Get creative: Mastering metrics
First published in the 1LoD Global Benchmarking Survey & Annual Report 2019
The eagerly anticipated Federal Law No. 9 of 2016 (or the “New UAE Insolvency Law”) came into force on 29 December 2016 and was positively received by the market as a welcome step forward towards a more effective insolvency regime for the UAE.
The old regime, embodied under the Commercial Companies Law, the Commercial Transactions Law and the Civil Code, was largely untested and was perceived by many to be administratively burdensome, slow and expensive with low recovery rates for creditors when compared with other jurisdictions with more developed insolvency regimes.
The New Insolvency Law draws upon the best practice of other established insolvency regimes and the ethos underlying the new legislation appears to be an emphasis on the rescue and rehabilitation of companies in financial difficulties rather than liquidation.
In favour of debtors, the new insolvency legislation applies to more types of entities within the UAE than the old regime and an additional balance sheet insolvency test has been introduced. In addition, a minimum threshold for commencing insolvency proceedings has been introduced, "bankruptcy by default" has been de-criminalised and there is a partial stay on criminal proceedings for bounced cheques, among other measures.
In favour of creditors, the New Insolvency Law introduces three clearly defined insolvency procedures: protective composition (a court supervised measure – akin to Chapter 11 in the United States - designed to rescue and rehabilitate companies in financial difficulties prior to the onset of insolvency), a court supervised restructuring scheme for companies in insolvency, as well as liquidation.
By contrast to an earlier draft of the legislation, the New Insolvency Law which has come into force does not provide for an out-of-court financial re-organisation process and the regime is instead still very much court-driven.
This means that the success of the legislation will largely depend on the ability of the UAE Court system, its judges and the cadre of court-appointed experts to implement the new law effectively. There is likely to be a significant administrative burden placed on the Courts and perhaps a need for the recruitment of additional judges and other experts to manage the extra workload. In addition, the judges, legal practitioners and the court-appointed experts will need extra training in the new law and its procedures and time to develop best practices within the framework of this new legislation.
As 2017 progresses, we may observe how the New UAE Insolvency Law is applied by the UAE Courts in practice and whether the positive legislative reforms aimed at promoting a rescue and rehabilitation culture in the UAE are fully realised.
Authors: Nicholas Robinson, Matthew Escritt
Diversification away from hydrocarbon dependence and a push towards renewable energy by regional governments has undoubtedly been the story of the power sector in the Middle East during 2015 and 2016. We have seen high levels of activity across the UAE, Egypt and Jordan and are seeing the first “green” shoots in Saudi Arabia, Iran, Kuwait and Oman. Generally we are expecting regional renewables investment to pick up significantly during 2017.
However, on our 2017 horizon we can also see businesses taking the initiative and, where regulations permit, developing their own renewable energy strategies through investment in on-site captive plants and/or purchasing and wheeling power from off-site projects under private power purchase agreements (corporate PPAs). Many companies in the Middle East are now giving their energy procurement arrangements strategic and commercial priority as they try to decarbonize electricity consumption and reduce their environmental footprint and energy costs. An on-site captive plant and/or a corporate PPA with an independent power producer (IPP) to finance, develop and operate a new-build renewable energy plant providing power for the exclusive benefit of the corporate buyer (or perhaps sharing risk amongst a club of corporates) are two ways to provide long term cost affordability, reductions in carbon emissions and to generate strong market brand recognition and leadership.
In many cases regional utilities cannot (yet) meet these renewable energy requirements and so in jurisdictions where the regulatory framework already allows for captive generation or wheeling of power (such as Jordan) from distributed plants, in 2017, we expect to see more businesses taking matters into their own hands by investing in such projects. This clearly creates opportunities at all levels of the supply chain and once up and running, can benefit government and utilities by helping to balance domestic power demand and supply and in the case of wheeling, from the charge that is typically applied to the buyer’s account.
In jurisdictions where the regulatory frameworks are not yet in place, the discussion between developers, buyers, lenders, advisors, regulators, utilities and/or local energy suppliers will need to start or be intensified in order to free up restrictions on non-utilities directly purchasing power from private owners of power plants or becoming generators themselves. This may take some time and progress will depend on the extent to which the regulatory framework and the attitudes of policy-makers can be molded to allow increased competition in their domestic energy markets.
It’s an exciting development area in the power sector that has grown (and even become common place) in various countries around the world over the past few years. With the likes of Jordan leading the charge, 2017 could well be the year for the Middle East to begin to catch up.
Authors: Daniel Kaufman, Joanne Emerson Taqi
“Renewables” has been the buzzword in the MENA region for several years. With world record-breaking prices for solar PV being set in the region, as well as the continuous decline in the cost of solar energy, this trend is set to continue for 2017.
The UAE has been the Gulf’s front-runner in terms of delivering on ambitious and aspirational renewable energy targets. Saudi Arabia has, to date, not completed as many renewable energy projects as their neighbours.
