We faced a heavy head start in the new year 2020 restructuring national operations of global clients in several industries. To give the example of two industries which are overcoming challenges, we have witnessed the shift to electric gears in the automotive industry, and digital transformation and change of customers habits in the retail industry. Other sectors, such as air carrier’s industry, infrastructure, construction work, railways and other transportation, food supply, tour operators, agro-producers, telecom and media, were attempting to overcome their own challenges.
With high private equity multiples correlated with markets liquidity and low interest rates within the debt markets, major geopolitical events such as (i) the trade war between the US & China, (ii) retraction of OECD countries’ voters towards a more protectionist agenda as a result of either high unemployment rates, loss of or deemed insufficient social public aid, a more global perception of loss of spending power, and/or migrant crisis consequential to diverse factors, the continued digital transformation of society, a restructuring cycle was very much on the horizon.
COVID added a layer of complexity to an already complex social, political and economic environment globally, and we believe are now looking at a deeper and more fundamental crisis than expected with a number of countries having entered recession in Europe.
What did COVID change?
China represents 13% of global world trade: Industry stoppage for
such a long period was unconscionable in China and we can witness
already a severe impact on the supply chain of already challenged
industries, but also other industries which are dependant from
Chinese supply chain - from the cosmetics luxury industries, to
pharmaceutical companies, with as much as 60% of active
pharmaceutical ingredients being sourced in China and India, or
other industries dependant on electronics components.With China being both the first hit country, a key market of
customers for many industries, we foresee an inference on their
sales and businesses, some which were already in stress such as
air-carriers, tour operators, retail, automotive, but also
industries which were usually preserved from financial issues, such
as as the luxury goods industry.Although, fortunately, the mortality rate associated with the
infection is low (as 98% of affected patients appear to
survive), COVID appears to act as a wake-up call for worldwide
organisations facing dire constraints and inquiring about risk
diversification to mitigate losses. It is the indirect consequences
of the virus crisis in relation to, confinement, communication and
perception, how countries and corporates cope with industries
stoppage, efficiency of work-at-home labor force (which is, of
course, easier in the service sector not requiring human
face-to-face contact, as opposed to industrial or agricultural
sectors) and customers hall in consumption (which was, admittedly,
starting before COVID, but of which COVID has drastically increased
the scale as the virus as now expanded to other regions in the
world).Countries and corporates alike are trying to evaluate what impact
COVID has had on their trade already, but this exercise is difficult
as we do not have a reasonably foreseeable end date for the epidemy.Most informed and structured groups have understood that besides
COVID, SRAS - H1N1 - Ebola preceded as epidemic. Arguably,
industries and businesses have to gear up for future more or less
dire virus crisis - whether they might come from prehistoric virus
freed from the Antarctic pole as a result of climatic changes or
other reasons, this is a new factor on a complex equation. An
equation that has accelerated these past decades at the pace of the
internet, digitalization, fast-communication & social networks,
within a more than ever rapidly changing world which requires
awareness, quick yet qualitative analysis and decisiveness.
What are the immediate public relief measures corporates can rely upon within the French legal environment?
In the week of February 21, 2020, the French government and Ministry of Economy and Finance have announced a number of measures to support French operations directly impacted by COVID while a loss of already 0.1% annual economical growth for 2020 was forecasted to be attributed to the consequences of the virus on French economy, and the stock markets were plunging.
Some of the measures such as (i) more lenient approval of relief petition for taxes and social charges moratorium and longer amortization and (ii) eased recourse to partial / temporary unemployment, and derogatory regime for of extra costs of overtime labour had already been granted as a result of other crisis such as long-hall anti-retirement reform strikes or yellow jackets protests in 2019.
Some are more specific to COVID, while the central Bercy administrative services of the Ministry of Economy and Finance indicated that they invited the main private and public purchasers of various industries in the country to demonstrate solidarity by avoiding application of penalties to suppliers victims of delay as a result of COVID; the French government recognized the status of « Force Majeure » to COVID to economical players directly impacted by it. This directly translates to French State public projects (marchés publics d’Etat) that will not claim such penalties to COVID impacted suppliers for their related delays. How will the Insurance Industry react to that announcement and play its part is still to be tested as of today.
In addition, mindful of the particular exposure of transporters and import-export merchants, the French government has announced that the French economic regional service in Beijing (so called « SER ») would make available useful and detailed daily information about the logistical situation within (i) each Chinese province and (ii) the most important Chinese ports hubs recipient of the main French and European export trade (for an example of the daily update see the one for 27 February 2020. The French Ministry of Economy announced that the Companies General Direction (Direction Générale des Entreprises « DGE ») was assigned to survey application of measures to secure supply chain delivery for several strategic economical players and that interested parties can send their queries to COVID.dge@finances.gouv.fr. As the virus may expand though to other regions this may only partially respond to the export-import trade demands and it just happens that the efforts already deployed by the French customs within the context of Brexit is going to take an all other dimension.
Finally, accelerated procedures to grant requisite regulatory approvals in case of products substitution within the supply chain have been announced, showing the mindfulness of the French government of the particular struggle faced by pharmaceutical, chemistry, construction related industries among others, depending on their state of dependency on such supply.
How can Simmons & Simmons assist?
Our experience and knowledge about crisis management, our cross-practice operations and international footprint place Simmons & Simmons in an unique position to support our clients in their strategic review and bail out, spin-off, M&A and concentration operations, resettlement, regulatory visa for change in supply chain (particularly in the Pharma and Chemistry industry as our firm has a strong experience on Healthcare & LifeSciences matters). A world of challenges is a world of opportunities for fast decision-makers, for investors with requisite liquidity to invest counter-cycle, at a fast pace and able to manage complexity, with the assistance of the right expert advisors by their side. In some European jurisdictions, the restructuring community which has the experience of 2008 crisis is scarce - we have it. Our experience advising on multiple restructuring operations and addressing special situations will be an asset in helping businesses overcoming this increasingly challenging context.
