A fit-for-purpose capital structure is a key foundation underpinning any business strategy.
When setting the strategic direction, companies need to consider the sources and uses of funds to achieve their goals. Sources often include a mix of debt financing and equity financing from various types of investors and lenders. The appropriate combination of such capital resources will depend on the ways in which the capital will be deployed.
In times of financial distress, many companies experience that a previously suitable capital structure now becomes unsustainable. A sudden decline in earnings and cash flows may lead to breach of covenants and inability to maintain the required debt servicing levels.
At this junction, companies will need to formulate a plan for financial restructuring which protects the business. The plan must take into consideration the company’s financial position and its revised earnings potential, but also the interests, bargaining power and dynamics of the stakeholder group.
KPMG in Vietnam and Cambodia works shoulder-to-shoulder with clients throughout the financial restructuring process to advise on potential financing strategies, identify debt and capital restructuring options, formulate proposals to stakeholders and support throughout the negotiations.
- A major company was seeking external financing during a period of financial distress.
- The COVID-19 pandemic had caused significant disruption to their industry, which drove a reduction in volumes for the company. The company was a significant listed business and had to manage stakeholder expectations internally and externally, including staff, shareholders, suppliers, customers, lenders and government.
- Various potential parties were interested in providing new financing for the company. KPMG was engaged to conduct an independent business review and provide financial restructuring advice to support the stakeholders in their financing decisions.
- KPMG conducted an independent business review on the company’s historical financial performance, liquidity position, forecast financials and market outlook.
- Our review covered key drivers of historical performance, a review of the annual cash flow budgets and major assumptions for each of the company’s divisions, an assessment of the short-term cash flow forecast and a review of sources and uses of potential new funding.
- We modelled various outcomes to the stakeholders and the company under different funding scenarios. We also applied sensitivities to the company’s forecasts to understand the implied downside risk.
- We provided the stakeholders with a holistic, independent assessment of the company’s current situation and potential future scenarios that could unfold.
- Our review enabled the stakeholders to understand the drivers of underperformance, the existing funding gap and the potential outturn for their exposure under various levels of new funding that could be provided.
- We delivered a full options assessment, with all the ways in which the stakeholders could protect their exposure.
- Following our review, the stakeholders agreed on a rescue funding package which secured the long-term viability of the company.