Gulf Capital is launching a credit fund of up to US$300 million (Dh1.1 billion) for the Middle East and Turkey to help plug a liquidity gap in the market following the global financial crisis.
Offering credit to fast-growing businesses and acquisition finance to investors, the fund signals the growing sophistication of the regional private-equity industry.
Although such funds have operated as important financing vehicles for years in the US and Europe, Gulf Capital's product is believed to be the largest of its kind to launch in the region.
"The launch of the credit business is a timely one and will play an important role in providing much-needed liquidity and growth capital to mid-market companies in the region," said Hareb al Darmaki, the chairman of Gulf Capital, an alternative asset management firm based in Abu Dhabi. "Long-term, this will translate into a positive contribution and stimulus to the overall economy."
With bank lending in the region still constrained by the stresses of corporate restructuring and low appetite for new risk, credit growth from traditional avenues remains limited.
Bank lending has slipped from a peak of $110bn in 2007 to $54bn last year, according to Gulf Capital estimates. As a result a funding vacuum has emerged.
Hopes are growing, however, that private-equity investors may help to fill some of the shortfall as the industry matures. As much as $10bn in dry powder remains on the sidelines after the global downturn discouraged fresh deals in the regional industry.
Investment opportunities are emerging as the region's economies rebound, albeit patchily due to pockets of instability in some countries.
"If you look at the Gulf, Saudi Arabia, the UAE and Qatar are still growing strongly, Turkey's economy is booming and Egypt is the largest Arab market and will emerge from its current instability," said Dr Karim el Solh, the chief executive of Gulf Capital.
The company has already held talks with pension funds, sovereign wealth funds and other institutional investors, both in the Gulf and globally, interested in investing in the fund.
As well as investing in private equity-backed acquisitions, the fund will also provide growth capital for companies where debt finance is an attractive alternative to equity. Investments in corporate loans and bonds will also be assessed.
"A lot of fast-growing companies are unable to secure funding because they don't have the required collateral in the form of buildings and other assets," said Dr el Solh. "But we are happy to lend against cash flows generated by the borrower."
As such, the financing will offer longer maturities and more deferred repayment dates than usually provided by traditional lenders, Gulf Capital says. The company aims to launch the fund by the end of the year after regulators' approval.
Known as Gulf Credit Partners, the fund will be co-led by Christopher Baines, an investment industry veteran with more than 25 years' experience across banking, lending, leveraged buy-out financing and investment management.
He will be joined shortly by another co-head with regional finance experience.