Partnerships and new regulations tempt private credit managers to Middle East

A number of private credit managers have made large bets on the region in recent months. In March, Goldman Sachs Asset Management announced plans to work with Saudi Arabia’s Public Investment Fund, a USD 925bn sovereign investor, on a private credit strategy that will invest in senior and junior loans across Saudi Arabia and surrounding countries.

Meanwhile, SC Lowy is planning to launch a new private credit interval fund focused on investments in the Middle East and Asia in mid-2025.

Private credit managers see a maturation of the restructuring industry in the Middle East, said Dilip Massand, CEO at Phoenix Advisors and co-head of Middle East for Argentem Creek Partners. Countries including the UAE, Bahrain and Saudi Arabia have adopted new bankruptcy laws that make lending and negotiating rights in a downside scenario more comfortable for foreign managers.

In October, global distressed debt specialist Davidson Kempner Capital Management is thought to have completed the first significant debt-for-equity restructuring under the United Arab Emirates’ onshore bankruptcy law. The firm announced the restructuring of more than USD 1bn of debt in JBF Group, a manufacturer and supplier of polyester resins and films.

“They want to see strategic benefits, which could include opening an office in their country and employing people locally to support the fundraising activity, but also even potentially investing locally,” said Jeffrey Griffiths, global head of private credit at placement agent Campbell Lutyens.

Abu Dhabi’s Economic Vision 2030, a roadmap for the economy of the Emirate, prioritises support for small- and medium-sized enterprises and sees foreign direct investment as a means to diversify the economy.

According to a PwC report, the Gulf Cooperation Countries (GCC) — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates — and Egypt show the most promise as the market shows similarities with the Asia-Pacific sector from five years ago.

The report projects a compound annual growth rate of 15%-30% over the next six years, which would expand the private credit market across these counties to between USD 11bn and USD 20bn, a size comparable to the opportunity in APAC or India.

Momentum has grown over the last three years as many well-known offshore restructuring advisors have set up shop.

Last autumn, London-based asset management giant Janus Henderson completed its acquisition of NBK Capital Partners, a Dubai-based alternative investment firm, which launched its first dedicated Middle East and North Africa private credit fund 15 years ago. Now renamed Janus Henderson Emerging Markets Private Investments Limited, it forms the asset manager’s first emerging markets private capital division.

Massand of Phoenix Advisors, who works with cross-border investors, emerging market fund managers and restructuring advisors, said: “Those days when you would just come, raise money and go away… I think those days are over. The smart managers understand that.”

But the market can also be a hard sell for private credit managers under pressure to deploy large amounts of dry powder. They will need to find larger deals than the region currently offers to make a dent in the portfolio.

PwC estimates the GCC and Egypt private credit market at around USD 5bn, a tiny fraction of the global market which has already exceeded USD 3trn in assets, according to the Alternative Credit Council.