Zombie Businesses Haunting Lenders

Media Release
3rd December 2012
Zombie Businesses Haunting Lenders

Shaun Adams – KPMG Transactions and Restructuring partner

Businesses with low or no profitability and which are unable to generate sufficient cash flow to repay borrowings – are keeping some lenders awake at night.

KPMG research, which surveyed around 200 of New Zealand’s bankers, shows that while zombie companies are not dominating lenders’ perspectives across the board, they are a polarising phenomenon which is haunting a significant number of debt providers.

All the evidence points to a hardening approach going forward; it is likely that as banks become less busy dealing with the immediate fallout from the GFC, there will be less tolerance of businesses that are simply treading water.

There is recognition within the banking community that they themselves need to be more aggressive in encouraging their customers to seek specialist restructuring advice early. If businesses continue to ignore the symptoms they could find themselves increasingly at risk of being corralled into processes and losing control of their own destiny.

The survey highlights that zombies are more likely to go through turnaround situations, voluntary sales and refinancing which are already the most common ‘exit route’ for lenders. However, in a cautionary note receiverships, liquidations and even administrations are also expected to increase compared with 12 months ago.

Taking a macro perspective, you could view zombies as sucking the life out of healthy businesses as they often compete by undercutting competitors.

• Zombie businesses are largely in the SME group with well over half of zombies having turnover of $3-20 million, with a lack of available credit felt far more acutely than in larger zombie businesses.
•
• The sectors seeing the highest proportion of formal insolvency procedures are the construction, retail and financial services sectors.
•
• According to the lenders, the zombie problem isn’t going to go away any time soon.

________________________________________

© Scoop Media