Restructuring in Austria and CEE
Update Q4 2015
by Ben Trask, Deloitte Austria and Balazs Biro, Deloitte Central Europe
Update Q4 2015
At the end of 2014 we wrote the article “Restructuring in Austria and CEE” covering the latest economic position, a summary of the restructuring market and our expectations for the future development across the region. This article provides an update, as at the end of 2015, using the latest available market data and also our expectations for 2016 and beyond.
Austria and CEE - so near and yet so far
As we highlighted in last year’s article, to think of Austria and CEE as a single region is a misnomer, the differences between the countries that make up Central Europe are, and continue to be, significant. If anything, the last 12 months has seen further divergence in the fortunes of countries within the region, although the overall trend has been a positive one.
For the purpose of this article, the CEE region includes the following countries: Poland, Hungary, Czech Republic, Slovak Republic, Slovenia Romania, Bulgaria, Albania, Croatia, Serbia, Bosnia and Hercegovina and Kosovo.
The AQR (asset quality review) process, stress testing by the European Central Bank and the European Banking authority marked 2014 and together with a change in lender sentiment regarding the need to properly address higher-risk exposures, leading to increased levels of NPL disposals and restructuring activity across the region. As a result, 2015 is characterized by very selective business strategies of larger Western European CEE banks. Examples are balance sheet optimizations as well as cost-cutting together with selective investment schemes.
Key Trends 2016
To summarise the current state of the restructuring market in Central and Eastern Europe, we see the following key trends:
- The economies are on the way of recovery with some countries recording relatively high GDP growth rates and others that were close to recession in 2014 reporting an upswing in 2015.
- Still, we anticipate a high level of corporate restructuring activity in Austria and the CEE over the coming one to two years, focusing especially on the South-eastern European region as a result of increased regulation and a greater lender willingness to address problem cases now they have strengthened their own balance sheets.
- Alternative sources of capital are becoming more pronounced in Europe with alternative lenders providing more favourable conditions and different financing solutions for borrowers, thereby further changing the restructuring market.
- Delivering an in-court corporate restructuring for a business operating across multiple CEE jurisdictions is highly challenging and an out-of-court process typically provides the best chance of success
- We recommend that corporates adopt a proactive approach by being open and honest with lenders, opening communications in a timely manner, and seeking to present solutions that deal with their issues in a sustainable, realistic and long-term way. In our experience, taking the alternative, reactive, approach and not addressing the company’s issues in a permanent way, is likely to end in failure.
Using independent advisers is often very useful to support the restructuring process and creates the foundations for trust, provides accurate information for effective management decision-making and, ultimately, leads to a more successful restructuring.