Restructurings to continue…
THE push to cut debts will drive a high number of corporate restructurings in the next year, as banks grow more willing to take writedowns and as businesses run out of cash, a senior restructuring adviser said.
Simon Davies of Blackstone Group yesterday told the Reuters Restructuring Summit that the paralysis in restructuring brought on by last year’s financial shocks is now starting to ease.
“The businesses that are properly being restructured are the ones that are physically running out of money. Others are being tinkered with,” Davies said.
Greek telecom company Wind Hellas was forced into restructuring talks last month after running out of cash to cover a €67m (£61.8m) 15 October interest payment.
Davies, a managing director in the US private equity firm’s European corporate advisory unit, said banks’ weak balance sheets gave them strong incentives not to recognise all their losses, as doing so might cause another financial crisis. “Leverage is something that is in the system that we try to
gradually reduce so that everything does not go bust,” he said.
Boosted by cheap central bank funding, banks are seeking to grow back into profitability and use the cash generated to absorb losses, leading to a smoothing out of writedowns.
“We eased into the crisis and we are likely to ease out it,” Davies said.
As an alternative to persuading lenders to take a loss, companies have tapped the equity market to fix their balance sheets. A flurry of cash calls on the London market last week shows British firms have been able to ride a recent stock market rally to boost their capital.