DUBAI: Private equity firms in the Middle East are looking at development financial institutions (DFIs) as an alternative to elusive bank lending, executives said on Tuesday.
“The change in mix of funding providers – more (reliant) on development financial institutions as opposed to Western commercial banks – is going to be the theme for private equity in 2010, said Ahmed El Houssieny, managing director at Cairo-based Citadel Capital, at a conference in Dubai.
DFIs – such as micro financing companies and revolving loan funds – have been major conduits for funds for firms, industries and sectors, mainly in emerging economies.
Citadel, which manages about $8.3 billion in investments, said it expects to close a $2.2 billion financing related to an Egyptian refinery in the second quarter, $900 million of which will include funding from state-run Japan Bank for International Cooperation.
Banks in the Middle East and North Africa (MENA) region were forced to cut lending in the wake of the financial crisis and exposure to troubled conglomerate Dubai World and Saudi groups,
However, bank lending, particularly from foreign banks in the region was reviving, one executive said.
“We are certainly seeing in the last six to eight weeks foreign banks getting to be very aggressive in terms of syndications, term facilities, etc, said Omar Lodhi, executive director at Dubai-based Abraaj Capital.
DFIs are willing to provide more credit to private equity firms in the region, for investments in greenfield projects, distressed assets and turnaround investments in the frontier markets of the region, executives said.
“You do have a number of institutions who are playing a critical role, particularly in markets which are at this inflection point between raising capital for investments locally or raising it internationally, said Jennifer Choi, director of research at Emerging Markets Private Equity Association.
Private equity funds focused on the Middle East region raised $1 billion in 2009, compared with $3.4 billion in 2008, according to a statement from Private Equity International (PEI), a financial information group, which hosted the forum.
The industry in the region still faces challenges including attracting institutional interest, the regulatory environment and exiting investments, executives said.
“The MENA region is well down the interest spectrum for international investors. You have got Asia which is the golden child of international investors in the emerging markets, said Stephen Murphy, managing director for institutional fund raising at Citadel.