COVID-19 and Global Valuation Impacts: Spotlight on China, India, Spain

The member firms of Valuation Research Group (VRG) offer a unique perspective of their economies and markets as they’ve been feeling the impacts of the Coronavirus.

Watch the first of our three recorded webcast sessions featuring a spotlight on pandemic-related market developments in China & Hong Kong, India, Spain, and the U.S.

Moderator: PJ Patel, Co-CEO | VRC

VRG China: Simon Chan, Executive Director and Kevin Chan, Senior Director

VRG India: Rajeev Shah, Managing Director and CEO

VRG Spain: Sandra Daza, Managing Director

{Select the CC icon in the lower right corner to launch closed captioning capabilities.}

Video Chapters:
0:00 – 2:12 Session and panelist introductions

2:12 – 15:10 Economic and market impacts

15:00 – 26:46 Proposed government economic measures

26:47 – 34:36 Lifting work/travel restrictions

34:41 – 36:49 Impacts on professional valuation firms, audit firms and business in general, worldwide

36:50 – 46:14 Valuation Impacts (Impairments, Solvency, etc.)

46:15 – 50:18 Final panelist thoughts on the impacts of COVID-19

50:18 – 50:35 Closing


Session Introduction and Panelist Introductions

[Jennifer Dries | VRC:] Hello. I’m Jennifer Dries, Marketing Director with VRC. We thank you for joining in this morning with VRG leadership, PJ Patel, Sandra Daza, Rajeev Shah, Kevin Chan, and Simon Chan, as they address valuation impacts as a result of the Coronavirus pandemic.

We hope this update will provide clients and partners with the educational information they need from our worldwide organization to find certainty in a time that is quite uncertain.

PJ, I’ll pass the floor to you.

 [PJ Patel, Co-CEO | VRC:] Thank you, Jen. We’re going to be talking about the valuation impacts of Coronavirus around the world. I’m PJ Patel, co-CEO of VRC and based in New York and I’ll be moderating today’s session. Kevin, can you give a brief intro for yourself?

[Kevin Chan, Senior Director | VRG:] Sure. I’m Kevin Chan from Hong Kong. I mostly do business valuation, I’m a Director at JLL.

[PJ:] Simon?

[Simon Chan, Executive Director | VRG:] Hi, everybody. I’m Simon Chan. I’m also a Director at JLL. We do business valuations in the greater China region, and also the Southeast Asia region. We have people in Hong Kong, China, and Singapore.

[PJ:] Sandra?

[Sandra Daza, Managing Director | VRG:] Hello, my name is Sandra Daza. I’m Managing Director of Gesvalt, the Spanish member of the VRG group, based in Madrid.

[PJ:] Rajeev?

[Rajeev Shah, Managing Director & CEO | VRG:] Hi, this is Rajeev Shah. I’m Managing Director and CEO of RBSA Advisors. We are the affiliates who represent VRG in India, the Middle East, and Singapore. About 260 people across the region, essentially focusing on valuation, investment banking, and restructuring services as well. I’ll bring in the perspective of my region for this.

Economic and Market Impacts

[PJ:] Okay, thanks. So why don’t we start with the economic impact we’re seeing in the different markets? Kevin, maybe you can start with what you’re seeing in Hong Kong and China.

China & Hong Kong Economic and Market Update

[Kevin:] Okay, so I will aggregate Hong Kong and China together, and perhaps I can start with the stock market. In my conversation, I’ll be using the MSCI China Index as a proxy to the overall stock market performance of Hong Kong and China. So to start this, I would state the U.S. President, Donald Trump, announced that the Trade Deal was tentatively done between the U.S. and China back on October 11th, 2019. On that day, the index was at 77 points. And today, as of the market close, it’s actually 75.6, it is pretty close.

There has been a lot of up and down in between, though since the announcement of the Trade Deal. The market has been going up and the peak was on the 17th of January 2020. That’s one week before the lockdown of Wuhan. The peak was at 69.8. That was an increase of 16%. Since then, the market has been dropping.

Then, the first low point in the Chinese market was on the 31st of January. So the market was at 51.3 points at that time, the drop from the peak was about 10%. And then the market goes back up then, and then the high point was on the 5th of March. We had about 68 points.

