Diversity

52
Restructuring Trends
Table 2: Par value of debt
In € millions
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
on all buy-to-let mortgages. There
was a notable 5.4% increase in the
appointment of rent receivers on the
previous quarter; and
• Non-bank entities now hold 45,678
mortgage accounts for PDH and BTL
combined. Of this number, almost
70% are held by regulated retail
credit firms with the remainder
held by unregulated loan owners.
In respect of PDH accounts held by
unregulated loan owners, 38% are in
arrears of over 720 days, compared to
19% of accounts held by retail credit
firms.
Given the above statistics, Ireland
finds itself in a difficult position. A
significant portion of current residential
debt is distressed while at the same
time, we have an absence of appropriate
housing supply and rents are increasing
in the major urban and commuter belts.
Addressing this problem remains a
priority for Government.
We also believe that financial
institutions will continue to work to
satisfy European Central Bank (ECB)
requirements of 5.5% capital ratios.
We expect that this will require a
combination of restructuring initiatives
to achieve the target by 31 December 2017.
2. Planning and adapting to a
new trading environment
Taking a broader view than specific
debt issues and looking to the trading
environment, events of 2016 have thrown
up new (or revisited) business challenges
for Ireland as an all-island economy in
2017 and beyond, particularly in the area
of exports.
2011 2012 2013 2014 2015 2016
Years
Table 3 provides a breakdown of Irish
exports based on the most recently
available Central Statistics Office (CSO)
data for 2015. In this table, it is clear
that the UK and the US are significant
export markets. However, this is just
over a third of our total exports. This
is notable due to the significant shift in
their local politics, which we witnessed
in the second half of 2016 and were not
forecast by the markets. While markets
reacted in the short-term to the Brexit
vote and the election of the new US
President, Donald Trump, the longerterm
outcome of these changes – as
well as the public outlook – remains
unknown. These political shifts and
associated uncertainty create new
challenges which will impact on the
trading environment. In looking at
these potential disrupters, we see the
following business challenges in the
months ahead.
Trading
Trading – Republic of Ireland: the UK is
a significant export market for Ireland,
with 13% of all exports UK-bound in
2015. An analysis of CSO statistics by
sector shows the following:
• ‘Food and live animals’ amounted to
€3.9 billion or 28% of all UK exports;
• ‘Chemicals and related products’
amounted to €3.9 billion or 28% of
all UK exports;
• ‘Machinery and transport
equipment’ amounted to €2.5 billion
or 18% of all UK exports; and
• Total exports classified as ‘Other’
amounted to €3.4 billion or 25% of
all UK exports.
The triggering of Article 50 may have
a significant impact on Irish exports
to the UK, with the above sectors most
exposed. Notwithstanding any longerterm
structural trading issues as a result
of exit negotiations, the immediate
trading challenges post-vote centre
on exposure to foreign exchange (FX)
movements and the level of dependency
on a UK customer base. In managing
FX exposure, businesses should seek
to ensure they have appropriate
structures and mechanisms in place to
hedge material movement. Businesses
involved in export activity with the UK
should assess in detail the impact the
introduction of customs and duties could
have on their supply chain and sales
channels. Assessing competitiveness as a
result of any changes and ultimately any
negative impact on profitability should
be the primary objective. Irish exporters
to the UK will need to be continually
vigilant to monitor any sustained impact
on trade and supply chains.
Trading – Northern Ireland: a large
proportion of Northern Ireland exports
are to the Republic of Ireland. Northern
Ireland companies may face trading
challenges with the Republic of Ireland if
custom controls are imposed as a result
of Brexit. They too will face uncertainty
regarding the FX movements. However,
some view the fact that Northern
Ireland will be the only part of the
UK with a land border to the EU as a
positive. Northern Ireland’s corporation
tax rate will be reduced to 12.5% in
2018 (from 20%). The intention was to
encourage foreign direct investment but
following Northern Ireland’s exit from
the European Union and the proposed
reduction in corporation tax in England
and Wales, the impact may not be as
positive.
Corporate strategy
From a strategic perspective, in the
longer-term we believe that companies
will continue to consider whether the
UK is the most appropriate place to
maintain their centre of main interest
(COMI). Among other things, post the
potential withdrawal of the UK from
the EU, international companies with
a UK COMI may face a challenging
restructuring environment as any
ACCOUNTANCY IRELAND
APRIL 2017