Debt Problems: Refinancing and Restructuring in UAE

Debt becomes a problem when payments are hard, covenants break, or new funding is unavailable. Early action keeps options open.

Warning signs:

• Tight cash vs loan payments
• Less than 8 weeks of cash
• Repeated covenant breaches
• Overdues with lenders/suppliers
• Falling margins and rising returns

Refinancing vs restructuring:

• Refinancing: replace old loans; better rates, longer terms, consolidation; needs stable performance
• Restructuring: adjust current terms; extend tenor, temporary rate relief, reset covenants; used under stress

Restructuring steps:

1. Stabilize: 13-week cash plan, prioritize payments, cut non-essentials, protect key relationships
2. Diagnose: find root causes (pricing, returns, marketing efficiency, supply chain)
3. Propose: terms that match cash flow; phased amortization; realistic covenants; recovery timeline
4. Negotiate: present scenarios; set milestones; use advisors if needed
5. Implement: sign documents; set reporting and triggers

Working with lenders:

• Communicate early and transparently
• Share monthly performance packs
• Propose data-backed solutions
• Consider Islamic alternatives if helpful

UAE legal points:

• Keep corporate documents current
• Register security properly
• Note free zone vs mainland differences
• Use standstill agreements if needed
• Watch cross-default clauses

Rebuild credit:

• Meet revised schedules consistently
• Send detailed monthly reports
• Rebuild cash buffers
• Fix underlying issues
• Diversify lenders and extend maturities

Prevent future issues:

• Set leverage caps and minimum coverage
• Quarterly stress tests
• Monitor returns, CAC, inventory aging, cash trends
• Maintain undrawn committed lines
• Disciplined capex process

Success factors:

• Act early
• Be transparent
• Use realistic plans backed by data
• Commit to operational fixes
• Get expert help for complex cases

Most lenders prefer cooperative restructuring to defaults. Early, honest engagement buys time to fix operations and return to growth.