Stranded assets are becoming increasingly common. The reasons for this are market factors that lead to problems with long-term financing and rising ESG requirements. Formerly attractive properties can suddenly lose significant value or become unusable without major investment due to the growing pressure to redevelop.
What exactly are stranded assets?
Assets that lose value due to unexpected external or internal changes are referred to as stranded assets. Companies must identify potential issues early to respond quickly. One example is office buildings, may be considered energy inefficient due to new regulations and are less used due to the ongoing trend towards remote work. This increases the pressure to comprehensively refurbish the building to meet the legal requirements or to convert it into a “mixed use” property. The high costs of the necessary renovation measures can drastically reduce the value of the building or increase it through early investment. It is important to keep an eye on developments.
The growing importance of ESG consideration
In recent years, ESG factors have increasingly influenced how assets are valued and managed. As governments and organisations worldwide commit to reducing carbon emissions and promoting sustainable practices, assets that do not align with these goals may become stranded. This is particularly true for industries such as energy, where the shift towards renewable energy sources is rendering fossil fuel-based assets less viable. The financial and reputational risks of holding such assets are significant, underscoring the need for companies to align their strategies with ESG considerations to avoid potential losses.
A fast response is required
Dealing with these stranded assets poses several challenges. Insolvency avoidance risks are of particular importance, as transactions from the last 12 months can be contested in the worst-case scenario of insolvency. Often, complex financing structures and unclear legal relationships of the target company further increase the uncertainties. In addition, there is usually considerable time pressure, as the sale must be completed quickly to preserve asset value.
How can a data room help?
Data rooms play a critical role in this process, as they provide a secure and transparent platform for overcoming the challenges of stranded assets. Some important aspects include:
- All relevant documents are stored centrally and securely. This is particularly important as the valuation of stranded assets is data intensive. A centralised data room ensures that all necessary information is easily and promptly accessible.
- Data rooms ensure a high degree of transparency by enabling traceable documentation of all processes.
- By centralising documents, due diligence processes can be significantly accelerated. This saves time and resources and enables faster decision-making, which is advantageous given the uncertainty and possible restructuring of assets.
- Data rooms enable the secure exchange of sensitive information between the parties involved. This is particularly important when multiple stakeholders such as investors, advisors and regulatory authorities are involved.
- The information in a data room can be continually updated so that everyone involved always has access to the latest data.
Secure documentation is the key
A thorough analysis is crucial when dealing with stranded assets. Repurposing and utilisation strategies are common approaches to using certain assets sustainably or to aligning the company with new business areas. Drooms provides support with detailed and secure documentation that makes the entire process clear and efficient. Our data rooms provide a centralised platform for managing and tracking all relevant documents, ensuring transparency, security and efficiency throughout the entire process.
