a wide range of businesses and industries whether they are healthy, challenged or distressed. Since 1981, we have taken a unique, small-team action-oriented approach to helping corporate boards and management, law firms, investment banks and investors respond to critical business issues. For more information, visit alixpartners.com.
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