Middle East survives credit crunch

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Abdel-Wadood: there has been a slight loss of risk appetite in some local banks.

The tightening in global credit markets last month has had some negative effects for Middle East borrowers, but has created opportunities for many of the region's private equity firms.

Stock markets in Europe, the US and the Far East were hit as many banks revealed the extent of their exposure to sub-prime loans.

Dubai Financial Market and the Abu Dhabi Securities Market were the only GCC stock exchanges to lose substantial value in the ensuing sell-off, as some international investors moved their money out of markets perceived to carry a higher risk.

Foreign institutional investors still do not constitute a large part of the investor base of Gulf stock exchanges.

Mustafa Abdel-Wadood, managing director, Abraaj Capital, said: "I think for those investing in the Middle East in private equity there is a bit of an impact in the sense that the banks' appetite to give leverage will be a little bit less, but not to the same extent that is happening in the West. Private equity in the Middle East is not over-reliant on financial engineering. It's always helpful, but with the growth we're seeing in the Middle East, the real gains aren't really coming from squeezing that last bit of debt into place."

Frederic Sicre, executive director, Abraaj Capital, added: "Availability of cash for good projects is still plentiful in MENASA (Middle East, North Africa and South Asia), especially from Gulf-based financial institutions. Whereas we continue to monitor the situation in global markets, our outlook for private equity in our region remains bullish." He said that regional governments and business were making good use of their liquidity.

Riad Meliti, CEO of Arqaam Capital, which buys distressed assets in Western markets as part of its investment strategy, said that the credit crunch could create opportunities for buyers.

"Turmoil in the market could potentially lead to more distressed assets," he said.

Some bond issues in the Middle East were cancelled or scaled back as a result of the crisis.

Sabic reduced its bond issue from US$2.7 billion to around US$1.5 billion, and Dana Gas postponed its issue.

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