Gulf Capital has created the largest credit fund in the Middle East after securing fresh investment for what will ultimately be a US$300 million (Dh1.1 billion) vehicle to help finance fast-growing companies.
The Abu Dhabi-based alternative asset management company has been gathering financing for the fund against a tricky regional and global backdrop since announcing its launch in June 2011. It said yesterday IFC, the private sector lending arm of the World Bank, was contributing $20m to the fund, bringing the total raised so far to $215m. The fund will be capped at $300m.
"The credit business is a very important part of Gulf Capital's long-term growth plans and the IFC's anchor investment is a strong vote of confidence in the fund's investment strategy," said Karim El Solh, Gulf Capital's chief executive. "This third successful closing, particularly in a difficult fund-raising environment, emphasises the appeal of this fund to investors looking for high cash-yielding investments and strong potential upside."
Offering credit to fast-growing businesses and acquisition finance to investors, the fund signals the maturing of the regional private equity industry. While such funds are a familiar part of the financing landscape in the United States and Europe, the Gulf Capital Credit Opportunities Fund is the largest of its kind to launch in the region.
The fund will be aimed at freeing up cash for mid-sized companies across the Middle East and Africa. Gulf Capital hopes to raise the remainder of the $300m funding by the end of the year.
Many companies have been forced to seek out alternative sources as a drying up of bank lending and instability in several countries create credit challenges. Bank lending remains patchy. In the UAE, loans and advances rose 3.1 per cent in the year to last November, compared with 15 per cent in Saudi Arabia.
Hopes are growing, however, that private-equity investors may help to fill some of the shortfall as the industry develops.
"More than half of small and medium businesses in the Middle East and North Africa don't have access to credit," said Aftab Ahmed, the IFC director for financial markets and private equity funds, for Europe, Central Asia, the Middle East, and North Africa. "IFC's investment in Gulf Credit will facilitate the availability of much-needed mezzanine financing in the region to businesses. Investments such as these can help accelerate growth and strengthen good governance."
Gulf Capital and IFC have jointly invested in companies in the region since 2008. Previous investments included Metito, a global water utility company, and SES, a mobile power provider.
The fund has already invested in private equity-backed acquisitions and growth capital for companies and is also considering investments in corporate loans and bonds. Gulf Capital said the fund offered borrowers more flexibility than traditional bank lending, with longer maturities and more deferred repayment dates.
"This [IFC] investment will mean we can provide greater access to finance to entrepreneurs," said Walid Cherif, Gulf Capital's managing director.