But then when the Chinese market sees that the virus has been spreading all around the world and it has become a global pandemic, the market has started falling again. And we had our lowest point on the 19th of March. The index was at 69.7. That was like two weeks ago, and now we see a 10% bounce back and we now have 76.

The market change by comparison, on the 11th of October 2019, the U.S. Index was at 2,970 and then we have today dropped by almost 15% to 2,540 points. So comparatively speaking, over the same period, the Chinese market has done better than the U.S. market. We mostly think that, first, the Chinese market has shown more confidence in the government’s handling of the virus. And also they have stronger confidence in economic performance.

[PJ:] Interesting. Would you say that you’re pretty close to being back to normal then? The stock market seems to indicate that maybe things are close.

[Kevin:] I think we can all see that China is actually at an advanced stage in terms of the virus, we all believe that they have seen an early ending than the other countries. So perhaps this has also set a good example for the other countries, showing the world that perhaps it could be ended in a couple of months’ time. So that’s one thing. So in China, we are all believing that we are going out of the low point and we are going to improve. We can see that the companies are resuming, industry is resuming, and over the same period of time, we are seeing that the technology companies are doing good. A lot of people are looking into different ways to maintain their business operations through different technologies.

So people are really confident about the future, although they can see that there are some difficulties ahead, then they are still confident that they will be able to overcome all this.

Spain Economic and Market Impacts

[PJ:] Okay, thank you, Kevin. Sandra, how are things in Spain?

[Sandra:] Well things are pretty difficult in Spain at the time being, from a health point of view. So we are probably at the worst moment of this pandemic. And regarding the question, well you know, regarding the stock market, the IBEX 35, which is our index rate, it’s a maximum in February 19th, with 10,083 points when only two cases of contagion were reported in Spain. From that moment, the index started a sustained decline, except for some occasional slight rebounds until March 16th, when it dropped to some 6,100 points. A level close to that reached during the 2008 downturn.

From that moment and specifically since March 23rd, we have observed recovery in the index, influenced by the measures proposed both by the government and above all by the European Central Bank. The behavior of the alternative stock market has been similar with a 43% fall between February 19th and March 16th, and gradual increases since then. And regarding GDP, for example, after several years of sustained growth, although with the slow down since 2015, the current scenario leads to expect a significant contraction in GDP in the coming months.

In Spain, the volume of public funds mobilized to contain the pandemic has been approximately 9% of the GDP. Of this total volume, 0.5% of GDP accounts were a direct increase in spending. While the rest is designated to granting of guarantees and credit lines to companies. So there are several forecasts regarding the impact that coronavirus may have on the growth. Aberration for 2020, the Bank of Spain, for example, unlike the usual, its quarterly report on the Spanish economy does not include medium-termed market economic projections due to the initial high level of uncertainty. So the report points out that the impact of the Coronavirus pandemic will be very pronounced, but [inaudible 00:09:34]. And it also demands more [inaudible 00:09:38] action from Brussels.

And regarding others like Standard & Poors’ reports, for example, so they say that Spain’s GDP forecast has been revised downward in March for the third consecutive time. So 2.1% contraction is expected in 2020, followed by a 3.1% expansion in 2021.

India Economic and Market Impacts

[PJ:] Interesting. Rajeev, how are things going in India?

[Rajeev:] Well things have been as bad as they can be. This is a remarkable slowdown that no one anticipated. Our stock markets, which we measure in India by sensitive index Sensex, it was 42,200. It collapsed to something like 27,000 in 14 trading sessions, which the steepest fall in the shortest possible time. So we just entered a bear market in flat 20 days. So it was one of the most savage falls that we have seen.

And perhaps the index does not convey the real picture. Since the index is reflective of the top 30 or 50 stocks. But the damage with the larger market has suffered, is enormous. The stocks are down anywhere between 50% to 80% and this is on top of the already weakening performance that we were witnessing in the last one year.

So there was a stillness in the performance. Only the top 15 stocks were performing, and the rest, all the market was not performing. When those 15 stocks gave away and the whole bottom fell out of the market. So the market has been doing fairly badly. We are still early in the COVID-19 period because we are just behind the U.S. and China and Spain and other countries. But the market is learning from what is happening in Europe and the U.S., and therefore, is anticipating the worst. So that’s how the market is performing.

