British-based international bank Standard Chartered's private equity arm expects to complete two transactions in the Middle East in 2011 and does not rule out another $100 million investment during the year, a top executive said on Sunday.
Taimoor Labib, the bank's private equity head for the Middle East and North Africa, said the deals could be in sectors such as retail, manufacturing and healthcare as the emerging markets-focused lender tries to capitalise on its banking relations in the region.
"We would like to complete another two deals this year but they have to be the right deals. There is no reason why we can't do another $100 million type of deal," Labib said.
The British bank recently completed a $75 million mezzanine investment in Bahrain-based Jawad Group, its first private equity transaction and the largest of its kind in the region, according to Labib.
Mezzanine debt funding is among the lowest-ranking and riskiest forms of debt and therefore can offer higher returns and become an attractive alternative in buoyant markets.
Labib told Reuters in an interview that he saw ample opportunities in the region for mezzanine deals, which act as an effective balance between senior debt and equity.
"Historically, people have been investing in equity or senior debt. There are a lot of companies in this region that can't take any more senior debt and perhaps they don't want to offer equity for personal reasons," Labib said.
Better year ahead
The executive said he expected the pace of private equity investment activity in the region to slowly pick up after suffering in the last few years as sellers begin to lower their expectations and the overall investment climate improves.
Middle East private equity investment plunged by 80 per cent to $561 million in 2009, Gulf Venture Capital Association data showed, and deal activity was thin in 2010 too, with investors backing out from capital calls, sellers demanding higher prices than buyers were willing to pay and increasing competition from family groups hampering growth.
"I think the market is improving. Most of us in the business feel more optimistic now than perhaps last year," Labib said.
"There are quite a few firms who have been sitting on deals and are trying to finish them up and we expect more deals to be announced by other groups."
The private equity industry in the Middle East has both international heavyweights such as Kohlberg Kravis Roberts & Co. and Carlyle Group along with local players like Abraaj Capital and Citadel Capital.