DUBAI — GCC businesses looking to raise funds should look beyond traditional sources of capital and explore the increasing number of alternative non-bank options available in the region, according to accountancy and finance body ICAEW. This was the consensus during ICAEW’s Corporate Finance Faculty roundtable on raising capital in the GCC.
ICAEW members and guests gathered at the JW Marriott Marquis Hotel in Dubai last week, to discuss managing liquidity challenges and raising capital in the GCC. The event was organized by ICAEW’s Corporate Finance Faculty in the UAE.
Panelists included Anthony Pallett, Partner, Hogan Lovells; Fidaa Haddad, Managing Director, Gulf Capital Credit Partners, Gulf Capital PJSC; Kosta Georgiadis, Debt Advisory, Deloitte; and Kushal Shah, Managing Partner, Roland Berger. The discussion was moderated by Sam Surrey, Principal Director, Deloitte.
Following an introduction by Matthew Benson, Partner Transaction Support Leader, Europe, Middle East, India and Africa (EMEIA), EY, panelists and invited guests discussed whether liquidity is available in the GCC region and what challenges businesses face when it comes to raising funds. Panelists agreed there is plenty of liquidity in the market if all sources of capital are considered.
Speakers explained that there is an evolving pool of capital for borrowers, which includes mezzanines, convertibles, equity and debt. However, borrowers have to be ready to satisfy the requirements and proposals from these non-bank sources in order to be able to raise funds.
Panelists clarified that the challenges facing borrowers when raising funds from financial institutions are: a lack of education amongst borrowers about the application process and requirements, poor corporate governance and the complicated legal or corporate structure of their business. For example, borrowers hesitate when they are informed about the cost of acquiring capital, or they are not prepared to answer the types of questions that investors tend to ask, such as cash flow management.
“The financial sector in the GCC has evolved over the past 10 years and this can clearly be seen by the alternative sources of funding available now in the region as well as the myriad number of initiatives to support the SME sector. However, the GCC region is still behind other regions in terms of corporates funding via institutions or debt funds. A cultural change is required to increase business willingness to share equity,” said Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA).
Panelists predicted that Saudi Aramco’s ‘no ordinary IPO’ would help in creating a culture change and would encourage GCC businesses to be more flexible in terms of sharing equity.
Speakers also agreed that banks are continuing to lend to businesses that have predictable or tangible cash flow. Banks are still keen to lend to businesses in education, healthcare, oil & gas and aviation.
Panelists noted that banks are collaborating with each other to understand the SME market. They are stepping out of the regulatory arena and are trying to be innovative. For example, banks are trying to be flexible with their customers who have bank unsettled payments or checks by giving them a 15-day grace period in which to come up with a payment plan before taking legal action.
Speakers applauded the UAE’s efforts in issuing new laws to help businesses raise funds while they are going through critical situations, such as the Insolvency Law and the updated Commercial Companies Law.
The event was attended by close to 100 ICAEW members and senior business representatives from the major global and regional financial organizations. — SG