Special Opportunities: Emerging Markets vs Developed Markets

[Music] good afternoon everyone I'm delighted to welcome you all to what promised to be a a very interesting panel on special situations um a topic that we can actually talk about for hours and hours but uh today we're just going to talk about the special situations investing landscape uh in Emerging Markets with a um well kind of a particular focus on on this region and how it compares to to develop markets um as we only go have a short time today so I think uh let's get started without further Ado um I'd like to start with you VAR um i' would like to ask you what are the range of opportunities of special situations in EM so um or like in a broader sense in in the whole Emerging Markets um is it being driven by debt restructuring or direct lending or m&a um what kind of opportunities are you seeing that you think are interesting it's all to well and I think when we use the term Emerging Markets it's really a huge umbrella term um there are different categories and types of countries that's classified under that bucket you can have a country like South Korea or a lot of the GCC countries for example classified as Emerging Markets but the reality is macro macro economic environment here is beyond the typical emerging market economy that you would see um you have situations like India Indonesia Brazil where there are proper emerging markets in the sense that they are developing and with right policies they can get to a place similar you have a couple of basket cases like turkey and Argentina you know we never know what's going to happen and it's in constant flux and then you have the frontier markets I would say which are generally a bit more tricky uh where we find the most opportunities and I think what's been most attractive for us is kind of the first category where countries like South Korea for example a lot of the Asian tigers and what we see in the GCC region where the economic environment is quite robust the legal infrastructure is more or less there uh but despite that there isn't as much sophistication perhaps in some of these alternative credit Market that you would see in the develop world so you don't have as many funds for example investing in this region and dist that or direct Landing espe that's the thing that's why I've been in there because I introduced each panel which was the idea I was like I'm happy to do that then I'm moderating this and I was like that's not [Laughter] me um okay let's see let's see um so I'm going to use so we find unities I would say is in this first category where we can get comfortable that the economic environment and the system in general is quite robust uh but we can find opportunities at very attractive pricing and very attractive returns because reality is not a lot of people are spending time of these not a lot of people have presence in the Middle East or in general there's a perception that this is a difficult Emerging Market to invest in which in reality we've been investing in the region for more than 10 years we know there is not and you can find very interesting opportunities here yeah yeah thank you um and Nellie how how have you noticed the restructuring shifted uh in in the recent years so I mean I don't know if my mic is working sorry um I mean as bery was saying the region I think has a bit of a perception that it's not as sophisticated as others and that's why it could be a bit more challenging but I think that's definitely been changing in recent years um the region is definitely becoming more sophisticated the regulatory landscape is changing in a positive manner um for example I think adgm earlier this year came with a new regime for private credit funds which did facilitate the entry of several that have now set up in adgm um that's just one example of how regulators and the landscape is changing to to help the restructuring framework in the region obviously the Saudi bankruptcy law has record numbers of cases um that are happening now there as well and the UAE put out a new bankruptcy law last week so the restructuring landscape in the region is definitely changing um it's evolving I think in in a positive manner and has been over the past several years um and I think you know as as investors are coming and basing themselves in Abu Dhabi and the broader region um it will continue to do so um so I think we can just talk about as it was mentioned in the previous panel and also as you just mentioned uh there are so many funds that are coming here now and um setting up their own offices well especially in Abu Dhabi now um maybe we can just talk about a bit more the of the um the hedge fund involvement in special situations and how do you see it is it getting bigger and do you kind of see that it's just going to even expand sure I mean I I would love to see more players coming to the region and actually investing in this asset class the reality is let's be honest most of the uh firms that are opening up office here is mostly for investor relations kind of purpose and not as many people are actually actively investing in this region and the reality is in our space at least in the special situations credit um there only maybe a a dozen firms or so that invest actively in the region they've done it historically and they know what they're doing and we would like to consider it ourselves as one of them and it's difficult for an outsider to come in and understand all the subtleties of dealing in this region you can't apply a us you know aggressive chapter 11 litigate to death kind of mentality for example in the Middle East where issues are resolved in a complet different manner right you cannot use the same tool in different jurisdiction so I do expect that more and more funds will come here um there will be a short-term challenge in the sense that opportunity is growing in the developed world and that takes eyes away from the from this region but the reality is uh that's even better for us right because we are here we know the market we know how to operate and we can identify those opportunities in in invest uh although I think in the midterm if you talk to me about let say next three years uh there will be no doubt a more robust both secondary and primary special sis credit Market in this region I think it's inevitable sophistication of the jurisdictions as we go along and uh Ellie from a bit more of a financial advisory point of view um do you think that the involvement of the the hedge funds in special situations like how is it affecting the whole um process is it just making it easier or harder what do you think I mean I think more and more specialist funds being involved in situations is certainly very helpful traditionally this has been a bank-led market in all types of financing situations with no other real Capital providers traditionally but that is quickly changing um we are seeing alter ative financing situations um which are coming in uh in Saudi in UAE and across the broader region as well um and it certainly is helping the landscape evolve in a in a positive manner they invest not only in debt they invest in debt for Equity situations they can provide mes financing there's dip financing there's all sorts of structures that they can come in at um that can be very helpful um and I think that's definitely changing landscape in a positive manner um and you know it was referenced I think in the earlier panel that mid-market corporates are facing struggles for financing that's where I guess special situation and alternative kind of investors can be very helpful to come into those situations provide financing solutions that Banks wouldn't um