Our other offices in the Middle East, are facing even a double whammy. The double whammy in the sense that they are more dependent on the oil prices, as well as coal. So with oil in this market, there’s a huge impact on account of all the markets, their budgets have gone for a toss, the oil has collapsed from $50 to close to $20. And all the economies be in the UAE, Saudi Arabia, Iran, Iraq, everything has been bombed out. I mean these economies, for instance, Dubai was dependent on tourism, and Abu Dhabi was dependent on oil. Now the bottom has fallen in oil. At the same time, because of COVID, the whole human situation, the general trade has been disrupted, tourism has been disrupted. The markets, again, have fallen significantly there.

So as such, the market is reading too much fear. There’s no visibility in terms of how and when things will improve. When we look at the GDP forecast, India was down from the last year, it was 6% to about 4.5% GDP growth. And the anticipation from World Bank and other organizations that the next year, the growth would be close to 5%. But now given COVID, it has been scaled down to 2% or less than that. We are amongst only a few countries in the world where they’re still showing some minimal positive growth. But I can assure you that even 2% feels as bad as a recession, and [inaudible 00:13:44] as bad as a recession. Because you are falling from 6% to 2%, and there is general palpable fear in the industry and people are generally worried. And we are still early days.

So the whole infection is at a very early stage. We are still in stage two so as we move through stage two or stage three, things could get far more difficult here.

[PJ:] Yeah, Rajeev. It’s very interesting. I think the fact that you still have positive growth is very optimistic.

U.S. Industry Reduction, NYC COVID-19 Commentary

[PJ:] In certain industries in the U.S., we’re seeing not a reduction of 10% or 20%, but a reduction of 80%. And overall, that’s going to have a significant impact on our economy. In many ways, in the U.S., we’re still at the beginning of this. In the New York area, I don’t think we’ve quite hit the maximum yet and the maximum impact. And we continue to hear of the situation in the hospitals and the virus spreading. So it’s not good from that standpoint.

Proposed Government Economic Measures

[PJ:] But you all may have heard the U.S. government is spending a lot of money to help support the market, to help the economy. Maybe each of you can talk about what your governments are doing to help people who may be unemployed, people who aren’t able to pay rents and mortgages and things of that sort to help support the economy. Kevin, maybe do you wanna start?

China & Hong Kong Proposed Government Economic Measures

[Kevin:] Okay, sure. So actually the Chinese government has not yet announced its full details of any form of fiscal policies, fiscal support to the economies. But the whole market is expecting them to act, and they are going to perhaps do something similar to what they have done in 2008 where they invested heavily in infrastructure. And then this time the estimation or the guess is that they are going to invest heavily in the infrastructure for telecom so that they can expand their growth into 5G networks.

And then on the monetary side, the Central Bank has been trying to be loose in terms of the monetary policy. They have been trying to maintain the interest rate low and keep the financing easy for the companies. And then from what we can see is that the government has either announced a very precise number by how much they are going to expand the demand and supply. This is very much unlike the U.S. where they are saying that unlimited QE and a huge fiscal package but China hasn’t made such an announcement. They are doing it daily when they are repurchasing their bonds.

And then from what we can see also is that a lot of the large enterprises in China, they are under the direction of the government that they not fire their staff. They are trying to maintain employment in China. So we can actually see that the unemployment rate projection, a very recent one, is only at 4%, which is up from 3.6% in 2019. So the estimation is, I would say, optimistic but still we can see that the confidence is there, and then we can also see that we cooperate with the government in terms of helping out.

[PJ:] Okay, interesting. Sandra, how about for you in Spain? What are you seeing in terms of the government’s support?

Spain Proposed Government Economic Measures

[Sandra:] Well this is a big issue right now. You know, we can highlight some of the most relevant ones. The government, it’s been active from their point of view. From my personal point of view, there are still some measures to take. It’s not enough, because the situation is really very difficult. And it’s going to be very difficult for companies and for employees. But just to give you an overall idea. On Tuesday, February 17th, the Financial Reporting Council published a guide for companies on risks and other consequences arising from the outbreak and spread of the Coronavirus pandemic. However, it was anticipated that the book value of assets and liabilities could be affected, and it would be required to perform additional impairment tests and assess what the leases have become under it.

