MANAMA: Economic uncertainty driven by the Covid-19 pandemic is having an unprecedented impact within the marketplace.
This has also significantly influenced stock markets in the region triggering a sharp fall in value.
Bahrain’s stock market has recorded a 21 per cent drop during the period from December 2019 to May 2020.
Considering how the virus has caused distress and disruption within businesses due to the fluctuation in commodity prices, it is critical for organisations to reconsider their valuation framework and principles as they move forward with investment strategies.
KPMG in Bahrain has released a report analysing the impact of the pandemic on the valuation of private equity investments.
The publication titled ‘Private equity valuation issues in the midst of Covid-19’ analyses how the stock market volatility and uncertainty has caused business disruption leading to significant fluctuations in commodity prices.
This has created new challenges for companies when providing accurate and reliable information to investors on the ‘fair value’ of their investments.
KPMG Bahrain head of advisory Narayanan Ramachandran said, “Given the adverse impact that Covid-19 has had on most industries and their business operating environments in Bahrain and worldwide, investors must carefully consider the impact in the short term and the expected recovery over the medium to long term while assessing the valuation of their investments.”
While the valuation principles and their framework remain largely unchanged amidst the crisis, realistic and practical benchmarking; attention to detail and logical commercial narrative will continue to remain key fundamentals in the valuation of private equity.
“The business landscape we currently operate in has initiated a set of considerations and difficulties to overcome, which means that ‘fair value’ should essentially reflect the market participants’ assumptions based on all available credible information as well as the market conditions as on the date of assessment.”
KPMG Bahrain director in advisory Seema Kasat said, “The uncertainty caused by the pandemic may translate into greater risk and may drive investors to expect a higher return that may have a negative impact on the valuation of investments. Organisations must be careful to avoid a ‘double-dip’ in the valuation assessment.”
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