and come in across the capital structure as opposed to just doing it as a straight you know loan for five years at a certain interest rate which is I think a region needs desperately to be honest because for the last 15 years the way to resolve stress situations by the bank side is just extended for another five years extended another five years and what you end up with you end up with a company that's servicing the interest perhaps when you know lior or cyber is you know 0% but increasingly that's becoming more challenging and also they're not deploying any Capital into growth into capex into working capital so it effectively comes a zombie company that they can't do anything to grow to prosper to actually uh become more developed um you need to bring more alternative tools you need to do a de swap you need to be able to do provide new money for example in certain situations and real is Banks a it's not their business to do that their business is very simple you just land to help the companies and collect the interest but also they have this fear that anything that's a bit more complicated than a regular debt is going to take more management time it's going to take additional uh Capital requirements and they're shying away from doing that which means that the problems historically haven't been resolved I mean Saudi is a good example right there are so many situations in Saudi where a de restructuring a proper dead restructuring has never been done everything has been amended and extended and now with the F FRP regime that's implemented we are seeing more and more of these companies trying to actually resolve trying to cut back the debt and get a fresh start which should be the point of this kind of a restructuring regime you need to be able to get the company breeding room and ability to grow after the process so we with these kind of IMS we kind of just see a bit more Innovative tools to be used um rather than just to keep the ball rolling kind of inshah I mean look we've seen we've seen different cases across the region right we've seen diff facilities in the UAE we've seen cram down for examp example banks in Saudi Arabia quite regularly uh we've seen uh the swap in Bahrain it's not only just UA and Saudi we are seeing that across the region across many countries in the region uh I would like to see more and more Innovation brought to the table and the reality is is there's an element of trial and error at this stage right you don't know what's going to work until you start you know investing some time and look at the structures and see what can be applicable uh but eventually we will get that eventually we are going to see more innovative solutions and that's what the region needs more than anything else and I think the winners on the private credit side in terms of the investors that will kind of see those opportunities are the ones that base themselves in the region um I think it's very challenging to Source deals understand deals and do a lot of the kind of hard yards of getting to the bottom of situations remotely um it does require very local presence you need to understand the local market it is not the same as the Western World things don't happen the same way here um and everything is not necessarily what you see in many situations um so yeah I mean I think those that base themselves here and do the work on the ground in the region will be the ones who get the fair share of the of the best opportunities no which is exactly why we set up in adgm as well uh because reality is you need to be on the ground there is an information symmetry right and the best way to actually mitigate it is to as I mentioned be on the ground talk to the company talk to advisers talk to everybody involved in it and that's only way you're going to fill in the gaps and actually get an accurate picture of what's Happening which gives you that conf for to invest in the situation with greater and greater size if you do it out of London or New York London maybe but New York becomes a bit more challenging and that's why I think as the region gets more and more sophisticated and when we start talking about Middle Eastern alternative credit or special situations credit as a product then there's going to be a boom of these kind of innovative solutions and it's going to be incredibly resourceful I think for the companies and Banks and other stakeholders in the region and hopefully we'll get that eventually it's not going to happen to tomorrow but I think the future is bright I'm going heading that direction um now that you mentioned the West so I think maybe we can just like talk about how this compares the special situations in Emerging Markets compared to the developed markets um are there any lessons to be learned are there anything that kind of just when you look at it in comparison that you would say it's better or worse or I don't know there's room for grow well again the develop world is a very big umbrella as well right when people ask me about people are not familiar in our sector you know what is it like investing industry in Middle East I always compare to Italy I think that's the closest comp in Europe where you historically it has been at least where you know information symmetry is there the courts can be somewhat slow sometimes to make judgments and make decisions and you have variety of situations that might be caused before the underperformance or whatever reason and the shareholders are generally very strong personalities that sitting across the table from you as well uh so you know you cannot apply UK Place tool for example in investing in the region but in Italy you know with similar kind of Concepts similar kind of ideas has everything takes longer than you expect and you can apply that kind of a Playbook here um but again I think increasingly what we are seeing is there is a willingness in the region to accept and Implement best practices in our field when we talk about the bankrupts world when we talk about the examples we were talking about deep financing around the equery swaps Etc eventually we should see a convergence of those um teams between the market investing and the regional investing again it's not going to happen tomorrow but I think in three years five years time we will see that the Playbook will get similar right we will have increased sophistication here hopefully the sophistication will come on the corporate side on the bank side on the advisor side I think we are already there The Advisory talent in the region is is incredibly sophisticated and gradually I think we converge into to our geographies what do you think Al I mean I Su I Su that and I think at the end of the day the region obviously has evolved as we said over the past couple of years it will continue to do so um but the landscape I think will remain very localized in the sense that you still need to have people on the ground who understand the local market there are groups of people that have been here for 15 20 years um that have done this work for that time and I think there is a period where somebody who's coming to the region needs to understand how it works and that takes a few years I would say to properly understand how things work um and so those that have been here and are here I think will continue to have the advantage um but the experience from having done it in the west will of course be helpful as always um thank you both um I think this might be a good time to um to open the discussion up to the floor um I don't know if there's anyone who would like to ask a question to to one of our panelists no no questions okay uh thank you so much for your time both thanks a [Applause] lot