Businesses in the UAE are looking to overhaul internal processes, and may consider asset disposal and financial restructuring. They are seeking to evolve in the wake of softer economic conditions and lower oil prices that continue to pressure working capital and cash flows.
"Transformation is the buzzword," said Raj Mehta, a partner and head of advisory firm KPMG's restructuring and performance improvement business in the lower Gulf region. "There is a strong realisation that businesses operating in sectors such as oil and gas, construction and consumer, need to evolve to remain competitive".
The UAE, the region's second biggest economy, like its Arabian Gulf peers, relies heavily on the sale of hydrocarbons for revenue. A slump in oil prices from the mid-2014 peak of US$115 per barrel has forced the government to cut public spending, which has slowed the pace of economic growth.
Consumer spending has been sluggish, affecting retail and consumer businesses in the country, while properties and related construction sectors, which recovered well from the 2008 financial crisis, have also faced some headwinds in the past two years.
Abu Dhabi, which accounts for about 6 per cent of the world's proven oil reserves, has already consolidated some of the banking and financial assets and has made sweeping changes in the emirate's oil and gas sector. Abu Dhabi National Oil Company (Adnoc), among other efforts at reorganisation, has streamlined its operations by combining two of its largest offshore operations to drive efficiencies.
Smaller companies related to oil and gas along with the petrochemicals sector are also trying to find ways to weather what is expected to be a prolonged period of lower oil prices.
"You pick any name within the oil and gas or related sectors and it will almost definitely be going through some form of transformation," Mr Mehta said.
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Adnoc's new corporate strategy includes consideration of public flotation of shares in its select service business units and the formation of new partnerships. The company is considering the share sale of Adnoc Distribution, which includes more than 300 service stations throughout the UAE. Media reports in July suggested that the partial sale of the company to the public could value it up to $14 billion.
However, despite low oil prices and weaker revenues, governments in the region are unlikely to sell the core oil and gas assets as part of their efforts to unlock value and raise alternative financing to support their economies. Non-core assets outside the Arabian Gulf where minority positions are held are a different story. They are under scrutiny and could come to market for sale, according to Mr Mehta.
"The focus is now on driving efficiencies within the larger government-backed assets. These companies have large and diverse portfolios," he said, adding that the drive to change the business verticals and in-house scrutiny is strong. "We are at the early stages of that. Are they taking a closer look, absolutely? Have they worked out what they want to do with it? That's in process."
The need to find ways to change the business models is equally intense in construction and consumer sector businesses that are plagued by capital constraints and cash flow issue, he noted.
"There's a lot of pressure on working capital within the consumer businesses including retail, food and beverage and hospitality industry. Businesses with a demographic element attached to them are also facing a lot of financial, sales and operational challenges," he said.
"Banks are also taking a very hard look at the numbers not only on their books but also on the re-financing they might have to do and see if there is a justification for that."
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
The drill
Recharge as needed, says Mat Dryden: “We try to make it a rule that every two to three months, even if it’s for four days, we get away, get some time together, recharge, refresh.” The couple take an hour a day to check into their businesses and that’s it.
Stick to the schedule, says Mike Addo: “We have an entire wall known as ‘The Lab,’ covered with colour-coded Post-it notes dedicated to our joint weekly planner, content board, marketing strategy, trends, ideas and upcoming meetings.”
Be a team, suggests Addo: “When training together, you have to trust in each other’s abilities. Otherwise working out together very quickly becomes one person training the other.”
Pull your weight, says Thuymi Do: “To do what we do, there definitely can be no lazy member of the team.”
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
liverpool youngsters
Ki-Jana Hoever
The only one of this squad to have scored for Liverpool, the versatile Dutchman impressed on his debut at Wolves in January. He can play right-back, centre-back or in midfield.
Herbie Kane
Not the most prominent H Kane in English football but a 21-year-old Bristolian who had a fine season on loan at Doncaster last year. He is an all-action midfielder.
Luis Longstaff
Signed from Newcastle but no relation to United’s brothers Sean and Matty, Luis is a winger. An England Under-16 international, he helped Liverpool win the FA Youth Cup last season.
Yasser Larouci
An 18-year-old Algerian-born winger who can also play as a left-back, Larouci did well on Liverpool’s pre-season tour until an awful tackle by a Sevilla player injured him.
Adam Lewis
Steven Gerrard is a fan of his fellow Scouser, who has been on Liverpool’s books since he was in the Under-6s, Lewis was a midfielder, but has been converted into a left-back.
Nancy 9 (Hassa Beek)
Nancy Ajram
(In2Musica)
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Greatest Royal Rumble results
John Cena pinned Triple H in a singles match
Cedric Alexander retained the WWE Cruiserweight title against Kalisto
Matt Hardy and Bray Wyatt win the Raw Tag Team titles against Cesaro and Sheamus
Jeff Hardy retained the United States title against Jinder Mahal
Bludgeon Brothers retain the SmackDown Tag Team titles against the Usos
Seth Rollins retains the Intercontinental title against The Miz, Finn Balor and Samoa Joe
AJ Styles remains WWE World Heavyweight champion after he and Shinsuke Nakamura are both counted out
The Undertaker beats Rusev in a casket match
Brock Lesnar retains the WWE Universal title against Roman Reigns in a steel cage match
Braun Strowman won the 50-man Royal Rumble by eliminating Big Cass last
'The Lost Daughter'
Director: Maggie Gyllenhaal
Starring: Olivia Colman, Jessie Buckley, Dakota Johnson
Rating: 4/5
