Private credit is still nascent in the Middle East but, as economies in the region diversify, more local borrowers and investors are turning to the asset class
Companies in the Middle East have traditionally been well served by regional banks, but over the past two years, borrower interest in private credit has grown.
Various factors have raised private credit’s profile in the Middle East, including efforts to diversify the regional economy, and the willingness of family offices and sovereign wealth funds to broaden their investment allocations to a wider range of asset classes. In turn, international private credit firms have been increasing their presence in the region to meet this demand. According to PwC forecasts, private credit could expand at a compound annual growth rate of between 15%-30% in the Gulf Cooperation Council (GCC) member states and Egypt over the next five to six years.
Recent deals have underscored private credit’s increasing popularity in the Middle East. For example, Property Finder, an online real estate platform that operates throughout the GCC, Egypt and Turkey, secured a US$90 million debt package in 2024 from Francisco Partners, its first investment into the United Arab Emirates.
New financing needs
Deals like the one struck by Property Finder reflect how Middle Eastern economies are diversifying beyond their cornerstone oil & gas industries into other sectors such as real estate, technology and tourism. This has created opportunities for private credit players, for both regional firms with experience operating within the region and for international firms with experience financing companies in other jurisdictions.
Private credit accounts for a small share of the overall lending in the Middle East, where borrowers are mostly served by well-capitalized banks that already have a good understanding of client requirements. Unlike private credit’s experience in the US and Europe—where the asset class filled the gap left by banks that retreated from much of their lending activity after the 2008 financial crisis—it is unlikely to take over large parts of the Middle Eastern market.
While regional banks will remain dominant lenders, they will predominantly continue to focus on traditional capital-intensive industries such as energy, real estate and infrastructure. But start-ups and high-growth sectors like technology typically have different funding needs, which private credit is well placed to answer.
For example, private credit firms have stepped in with bespoke capital structures that can offer more flexibility than the banks in areas like loan amortization and leverage limits—advantages that traditional banks are less equipped to provide. But private credit players can also work in tandem with banks, providing second lien and junior debt in capital structures where banks provide the senior and super senior debt.
A global outlook
Economic diversification in the Middle East has gone hand-in-hand with efforts by family offices and institutional investors to expand their portfolios into new asset classes, including private credit.
Family offices in the region have been raising their allocations to private credit since 2021, while institutional investors ADIA and Mubadala have invested more than US$10 billion in global private credit funds and formed strategic partnerships with major players such as KKR.
Generally, Middle Eastern capital and debt markets have also evolved, aligning regulatory and legal frameworks with international standards. This has bolstered international investor and borrower confidence in the wider region. The modernization of restructuring regimes in key Gulf financial centers has been an especially important development. These reforms have equipped lenders with a more dynamic and modern toolbox to protect and recover value in cases of distress and restructuring.
Managing expectations
Despite the favorable tailwinds, stakeholders should manage their expectations for private credit in the Middle East. The asset class remains nascent in the region, and the strategies that propelled its growth in the US and Europe may not apply in the Middle East. For one, private credit in the region will largely serve a corporate client base rather than the private equity-centric deals that dominate Western markets.
Lenders in the Middle East also take a more conservative approach than their counterparts in Europe and the US, where intense competition has led to looser terms and documentation. Although private credit firms in the Gulf offer more flexibility than traditional banks, their loan terms will still include, for example, extensive maintenance covenants, limited scope for EBITDA adjustments, more extensive security packages and strong non-call protections.
Understanding these market-specific dynamics is key if private credit is to enjoy sustainable growth in the Middle East. The region presents a huge opportunity for private credit. However, realizing its potential will require patience from stakeholders who appreciate the nuances of the market and can make a long-term commitment to the Middle East.
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