On March 24th, the Committee of European Auditing Oversight Bodies also issued a statement in view of the pandemic impact on the quality of the audit exercise, what it urged auditors to pay close attention to the entity’s assessment regarding its ability to continue as a going concern.

On March 18th, the Royal Decree in Spain, which is called 8/2020, on extraordinary urgent measures to face the economic and social impact of the pandemic was published, with the aim of mitigating the economic impacts of this crisis. The most important ones are basically regarding the preparation of annual accounts or financial statements for the year ended December 31st of 2019. So the consequences derived from Coronavirus are considered a known adjustable subsequent event. However, annual accounts or financial statements closed after the end of 2020 would be considered an adjustable event.

Companies, in general, are going to be affected by liquidity tensions and expected losses, which can lead to commercial or financial solvency issues. During 2020, the following measures will apply to companies with securities admitted to trading. So the obligation to publish and submit its annual financial report to the National Securities Market Commission, and the account audit report may be fulfilled up to six months from the end of the fiscal year. And the ordinary general shareholders meeting may be held within the first 10 months of the fiscal year.

There are other measures from the perspective of the labor market. And we are still analyzing that because they were published just yesterday at night. But basically, what it says is that all the business activity that is not considered as essential should be completely stopped by today.

[PJ:] Okay. Rajeev, how about in India? Are there economic measures, fiscal, monetary issues that the government is implementing?

India Proposed Government Economic Measures

[Rajeev:] Yes, of course. I mean government and our Central Bank is in “whatever it takes” mode. The government has rolled out multiple initiatives.

If I can mention what are the first of the social initiatives. We have a very large population. A large part of it is still fairly poor. So the government has launched a $30 billion program for providing free food to almost 800 million people across in there. So free food, free energy. It is to see them through these next three to six months. So that’s a major social initiative that the government has taken.

They are pushing more payments for self-health groups. They’re doing all the social things that they can so the poor can see this through. Like, from providing free food, free insurance, free medical facilities. The intention of the government is very good. But the sheer volume of people and the enormity of the challenge might throw a big challenge for how and all this can be implemented.

In terms of providing help for business, the government has provided funds or shall I say measures, in terms of extending a lot of these deadlines by a quarter, by having a board meeting or regulated filing, tax filings – everything can be delayed by almost a quarter. So there are a host of efforts which have been launched, which enable…including tax payments can be deferred, including provident fund payments can be deferred. All the compliance and requirements have been reduced or maybe made more friendly.

So the government is launching multiple initiatives.

And in terms of monetary efforts, if I can say the Central Bank, the Reserve Bank of India, has launched, as I said, “whatever it takes” mode. So they have reduced the cash reserve by 1% giving more money in the hands of banks. They have given forbearance of all loans for one quarter. So even if you don’t pay any interest on any loan, whether it is a term loan, working capital loans, credit card loans, education loans, you can defer it by one quarter and banks will not have to make provisioning for that.

So in order to support banks, they have reduced the cash reserve ratio, they’ve reduced the repo interest rate by a whopping 75 basis points. So the government, the RBI has put in a lot of initiatives to ensure that credit is available to the banks and subsequently to the public at large. And all liabilities have been deferred by one quarter. That’s major. Our government, itself, is anticipating that this quarter would be a washout and there are demands for refunds and sort of “helicopter” money being given to people in the poorer sections. I wonder how much of that will rectify.

But the federal reserve, the Reserve Bank is in “whatever it takes” mode. And in some other sense, the government is also giving out an indication that this is not the end of it. We are going to do whatever it takes. Putting in on the health side [inaudible 00:25:42] escalate, trying to create hospital infrastructure. We have done a unique thing of converting more than 6,000 air-conditioned trains into makeshift hospitals, they have compartments, so they have created almost like 10,000 beds overnight by converting all these trains into hospitals.

And once the lockdown has been all airlines, all trains, the whole country has come to a standstill. So a lot of efforts have been done. Now whether they’ll be sufficient is anyone’s guess. 26But yeah, efforts are being made. And hopefully, a large part of it will be successful.

