Restructuring experts in demand amid default surge
The property downturns in mainland China and Hong Kong have triggered a new wave of demand for financial restructuring and insolvency professionals, as firms capitalise on company defaults and experience an industry reshuffle, according to accounting firm Deloitte. “Now the demand is very high because of the geopolitical issue and the economic issues, especially for professionals including accountants, lawyers, and also bankers,” said Glen Ho, a partner of Financial Advisory Services of Deloitte China. “The distressed market was not mainstream in the past, but it has now become very mainstream particularly for the real estate sector... So in terms of the professional resources in this area, it is quite stretched, and we need more talent in this area,” Ho said. Pointing to a complete change in the real estate landscape in China following a long boom over the past few decades, the restructuring veteran noted that growth in the financial restructuring industry had seen an uptick since the second half of 2020 - after Beijing introduced its “three red lines” policy to curb speculative property investment, sending companies, notably Evergrande, into a liquidity crunch and down the path of default. Such defaults among developers have sent ripple effects across other sectors. “Now the scale is much bigger than in the past in terms of volume and depth. Many of these developers are listed in Hong Kong and have issued US dollar bonds... Even for smaller Hong Kong developers, they will also face refinancing challenges, as lenders want to reduce their exposure to the real estate sector, and the maturity of the loans are coming up.” “That’s why we foresee another trend of refinancing and restructuring or negotiating with the lenders,” he said. A Reuters tally noted that around 20 Hong Kong-listed Chinese real estate developers have defaulted on US dollar bonds, requiring them to enter into restructuring talks with creditors or face liquidation. “Both the liquidation and bankruptcy cases also grew substantially... If you look at the revenues, we have double-digit growth year on year. And we are also expanding our team both externally and internally, we are talking about a 10 percent annual increase in terms of the headcount at our group,” Ho told RTHK. He explained that his team has over 20 full-time partners with another 400 professionals covering restructuring and turnaround, insolvency, as well as contingency planning. Lawyers who specialise in restructuring and insolvency, he added, were also in high demand, while the recruitment of professionals in the fundraising markets, debt capital markets, as well equity capital markets was being scaled down. “I think it's a rebalancing of the talent pool to meet the market expectations in certain areas,” Ho noted. The search for this specific kind of talent was a rare bright sport compared with the banking staff cuts in Hong Kong.  Looking ahead, Ho expects such recruitment momentum to continue over the coming five years and beyond, given the ongoing geopolitical and interest rate uncertainties. “You can see probably more company defaults because of the depreciation of the properties, or if people are out of job, cannot pay their mortgages, as such. It’s not short term.” “I would guess that in the next three to five years or even beyond, we’ll still see a challenging market environment [with a high demand for talent in this area].”