The tide looks to be changing in 2017. The recent tender by Saudi Electricity Company (SEC) of the first solar IPPs in Saudi Arabia, is a sure sign that the power sector appears to be gearing up for enabling renewable energy to be a significant contributor to the national energy mix.
SEC’s Al Jouf and Rafha solar PV IPPs has a combined capacity of 100MW. If Saudi Arabia has any chance of meeting its Vision 2030 target of 9.5GW of renewable energy capacity in the Kingdom by 2020, this is a market with huge potential for the coming years.
Major players in the sector are predicting that Q1 of 2017 will bring up to 500MW of tenders for solar projects. The award of the Al Jouf and Rafha IPPs, which is expected in the early part of 2017, will signal to investors and developers the awakening of one of the region’s most eagerly and long-awaited renewable energy programmes. In addition, King Abdullah City for Atomic and Renewable Energy (KACARE) is procuring consultants to assist with the delivery of up to 4GW of renewable energy projects, although it remains to be seen how and when these projects will come to the market.
Authors: Angela Croker, Paul Mansouri
With the UAE residential property market under pressure, regional investors are increasingly looking to opportunities in the UAE healthcare sector as a way of achieving more stable and sustainable returns while contributing to the social developments of the region.
2016 has seen significant activity in the UAE healthcare sector in terms of capacity expansion, consolidation and improvements of the level of services provided. Hospital capacity has increased but the Dubai Healthcare Authority (DHA) estimates that a further 80,000 hospital beds will be needed in Dubai by 2025 to meet the demands of the increasing population and to position the UAE as a medical tourism destination, as articulated in His Highness Sheikh Mohammed bin Rashid Al Maktoum’s vision Dubai 2020.
The DHA announced in December 2016 the construction of seven new hospitals and expansion of three existing facilities to service primarily the needs of the Emirati population. Earlier in the year Phase 2 of the Dubai Healthcare City, a US$1.4 billion development adding 22 million square foot of space, primarily earmarked for medical facilities, has been revived with the first occupants committing to the project. The private sector has also seen a trend of capacity expansion and consolidation. Completion of the merger between the Al Noor group with the South African Mediclinic network or the series of acquisitions by the NMC Healtcare group of smaller specialist facilities are examples of the so far relatively fragmenting market coalescing around several major players.
In 2017 we are likely to see the continuation of these trends. The alignment of the government and private sector objectives, the new mandatory health policy requirements introduced in Dubai and the synergies with the Islamic economy drive are and will continue to be the catalyst of the Dubai and wider UAE. Some market observers expect the next UAE initial public offering to originate in the healthcare sector potentially during the course of 2017.
Authors: Martin Botik, Mohammed Paracha
2016 was a relatively subdued year for Middle East bond and sukuk issuances. While overall global debt capital markets activity totalled approximately US$7 trillion during full year 2016 (a 16% increase compared to 2015 and the strongest annual period for debt issuance since records began in 1980), global market fluctuations and uncertainty during 2016 hampered issuance volumes for both sukuk and conventional bond issuances in the GCC region. This was despite a spike in GCC sovereign sukuk and conventional bond issuances in Q3 and Q4 of 2016 which saw Oman, Qatar, Saudi Arabia and Bahrain complete issuances (culminating with the recent dual tranche US$2 billion sukuk and bond issuance by the Kingdom of Bahrain, on which Norton Rose Fulbright advised). Despite expectations that 2016 would be a strong year for sukuk issuances in the GCC (given the need for many Islamic countries to counter budget deficits created by the low oil price and the popularity of sukuk in the region), there was a subdued start to 2016 which saw the six-nation GCC raise just US$1.1 billion or approximately 5 per cent. of their total issuance using sukuk (compared to 38 per cent. in 2015). 2016 actually saw the majority of sovereign issuances in either a plain conventional or dual tranche sukuk/conventional bond format, demonstrating that investor demand seems to be concentrated outside the GCC/Middle-East region, where oil price fluctuations are having a less significant impact on investor sentiment. An example is the recent US$17.5 billion debut issuance by Saudi Arabia which was issued entirely in a conventional format.
We expect 2017 will be for the most part, a continuation of 2016 trends in terms of bond and sukuk issuance volumes in the Middle-East. In terms of investor appetite, there are a number of significant challenges that will continue to create a level of uncertainty in the market, for example low oil prices and other geopolitical factors such as the on-going regional instability due to conflicts in Iraq, Afghanistan, Yemen and Syria, and broader global uncertainty around the impact of Brexit and the policies of the incoming Trump administration. In terms of growth areas, we are continuing to see significant interest from clients in more innovative debt capital markets products, particularly following our work on the landmark US$913 million sukuk for Emirates (the world’s first sukuk for pre-funded aircraft financing). Areas of interest in the market include enhanced equipment trust certificates (EETCs), tax leasing structures, green and socially responsible issuances, project bonds/sukuk and securitisation.
Authors: Tom Burke, Gregory Man
First published in the 1LoD Global Benchmarking Survey & Annual Report 2019
Insights on global urban migration and infrastructure projects in an evolving market