[PJ:] Yeah. Rajeev, maybe I’ll ask you a follow-up question. Any thoughts on when you expect these restrictions might be lifted and when you might be able to get back to some sort of work environment?

Lifting Work/Travel Restrictions in India

[Rajeev:] PJ, it’s difficult to say. We are at a very early stage. We are at that stage where we have only 1,000, 1,100 by today’s numbers of confirmed cases, for a country of 1.3 billion people. That’s a fraction. That’s a very, very small number. So we are surprised when the avalanche is yet to hit us, or by God’s grace or by circumstances of having very warm weather, very hot weather, and maybe we will be saved by this calamity. So we are not sure whether the calamity is yet to hit us or will escape us. So everyone has that sense of fear. So it is difficult to say whether and when we’ll be in a “business as usual” situation.

But we have a lockdown to the 15th of April. But informal sources indicate that the lockdown would continue until at 30th of April. But you can’t just switch it on. I mean even if you lift the embargo and everything on the 30th of April, it will take at least a month or two for things to get back to normal. So we are practically writing off this whole quarter. Everyone from businesses to households to government, they are saying that this quarter is going to be a washout.

It is difficult to put a date to when we will be back to normal. And the next, maybe 15 days, will tell us whether the avalanche will grow or we will be saved from it. And I wish and pray that we are saved.

[PJ:] Yeah, Rajeev, it’s interesting. In the U.S., I think the president was hoping that this would be over by April 15th, and I think just over the weekend is now suggesting April 30th.

[PJ:] Simon or Kevin, it sounds like you may be getting closer to normal than we are in other parts of the world. Maybe you can talk about what you’re seeing in China and Hong Kong?

[Kevin:] Simon, you start.

Lifting Work/Travel Restrictions in China & Hong Kong

[Simon:] Actually our presidency, actually we go for a similar process. The presidency would like to resume the business as soon as possible. Actually several weeks ago, he has already ordered the country to try to resume business. But due to the situation not stabilizing yet, it has been forced to delay to now. Now is basically the Wuhan city, they lift the restriction of Wuhan city that people can now go out, and also Hubei Province. In early April, everything should be back to normal. But certainly because of the inbound cases, China also now has very strict restrictions for people to come from overseas because it will disturb their plan to resume the business.

So we come across the same process where the government wants to resume the business as soon as possible because the economy is very important and also actually if the country stop running, it will create fear because you run out of supplies. So the government would like to resume the business as soon as possible, but we also came across several weeks of delay from his target. So hopefully the situation gets stabilized now in China. So I think his plan to resume the business by early April should be able to be done. Kevin, did you have anything?

[Kevin:] Yeah, I would like to add that technology data has actually helped a lot in the case of China. So as of today, even in the original epicenter of Wuhan, people are free to move around the city and the different buildings as long as they can show to the gatekeeper or the government officials a QR code to which a database is linked and you can prove using that QR code that you are healthy, and you have not been through any of the dangerous areas, or you have not been in contact with any infected persons. So in terms of technology and data, we do feel it has helped a lot in China in case of checking down the infections, and also helping to build up the confidence in the people of China that the people surrounding should be healthy, should be safe, and are not spreading the virus.

[PJ:] Interesting, Kevin. Sandra, how about you? I know it might be difficult, because similar to the U.S., it sounds like you’re in the middle of things.

Lifting Work/Travel Restrictions and Added Economic Government Measures in Spain and the EU

[Sandra:] Yeah, that’s right. We are in the middle of everything. We are locked down at home since the 12th of March. So and we have to be, at least it’s reported that we will be at least until the 11th of April. But we all expect that this will take longer. And I really don’t believe that we will be partially on a normal basis, you know, coming back to work, and so on, before the beginning of May. So to be honest, I don’t think this will be so quick. We are all are waiting in Spain for more economic measures. We believe that this, what Rajeev said, this “helicopter” money has to come for companies and for entrepreneurs.

And to be honest, we as well in Spain, we expect much more from the European Union. And we expect more from the European Central Bank. So we are still confident because things will be much worse in Europe. It’s been in Italy, it’s in Spain, very soon it will be in France and Germany and other European countries, and the Netherlands and so on. So we definitely expect that there will be more, let’s say, aggressive and brave measures from the European authorities.

