February 9, 2021

Saudi sovereign wealth fund anchors new $300m Shariah credit fund

More sovereign wealth funds set to invest in the region in response to uncertain economic situation, says NBK Capital Partners boss

NBK Capital Partners (NBKCP) announced on Tuesday the first closing of its targeted $300 million Shariah Credit Fund anchored by Saudi Arabia’s Public Investment Fund (PIF) and other institutional investors.

Given the economic situation, regional sovereign wealth funds, such as the PIF, are increasingly looking to re-invest in the region, in contrast to their historical trend of investing 90 percent of their wealth internationally, said Yaser Moustafa, senior managing director at NBKCP.

He said: “Pretty much all sovereign wealth funds we have been in conversations with are saying they have a mandate to invest in the region.”

“What I think we are increasingly seeing, and this is something that has been emerging over the last 12 months, is they are looking for the right type of partners to do that with. We hope we can be that kind of regional partner for global institutional capital,” he added.

The Shariah Credit Fund is the venture capital and private equity firm’s third private credit vehicle and Moustafa said they “have a much wider lens” in terms of the types of sectors they are considering.

“We’re lending anywhere from $15 to $50 million. Generally, the sectors in the GCC and North Africa are going to be consumer sectors so education, healthcare and the traditional sectors. But we will also be looking at logistics, industrial and temporary staffing businesses,” said Moustafa.

The fund is expected to make 10 to 12 investments of $15 million to $50 million throughout its eight-year life and to generate attractive cash yield and total returns, according to a statement issued by NBKCP.

“Businesses have to be profitable with an operating profit of not less than $5 million, but we will lend all the way up to businesses that have $100 million in operating profits. We’re focused on medium-sized companies within the SMEs market, which is a very wide one in the region,” he explained.

While coronavirus has had a negative impact on several sectors of the regional economy, Moustafa said they will be considering successful companies regardless of their sector.

“There are obviously some sectors that have been hit very hard with Covid, whether we look at retail or food or beverage, but there will 100 percent still be successful companies among them, you just have to be more selective,” said Moustafa.

“When you’ve been doing this for 15 years, you see upcycles and down cycles but we’ve been able to consistently pick those successful companies throughout. That is what we want to do now: we don’t want to get too caught up in industries, we want to the best management teams, the best businesses and the best growth prospects,” he added.

Although NBKCP has experience with Sharia investments, this will be its first fund fully under the Sharia-compliant umbrella.

“NBK Capital was among the first to do Sharia investments in this space because we were one of the first to do private lending in Saudi Arabia and there everything has to be Sharia-compliant,” said Moustafa.

“There is a saying in economics that demand creates its own supply. So there are some very large Sharia-only investors and we created this fund for those types of investors,” he added.

Islamic finance is a growing trend when it comes to the private lending sector, said Moustafa.

“We are seeing larger and larger pockets of money that are Sharia focused not just here in the Gulf but in certain pockets of Malaysia and Indonesia,” he said.

“These are the people who are talking to us and saying they have a very specific Sharia mandate but they also have pension obligations and payments on a yearly basis so they need healthy returns,” he added.

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