Middle Eastern PE to Reignite By End of 2009

DUBAI(Reuters) – Middle Eastern private equity firms sitting on $11 billion in cash are keen to put money in regional health and infrastructure projects, likely triggering a revival in the sector by the end of the year, industry leaders said.

Private equity activity, the investment in non-listed companies, has sunk to all-time lows as their main sources of funding have dried up.

Middle Eastern private equity firms that benefited from years of high oil prices and have unused capital at their disposal are now looking to take advantage of low valuations and meet an increasing demand in investments in the health care, transportation, infrastructure and education sectors.

“With a chronic lack of liquidity, one rich crop ripe for harvesting is private equity,” Paul Koster, chief executive of Dubai’s Financial Services Authority, told a conference on Middle East and North Africa private equity on Wednesday.

Private equity investments worldwide fell 75 percent to $12.8 billion in the first quarter of this year from a year ago, according to industry estimates.

Private equity funds in the region have $11 billion to invest after raising a record $6.4 billion in 2008, the Gulf Venture Capital Association said earlier this year.

“There will be some notable deals in the future,” Koster said.

Koster, who is the former commissioner of the Dutch market regulator, also said that for the first time regulators were allowing private equity companies to invest in banks.

“We’ve moved from scepticism (about private equity) to a whole new look at sources of capital,” he said.

Achmed al-Shahrabani of Abraaj Capital, the biggest private equity firm in the Gulf, said that the private equity industry would fund more regional government projects.

“Governments across the region have earmarked billions in investments in areas such as health care and education to meet demands of a fast growing population,” Shahrabani said.

In the broader region, including India and Turkey, governments need to build an additional 7000 schools and 39,000 hospitals by 2015 and 2017 respectively to accomodate a booming population, he said.

In a sign that regional private equity firms could play a more prominent role in 2009, port operator DP World Ltd said earlier this year it was in talks with an unnamed regional company to sell a minority stake.

The global crisis could offer “opportunities for those (private equity) industry players who have been prudent”, said Abdulla Al Awar, chief executive of Dubai International Financial Centre Authority.

He said there would likely be an increase in merger and acquisitions activity in the Gulf, led by the United Arab Emirates and Saudi Arabia.

By Nicolas Parasie