[PJ:] Okay.

[Rajeev:] Just to interject…

[PJ:] Yeah, go ahead, Rajeev.

Worldwide Impacts on Professional Valuation Firms, Audit Firms, and Business in General

[Rajeev:] Yeah, even the impact that has been seen on firms like ours is going to be immense. Yesterday only there was the news that all the Big Four in India, all the Big Four audit firms have deferred their appraisals, deferred their increments, bonuses for this year. So all of us, are facing this at a time when we have our year-end, which is the most revenue intensive time for all of us. Now if you lose the last one and a half months of your year-end, it means that you lose one-quarter of revenue.

So all professional firms are going to find it a challenging time to go through this. And actually I can speak for all of us here.

[PJ:] Yeah, that’s right. I think that one of the items that concerns me, this is relating to our firm but also just generally the economy, is a liquidity issue. If you’re not selling work and receiving cash for the work that you’re doing, how do you pay your people and pay your rent and other things? So it is definitely troubling.

[Simon:] And actually for China, even though China, the situation is stabilized and the government wants to resume the business, but if the whole world is stopping, actually we cannot produce anything, if there are no orders.

[PJ:] Sure, yeah, that’s a good point.

[Simon:] Yeah, we are already talking about whether we still can receive the Christmas orders in China from overseas.

[PJ:] Yeah, I could imagine it takes time to put those orders in and manufacture the goods and ship them to the end markets.

Valuation Impacts (Impairments, Solvency, etc.)

[PJ:] In the U.S., there are some issues, Sandra, I think you talked about this earlier around impairments that we’re gonna have to look at it. At least as of 3/31, I think the thought process has been that there maybe is a material impact on value or a long-term impact on value. But I think the longer this process goes, the more we have to look at this as a longer-term impact on the economy, on our markets, and therefore on values as well. Are there items in your market that need to be looked at from a valuation perspective? Whether it’s around impairment studies or other things as asset values change?

Valuation Impacts in Spain

[Sandra:] Well I think in our case, it’s probably a little bit too early. Because as you said, it’s a matter of time. For how long are we going to stay in this situation? I think that’s the key issue. But yeah, I think it will be needed to have a closer look at asset values. And all these kinds of things, impairment tests, they will have to be done by the end of the year. Some of the real estate valuation authorities already mentioned that we have to take into account the Coronavirus pandemic in the values, in this quarterly valuation basis. So probably, of course, not the ones carried out in March, but those carried out by the end of the second quarter.

So that will happen, yeah. And this is going to be a big issue, because there are many REITs invested in the [inaudible 00:38:50] and very specialized in retail, which of course, those kinds of assets, they are going to suffer more the impact of the Coronavirus. So this is going to be a big issue for our clients and for ourselves of course.

Valuation Impacts in China

[PJ:] Simon, how about in China and Hong Kong? Are there valuation issues that need to be addressed as a result?

[Simon:] Yeah, definitely, yeah. We can see this event triggers a quicker transformation of the business. Because in the past, actually, the value stays, the value for commercial buildings, especially the shopping malls, the retail business, they already encountered the decreasing demand for this type of asset. But through this COVID-19 virus event, they are pushing the people to do all their shopping online. We believe even when we go back to a normal state, their shopping behavior has already changed. And for the retail shopping malls, their value, we don’t think they will go back to the past. But for the online business, actually, they are doing much more business now. So the valuation, I can see the share price of Amazon actually hasn’t been affected. And we believe similar things will happen in China. I’ll say Ali Baba or say Zoom and also other online businesses, their valuation would increase after this event.

But for other traditional types of business and also their assets, their value will go down and may not go back to their previous values. Heavily affected at the moment are the hotel and tourism business, and then it’s retail and office building and restaurant, and education. But we can see now there are more online shopping, food delivery services, online meetings, and different online sports.

[Sandra:] The logistics, yeah.

[Simon:] Yes, the logistic like the warehouse, like the data center, the investors are chasing for this asset. And their values have not dropped. And maybe indeed, their value has also increased. So it is quite interesting that the impact from COVID-19, not necessarily drive the asset values down. Actually it benefits some companies, some sectors, and also some assets.

