Private Equity Shows Robust Growth - KSA Kingdom of Saudi Arabia

Private Equity Shows Robust Growth - KSA


Private equity in the MENA region in general and the GCC in particular has continued its robust growth in 2006 and 2007 on the fund raising front, as well as fund sizes, according to Kuwait-based Global Investment House (Global).

This growth was made possible due to a lot of factors, mainly the increase in liquidity in the GCC region on the back of the recent surge in high oil prices. Other factors that contributed to the private equity rise relates to the governments' initiatives to foster this sector through privatizations, also the efforts exerted by fund managers and investment firms to encourage private equity as means of financing.

The GCC countries have also realized the importance of involving the private sector in this restructuring, so privatization has also played a pivotal part in the process. The diversification of their economic bases has most importantly led the GCC countries on a race toward the "financial capital of the GCC," thus easing regulations in terms of foreign interests in the regional financial sector. This has provided the right catalysts for the GCC economies to embark on restructuring their financial sectors, hence new regulations were imposed, financial systems were upgraded to allow for new financial instruments, and a myriad of financial companies have launched their products in the region. These recent trends in the GCC, had a positive spill-over effects on the Middle East and North Africa (MENA) regions. MENA countries have adopted "openness" to their economic and financial sectors, which gave cash rich private equity managers the incentive to seek investment opportunities within the region. To that end, private equity funds that invest in the MENA region have increased tremendously in numbers and sizes, whereby $13 billion in private equity capital are currently under management in the region and has been raised in 2005 and 2006.

As per a recent report produced by the Gulf Venture Capital Association in collaboration with KPMG, data extracted from Zawya, a leading source for financial data in the MENA, on private equity indicates that the total capital raised by private equity funds in 2006 reached $7.075 billion. This has increased by 61.6 percent from its level in 2005 of $4.379 billion.

Sizes of private equity funds in the MENA region have also exhibited an increase, where total fund sizes have reached the $14 billion mark, and as of June 2007 the fund size is at $9 billion. These are significant developments in the MENA private equity sector given that the total fund size was at $78 million in 2001, an increase of 121 folds. Two important reasons for this surge in fund sizes, the first relates to the increase in the number of private equity funds in the region, and the other relates to the increase in the sizes of the funds in the MENA region.

Throughout the period of 1994-2007, the majority of the private equity funds in the MENA region are in the "Investing" phase, where 55 funds with a total size value of $12.717 billion, 40.6 percent of total value, are classified as part of the group. Funds that are in the "fund raising" stage throughout the same period in the MENA region constituted 28.3 percent of total value of funds. Fully vested private equity funds in the MENA have a combined total of $629 million, two percent of total fund sizes, while funds that are in the liquidation process are only two, and they have a combined value of $58 million. Announced private equity funds in the MENA region through 1994-2006 are concentrated in the years 2006 and 2007, and they have a combined size of $3.842 billion, which constitutes 12.3 percent of the total fund sizes of private equity funds in the region. Closed funds, on the other hand, constitute a mere 1.8 percent of the total size of private equity funds in the MENA region with a combined value of $554 million.

selected from (MENAFN - Arab News) KUWAIT, 23 July 2007