KPMG Publication: Companies Are Enduring Challenges in Meeting Their Debt Obligations During the Current Turbulent Times

As we transition through the pandemic and journey towards recovery, the precautionary measures imposed both in Bahrain and globally to restrict the spread of COVID-19 are having a significant domino effect triggering operational disruption for businesses. Indefinite Lock Downs in some countries coupled with ‘work from home’/ remote working, dysfunctional supply chains, and the unexpected drop in customers’ demand due to rapidly evolving customer behavior, are posing serious threats for businesses across all economic sectors.

KPMG in Bahrain recently released their publication analyzing the impact of the ‘COVID-19’ pandemic on Cash Management - ‘Managing liquidity in troubled times’. According to the publication, even the most profitable business can swiftly be rendered unsustainable if cash controls are weak and visibility over cash is limited in a crisis of this magnitude.. As a result, financial institutions should adopt more secure conditions for funding, while incorporating better due diligence and risk management protocols. A robust crisis ‘Cash Management’ strategy buys valuable breathing and thinking space for the leadership to be able to restructure and/or refinance their operations. In the long run, an improved cash flow can help a business to reduce debt, fund growth and provide better stakeholder returns.

Speaking about the current environment within the marketplace, Narayanan Ramachandran, Head of Advisory at KPMG Bahrain, commented, “Business leaders in Bahrain and globally are enduring challenges in meeting the debt obligations of their organizations, this combined with the challenges in recovering outstanding receivables in a timely manner is leading to a stretch in working capital positions. This coupled with declining revenues, margin erosion and a fundamental change in consumer behavior will lead to organizations facing the risk of financial impairment and potential business failure.”

“The current market landscape demands a more innovative approach towards generating liquidity and monetizing assets. Organizations should consider the key steps to help them gain time to stabilize their operations. Having a professional ‘trusted’ advisor to help in running liquidity/ cost-out initiatives and working capital improvements will help in guiding business leaders to make the right decision while also exploring other Covid-19 related financing solutions available in the market.” Anshul Deobhakta, Director in Advisory at KPMG Bahrain, concluded.

The report titled ‘‘Managing liquidity in troubled times’‘ is available here.