Private debt warms up in the Middle East

Sovereign wealth interest is becoming apparent as one of the world’s nascent debt markets shows signs of growth.

As a relatively new asset class, private debt remains heavily undeveloped outside North America and Europe. For investors looking to diversify beyond these regions and gain exposure to emerging markets, getting an early-mover advantage into a rapidly growing debt market could be the key to securing superior returns. The Middle East and North Africa might be just the place.

Fundraising in MENA has been inconsistent for both debt and equity. In some years, no private debt finance has been raised at all, and there have only been two years during which more than $1 billion of capital has been raised. Private equity has been more consistent, though amounts are still relatively low in MENA when compared with the developed markets of North America and Europe. It is notable that despite the pandemic, debt fundraising was relatively strong in 2020, with $1.3 billion raised.

Today, MENA is a tiny market for debt, but that may be starting to change as local investors look to support internal growth and develop the region’s financial ecosystem. A milestone was achieved this year when NBK Capital Partners secured an anchor investment from one of the region’s largest LPs: Saudi Arabia’s sovereign vehicle, the Public Investment Fund.

The commitment is part of the firm’s third direct lending fund, NBK Capital Partners Shari’ah Credit Opportunities Fund. The fund is NBK’s first vehicle to be sharia-compliant, a major requirement to secure backing from PIF. Targeting $300 million, the fund will take the same approach as its predecessors, providing flexible, long-term direct lending to mid-sized firms that cannot access attractive terms from traditional financial sources.

NBK was one of the earliest fund managers offering private debt in MENA, with its first vehicle launching in 2009. The firm’s managing partner and head of private credit, Sikander Ahmed, believes the asset class could now be on the cusp of experiencing explosive growth in the region.

“The covid-19 crisis has turbocharged deal pipelines,” he says. “We’re seeing something similar to what Europe experienced after the global financial crisis, where firms have had to turn to private debt to realise growth opportunities as bond markets become harder to access and banks are facing rising NPLs that are affecting their ability to lend to businesses.”

Of course, this is not the first time a market or strategy has been labelled ‘the next big thing’. But in an asset class where the bias towards North America and Europe has been pronounced, the stirrings of activity in the MENA region will be noted with interest.

Write to the author at john.b@peimedia.com