Book an appointment with us, or search the directory to find the right lawyer for you directly through the app.Find out more
We are excited to share the latest edition of the Law Update, beautifully and appropriately titled “Sustainable Horizons: The Saudi Arabian Vision.” Giving special honor to the Kingdom’s 2030 vision, this update focuses on a collection of both informative and inspiring articles.
For those in construction, you can learn about how the tendering environment impacts risk-pricing for contractors, the updates on the legal framework of the construction industry and how contractors can protect themselves against financial difficulties.
There is good news too from the kingdom’s banking sector, from which the practice of “Open Banking” is being pushed for! But what is open banking? We’re answering that too.
Also . . . Are there any women trail blazers in Saudi Arabia you can name? We’ll help you with that. We cover how the Middle East has been making strides in empowering women in the entrepreneurial space,most notably in STEM fields.Read the full edition
Patrick Slater - Senior Associate - Banking and Finance
Mark Brown - Partner - Banking and Finance / Projects
The slowdown in the UAE economy has resulted in a corresponding slowdown in loan growth for the UAE banks and some debt delinquencies, especially in the SME market, and that has lead in some cases to a drop in bank profits as a result of increased bad debt provisions. While we understand that contractors who were the first to be affected have largely already made arrangements, that still leaves many bank customers who are feeling the stress of making scheduled loan repayments when their own profitability and cashflows are coming under pressure. If it is not sufficient to grant a rescheduling of the debt so that payments are reduced as the tem of the loans are extended, the banks and their customers will have to start considering entering into a more formal restructuring.
The practice in the UAE has been for consensual restructuring, partly as the current laws are designed for traders rather groups of companies with complex debt structures, and partly by the desire to ensure that these businesses survived as going concerns, even if the bargain stuck through the restructuring does not reflect usual commercial terms. Other reasons for pursuing a consensual process outside of court action are that:
Many UAE banks learned significant lessons from the 2008/9 financial crisis — these lessons or principles are now being dusted off to be put to use again, which can be seen in the recent “mini insolvency law” announced by the United Arab Emirates Banks Federation.
The key restructuring lessons are:
The “mini insolvency law” referred to earlier is the United Arab Emirates Banks Federation announcement that they are to suspend action against SME borrowers if they have (i) financial distress and (ii) AED50m or more of debt with two or more banks. Instead they will enter into a 90 day standstill agreement and the bank with the biggest exposure will agree how to manage or restructure the debt with that SME borrower. This is a practical example of some of the above principles being put into action on an industry-led basis for a specific area of distress.
For each restructuring there will of course be specific points of concern or pressure. The lessons and principles set out in this article may not all be applicable to every situation. However, they do provide a foundation on which creditors can build, working with the borrower to reconstruct a sound and functioning lending relationship.
* Previously published by Bloomberg Business Week Online on 8 September .2016.
To learn more about our services and get the latest legal insights from across the Middle East and North Africa region, click on the link below.