00:00Picking up on those Saudi Arabia GDP figures, quite robust, I will say, in the context of global growth.
00:06And we speak a lot about Saudi diversification.
00:09Where does private credit come into that mix?
00:12Because also it's about diversification, not just of the sectors of the economy, but funding for these sectors as well.
00:19Absolutely. Thank you for your opportunity.
00:21Look, private credit, while today is getting a lot of spotlight,
00:23it's really a story that we've been investing in since 2009 in Saudi as well as the UAE and other geographies.
00:29But more than so than ever now, the need for private credit is quite urgent in that the middle class,
00:35the mid-market corporates and adjacent industries really need financing to help them grow to the next stage
00:40to achieve the numbers, the figures of GDP contribution from the SME segment for Vision 2030, Vision 2040.
00:47And that's where you're seeing a significant increase in the type of opportunities that we're seeing across our desk.
00:52And is it because some of the domestic banks, many of the domestic banks have been facing liquidity constraints?
00:57It actually is a double-edged sword.
01:00The banks in our region historically have never been actually structured to lend to mid-market corporates.
01:04They've historically lent to large corporations, government-backed entities.
01:08But the mid-market has been left kind of unsupported with the type of financing that they need.
01:14So to give you an idea, back in 2009 when we first launched our first fund,
01:18we used to see about $100 million worth of transactions each year.
01:21Fast forward to today, we're seeing about $2.7 to $2.8 billion each year, just us as Aroya partners.
01:26So a huge demand, underserved market from traditional banking systems.
01:31Yeah, and I guess it's growing because the economy is growing and diversifying.
01:35How has fundraising changed?
01:37You mentioned that this is your second fund.
01:39Has the environment for fundraising changed simply because there is a lot more interest in private credit these days?
01:44Excellent question.
01:44And really, it's been a beautiful story devolving both in UAE and Saudi.
01:48And the largest allocators, i.e. the sovereign wealth funds, pensions, and endowments,
01:52have also shifted their outlook of only investing to international managers,
01:56to actually looking inwards to regional managers and local managers like us and others,
02:00to actually help us fuel that growth, the next stage of growth for the mid-market space.
02:05So when Fund 1 was sub $200 million, and it took us almost three years to actually launch,
02:10Fund 2 just launched two months ago in terms of fundraising,
02:14and we're already halfway through.
02:16So the type of sophistication is also a really great sign.
02:21Do you worry about competition from some of the international firms?
02:23I remember back at FII, I was having these conversations with some of these big Wall Street titans
02:28eyeing a private credit opportunity as well, and also many of the PE firms in the region too.
02:34It's actually a great story.
02:35It's an evolving story.
02:36There's space for all of us to play in.
02:37And what I mean by that, the big blue chip names that are coming into our region,
02:42they're coming in making deals from New York and London.
02:45And when they're coming with quite large fund sizes,
02:47they're typically looking for deals that are much bigger than what we're actually seeing,
02:50i.e. they're looking for a minimum deal transaction of $100 million plus.
02:54What we're actually solving for are financing needs anywhere from $20 to $50 million.
02:59That space is still a local's play.
03:01The deal sourcing, unlike the West, is not sponsor-led activities.
03:05It's actually bilateral.
03:06So we have to know these family groups that know and need that type of financing and don't know the big names.
03:11What are the specific sectors that you're focused on in that mid-level market?
03:15We're actually sector agnostic.
03:16We've done things in the health and fitness.
03:18We've done it in energy.
03:19We've done it in diaper manufacturing.
03:22So really the economy, especially in Saudi and UAE, is quite diverse.
03:26It's no longer relying on pure energy play.
03:28So we actually avoid doing more than 10% to 15% in one sector
03:32to avoid this trap that people think that the Middle East is only about energy.
03:36Yeah, you know, for sure.
03:37You know, throughout the course of 2025, private credit was a really hot topic, obviously.
03:42And we spoke about the compression of spreads in that space
03:45because there was so much interest and that was bound to happen.
03:50And I wonder whether, how specifically the direct lending,
03:56the private credit space in the Kingdom of Saudi Arabia and the UAE
03:59compares on an IRR basis versus other jurisdictions around the world.
04:05Are you still getting a preferential IRR in this part of the world?
04:09Because it's a higher growth economy.
04:10It's a great question.
04:11Actually, you know, when people always, in conferences especially,
04:14they always wonder, well, is there a bubble in private credit?
04:17And they kind of compare or lump the entire private credit ecosystem,
04:20U.S., with the Middle East.
04:22It's two very different stories.
04:23I would say we're in 2.0 version of private credit in the Middle East.
04:26Whereas in the West, they've gone through various strategies of private credit.
04:31We are only dealing right now with a senior direct lending.
04:34So on a comparative basis, we generate twice the returns per turn of leverage
04:38as compared to our peers in the West.
04:40Moreover, we as fund managers and our peers in our region
04:43don't actually use leverage on a fund level.
04:46In the West, to accrete the similar type of returns of 17%, 18% IRR,
04:50the fund itself typically has leverage on the back end.
04:53We typically are not doing that.
04:54We're doing it just by the actual loans themselves.
04:57Okay, interesting.
04:58And then how does the landscape in Saudi Arabia differ from the UAE,
05:01just in terms of private credit?
05:03The interesting thing, actually, is quite interesting for both UAE and Saudi.
05:07UAE businesses are actually looking for financing to grow into Saudi,
05:10at least what we were seeing for the last three years.
05:12Saudi corporates are actually looking to grow more in Saudi.
05:16So most of the financing requirements that we see
05:18is actually to continue building and expanding.
05:20Perhaps it's a company in Yomba that wants to grow into Riyadh
05:23and other adjacent cities,
05:24but really it's a Saudi national story of across the spectrum
05:28and across sectors.
05:29That's why we stay sector agnostic.
05:31We don't want to be just pigeon-held to only energy
05:33when there's so much more to that economy.
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