Valuation Impacts in India

[PJ:] Rajeev, how about in India? Any impacts on asset values, and any regulatory, statutory work that needs to be done together with this?

[Rajeev:] Certainly. PJ, I would agree with Simon that every recession – hopefully not a depression – every recession would result in migration of values from some industry to others. So further permanent change in value will be a long-term impact. Some of them would have a very transitory impact on their values. Now in terms of as us as a professional, I’m sure the next six months we are going to find very, very difficult impairment-related conversations. Now many companies would ask and tell us, “No, this is a long-term asset and this is an exceptional period and things will improve. And you should look at the impairment this way and not that way.” So certainly all of us are going to have very difficult conversations. Some of them may be correct, because the value may come back. And we don’t know, the value may never come back in those industries.

But I think there’s a growing clamor within the industry that the government should somehow loosen the impairment rules. That they should not force companies to book impairment losses for this exceptional event. That is a conversation which I see in newspapers and in headlines. This is an offshoot of what is happening with the financial system in India. Because the government has allowed the banks and the non-banking financial companies, they’re exempted from booking certain kinds of market losses. So because of this exceptional period, you will not book certain MTM losses even if there are certain non-performing loans, you will not recognize them, and you will provide for the forbearance for a quarter or a certain period.

Now, this effectively opens a window for opportunity for everyone. Because if you permit this for banks if you permit this for financial institutions, why not permit this for corporates? Why should you book impairment losses? And why should banks escape from that? So I believe things will get clearer on this front as we go along. But we all are going to have difficult conversations with our clients. I can already foresee that.

[PJ:] Yeah.

[Sandra:] And I would like to add that if you take into consideration that one of our biggest and the most important industry in Spain is tourism, we receive more than $80 million euros you know, every year. This is a real industry in our country. So that’s the reason why this impact is going to be dramatic from that point of view. Because tourism, hotel, and leisure are at the first line of the impact. So that’s going to be very tough for us.

Final Panelist Thoughts on COVID-19 Impacts

[PJ:] Any final thoughts? Maybe Rajeev, we’ll start with you before we end the call.

[Rajeev:] Well we are still waiting to see the final impact on how all this would play out. As I said, we are, in our region, still in the early days. And we are hoping and praying, looking at what’s happening in Europe and U.S., that this does not hit us as badly as it has hit you guys. And we pray for you too. But I believe the last word is yet to be written. We are in the midst of it. We are in the very early days. If we are lucky, we will escape out of this in one quarter. That’s the best-case scenario that we are looking for. If things go wrong, I mean we don’t know how things will end up.

[PJ:] Sure. Sandra, how about yourself, any final thoughts?

[Sandra:] Well you know we look at China every day. We look at how many days, how many weeks, and how things are working after the peak. So we are really looking forward to having a better situation as soon as possible. As I said before, we are really looking forward to seeing more and receiving more economic measures from the European Central Bank and our own government. It’s not enough what they have done up to now. And regarding business, we just can say, let’s hope for the best. But right now, to be honest, business is not the most important thing because there are many people infected and a lot of people dying every day. So we just pray for the best.

[PJ:] Sure. Simon, any final thoughts?

[Simon:] I want to comfort everybody that it will go away. From our experience, when you take it seriously, in two months’ time it will go away. So just be patient and enjoy family time at home that maybe you cannot enjoy in the past, but this would be quite a good opportunity for you to get more bonding with your family. And it will go away. But the landscape of business, I believe, will change and we will need to adapt to this new environment; I would say this is also a kind of new economic environment. And just like now, we are having meeting online and I believe in the future, this will become a normal thing – we will do this every day. And we have more nucleus emerge after this event.

[Sandra:] That’s right.

[PJ:] Kevin, anything to add to that?

[Kevin:] First, I can also add that more than China, we can also see that in Japan, South Korea, they are all doing fine now after the first two months of bad times. So yeah, I just wanna say is it will go away very soon for all of us.

[PJ:] I think two months we can deal with. Longer than that would be difficult. Okay, thank you all. Good catching up.

Group: Thank you.


[Jennifer:] Thank you all for taking the time to speak with us today. For those of you who are watching, we certainly welcome you to connect with any member of our panel or your local VRG professional, which of course can be found worldwide.

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