GCC private credit market $5bn and growing
The value of the private credit market in the Gulf Cooperation Council (GCC) region is now worth approximately $5bn (£3.9bn) with further growth predicted.
According to a new analysis by Moody’s Ratings, the region’s ambitious economic development plans will open up new opportunities for alternative investments, and private credit in particular is set to benefit.
The ratings agency has predicted that a number of large-scale investment projects in Saudi Arabia and the UAE will require deeper capital markets, that in turn will offer substantial opportunities for investors through debt, equity, private capital and other alternative instruments.
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Rising demand from unbanked small- and medium-sized enterprises (SMEs) and higher investor appetite for the asset class will further drive this growth.
Moody’s highlighted Saudi Arabia’s Vision 2030 plan as an example of the growth opportunities available in the region.
“Vision 2030 has resulted in a shift toward key non-oil sectors, which are providing new investment opportunities,” said the Moody’s analysis.
“This diversification is not only transforming the Saudi economy but also fuelling capital market growth in the region because foreign participation is key for its success.
“Against this backdrop, debt capital markets have significant room for expansion.”
Moody’s added that stricter regulations in the US and Europe have gradually shifted bank lending away from riskier segments, leaving a gap for private credit to fill. However, the ratings agency noted that this has not been the case in the GCC, where banks dominate lending and do not have the same regulatory restrictions.
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“Although private credit has yet to take off in the GCC, as it has in the US and Europe, its growth potential is gathering steam,” the analysis added.
“Growth will come from a combination of supportive regulation and operating conditions; demand from largely unbanked SMEs amid economic diversification agendas; as well as higher investor appetite for the asset class.
“The current size of the GCC private credit market is estimated to be around $5bn, which reflects the capital already deployed by international, regional as well as local funds.”
Moody’s noted that the region’s sovereign wealth funds have increasingly shown more interest in the private credit asset class, in another sign of its growing popularity.
Abu Dhabi’s Mubadala has partnered with established US alternative asset managers such as Apollo Asset Management, Ares, Blackstone and Goldman Sachs, while Blackrock recently indicated plans to establish a presence in Saudi Arabia through a public investment fund-backed investment platform that includes private credit.
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