R&R in the light of COVID-19

The health crisis brought by the COVID-19 virus has suddenly paralyzed many sectors of the economies in CEE. The impact will be long-lasting. In these times, our clients need support and guidance across their business, however the immediate priority is to manage short to mid-term cash and liquidity needs. The adage that cash is king needs to be communicated not only to the finance departments but also across all business units.

Existential liquidity issues

The health crisis brought by the COVID-19 virus has thrown all sizes of business in almost all sectors of the economy in the CEE countries into existential liquidity issues as planned revenues evaporate in the coming weeks and months.

In this unprecedented and extraordinary situation, many firms are seeing that their forecasting, liquidity and financing plans are overwhelmed and unable to absorb such shocks.  

GT provides immediate guidance and support with:

• Managing the short-term liquidity issues
• Robust cash forecasting
• Securing financing
• Restructuring financial commitments
• Automation and efficiency of finance and treasury processes

The impact of the Corona Crisis on the CEE countries

The impact of the Corona Crisis on the CEE countries will be partly dependent on the depth and the duration of the economic disruption in the key economic partners i.e. how well the large EU countries are dealing with the crisis. In some perspectives there is little cause for optimism: Not only does nationalistic thinking once again assert itself in a patchwork of measures, there is apparently no understanding at all on the economic level, that solidarity and coordination is in the interests of all our countries in Europe. So far, the EU has unfortunately once again proved to be unable to act as one unit in this crisis. As always, the burden falls on the shoulders of the European Central Bank.

Central banks in Hungary and Poland should remain unchanged with their view on interest rates, barring upside inflation surprise or disruptions linked to coronavirus. Over the last few weeks CEE local currencies lost ground against EUR.

• We assist you with currency risk management and strategies

After the last crisis in 2007, many CEE countries increased regulatory requirements for banks and other financial institutions (Basel III and IV), and therefore the financial world seemed to be more stable than it is today. The central banks have almost unlimited liquidity available, which is now being deployed to their national banking market.

The banking system will be key in terms of working with governments, businesses and individuals to distribute liquidity-easing measures.

• We support corporate customers with their banking strategies and with arguments to get loans from banks

We expect debt levels to rise significantly at all levels, sovereign, corporate and personal in the course of the inevitable recession precipitated by the Corona Virus.

It is to be expected that banks will significantly tighten credit requirements and squeeze new loans. In the past few days German and Austrian companies have drawn all available cash from all credit lines from their banks. Some banks take away even already agreed unused credit lines.

• We support your financing strategy and negotiations
• We support your financial restructuring (e.g. of existing credits)

Governmental support and stimulus

The governments of several CEE countries can and must intervene with support and stimulus. For example, in Austria the economic support package of 38 billion Euros equates to nearly 10% of the total economic output.

However, measures to provide short-term liquidity for companies, generous short-time work solutions, direct support for the solvency of small companies are short term life-support rather than longer term care. Note that much of the financing available is in form of loans which need to be repaid instead of nonrefundable grants. Under specific conditions governments give securities (e.g. 80% Austria, 90% Germany) for such loans.

• We will help you understand, assess and access government support, grants and funding available
• We will help you implement the relevant governmental programs to subsidize staff costs (e.g. short-term work in Austria)

Large companies, which are too big to fail, will only get financial support from government against corresponding investments in the company. The German Minister of Finance has already announced that he is ready to support big companies with liquidity and would even convert debt into equity.

Corporate Bonds often note already with prices of only 70-90% of its face value, which reflects the risk evaluation from investors. The values of equity and debt might further decrease if the crisis does not quickly come to an end and this situation creates new opportunities for long term strategic investors

• We provide (financial) due diligence and valuation services
• We provide support for non-performing loans

In many more cases compared to the last years we (will) see stressed and distressed companies and insolvency procedures will be considered.

• We will accompany and assist you in a restructuring including the advantages and disadvantages of insolvency proceedings
• We create and validate forecasts for going concern purposes

Shifted priorities

The current Covid 19 crisis has shifted priorities to preventing a collapse of the healthcare system, minimizing disruption to supply chains and supporting digital education. The backbone of the export led economies (CZ, Slovakia, Hungary) the car plants have suspended production which will negatively impact the economic situation.

• We provide support for the valuation of suppliers and evaluate the risk of supply chain disruptions

In the last days the prices of oil and other metals have fallen to lows which were not seen in the last years. If the prices are low enough, people and companies will be enabled to start production again and the economy might restart.

There are also a few industries which increased profits, however probably only in industries like pharmaceuticals, food, internet, supply, insurance and still real estate.

Real estates are still valued as safe assets, however that might change as prices might start to decrease in this sector as well, when too many real estates are sold because cash is urgently needed.

• We provide valuation services for real estates

Even an unexpected rapid turnaround of the economy at least in the CEE countries will not immediately make up for already occurred (and the upcoming) losses, as debt will be significantly increased.

• GT R&R services will be available to support our customers to reorganise and recover from the covid 19 crisis.
  
  

Your advisors Wolfgang Kaltenegger and Gottwald Kranebitter  will be happy to support you.