Bucharest, June 2, 2020 – According to CITR, leader of the insolvency market in Romania and part of Impetum Group, 70% of Romanian companies access insolvency three years after triggering the state of difficulty, significantly decreasing chances of business recovery. The economic effects of the health crisis make the total number of insolvent companies or companies in state of imminent insolvency to increase among companies with difficulties, further weakening the basic pillars of the Romanian economy. A stress test conducted by CITR based on information regarding the turnover, profitability and indebtedness, stock rotation etc. shows that the weakening financial indicators of impact companies (defined as companies with fixed assets higher than EUR 1mln) increases the number of companies in difficulty from approximately 50%, before the pandemic, to at least 70% as an effect of the crisis.
”Vulnerable companies are facing today a double crisis -that caused by the lack of liquidity and the accumulation of outstanding debts, and the one generated by the coronavirus pandemic, in a context in which there has been, for years, a core of over 2,000 impact companies of the 6,000 in imminent insolvency, which stagnated in the area of difficulty for four years. The main obstacle in overcoming problems in the Romanian business environment is the lack of access to capitalization, which affects their operational capacity, as well as access to contracts that involve advance guarantees bringing additional liquidity and streamlining the cash flow. Implemented in due time, the restructuring solutions together with access to capital sources and financing may be the solution for economic recovery", said Andra Olar-Caragea, CEO of CITR.
Recovery solutions proposed for Romanian companies in difficulty
The measures adopted by the Government so far have mainly targeted the postponement of payment for certain obligations, bank loans, utilities or rents. When the postponed obligations become due, companies will be already financially weakened as a result of a decline in activity and will face the obligation to pay debts related to the period of state of emergency, which will be quite difficult to cover. The decline in demand, which has continued after the end of the state of emergency, will most likely continue throughout 2020, with the possibility of being extended in some areas in 2021.
Recovery based on a strategic restructuring plan remains the most viable option for Romanian companies affected by the coronavirus pandemic. Arrangements with creditors, restructuring of budget obligations based on GO6, coopting a team with experience in crisis management, state investments in the form of debt to equity in strategic industries or insolvency are some of the recovery solutions for Romanian companies in difficulty in this period.
A combination between the 2 - arrangements with creditors, for the restructuring of bank and non-bank loans and GO6, for the restructuring of budget obligations, coordinated by a supervisor of a voluntary arrangement specializing in crisis management, together with the operational restructuring and business efficiency plan can ensure a 360° recovery.°.
”We welcome Government's initiative to create an investment fund with independent management to support companies. We are glad that, unlike the previous crisis, today there are solutions for companies in difficulty. State involvement to support Romanian companies must be accelerated. Today, after 30 years of capitalism, it's time to leave behind the problem of lack of money to the state budget and move to strategic, smart investments and collaboration with specialists trained in crisis management, to encourage entrepreneurs to reinvent themselves to keep up with the new reality", added Andra Olar-Caragea, CEO of CITR..