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It has been more than a year since the Covid-19 pandemic emerged out of Wuhan, China. Companies had little choice but to react to the global-scale upheaval as the economic impacts of the pandemic reverberated across every country and industry – survival became the name of the game.

There was hope that the new year will bring the promised upturns economists and analysts projected, but as Malaysia and other parts of the world battled with renewed lockdowns, it became clear that the disruption is far from over. In fact, there have been numerous lamentations that life may not return to normal until at least 2024.

It’s clear that surviving this pandemic will require business leaders to get resourceful and agile to stay the course. Unsurprisingly, corporate restructuring has been a heavily considered strategy for companies to weather this storm.

The 2021 Corporate Restructuring Report[1] indicated that there is an expectation of increased corporate restructuring activity in response to the pandemic and the broader economic backdrop, with many focusing on defensive restructuring to reduce cost, support their core business and drive profitability. The global sectors predicted to have the highest level of restructuring in the next 12 months will be industrial and chemicals, energy, mining, utilities and construction.  Of course, the aviation and hospitality sectors are foregone conclusions considering the decimated tourism industry.

Implications to Corporate Malaysia

This unprecedented situation calls for a pragmatic approach. Over the next 12 months, business leaders should review restructuring options along these lines of consideration:

Financial strength
Assess whether the company is likely to face financial distress due to the downturn in business, its cashflow including collections and bad debts, unsupported/unproductive costs and fixed repayments due.  If there is financial distress, is there any potential divestment of non-core business and assets to generate cashflows and meeting payment obligations?

The management should also explore closing down/liquidating unprofitable businesses to reduce cost.  Other than internal restructuring, management should negotiate with lenders for possible “haircuts” or rescheduling of debts based on the operating capacity of the business.  At this stage, it is observed that lenders are more willing to consider debt rescheduling/restructuring since Bank Negara Malaysia is asking banks to exercise a more friendly approach to restructuring during this pandemic.

Technology transformation
Restructuring need not only happen in a financial distress situation. In fact, consider taking a proactive approach to restructure to enable technological advancements within the company that will enhance business operations.

This pandemic has drastically changed consumer behavior in support of e-commerce and accelerated the digital transformation of companies across all industries. Regardless of the chaos in the moment, you need to invest immediately in the foundational things that matter to the business in the future.

The right solution?
Restructuring may be the inverse if the company is cash rich.  In that situation, you should consider M&A for cost synergies, acquisition of technology and to offer new products/services.  As a strategy, you should not stray far from your existing sectors to consolidate as this is not the time to explore new competencies until the market has improved and the company has unlimited resources to diversify.


Moving towards recovery

Getting through to the other side calls for business leaders to not only exercise vision and tenacity but also to surround oneself with competent people who can support the company’s growth ambition. Where you lack the internal resources to guide you, the expertise and experience of restructuring advisers can be invaluable and make the difference between growth or foreclosure.

The unpredictable nature of this pandemic means one wrong/slow move can impede the speed of your recovery. Hence, it would be prudent not to wait until the company is in distress before looking at restructuring strategies. 

 

[1] "2021 Corporate Restructuring Report", SS&C Intralinks and Acuris, January 2021