E-Paper
Sign In
Private financings gain in popularity among GCC issuers
Over the past decade, GCC issuers mainly relied on banks, bonds, and sukuk to meet their funding needs
- PUBLISHED: Thu 20 Feb 2025, 10:22 PM
The total amount of private capital financings raised by GCC issuers between 2020 and 2024 increased significantly to $54.8 billion, from $10.4 billion between 2015 and 2019, and is set to rise further this year, a report shows.
S&P Global Ratings expects private capital financings in GCC countries will gain in importance over the next few years, particularly considering higher interest from private capital providers in the region. The number of transactions that were financed with private capital peaked at $20.4 billion in 2023 and decreased to $14.5 billion in 2024, compared with $1.3 billion in 2015, S&P data showed.
Recommended For You
“The steep decline over 2024 largely resulted from improving financing conditions in local banking sectors and bond and sukuk markets, and the decline in interest rates. Even so, the number of transactions in 2024 was still 2.7 times higher than in 2015, which is indicative of the strong fundamentals that underpin the increase in private capital financings,” Mohamed Damak, S&P’s managing director and the sector lead for financial institutions in the emerging EMEA region, and Dhruv Roy, S&P’s managing director - analytical manager, financial institutions & sovereign ratings, wrote in a note.
Over the past decade, GCC issuers mainly relied on banks, bonds, and sukuk to meet their funding needs.
S&P analysed the data related to financing raised by GCC issuers over the past decade, focusing on financing from banks, bond and sukuk issuances, equity capital market transactions — such as initial public offerings (IPOs) — and private capital financings via private credit investments, private equity investments, venture financing, sovereign wealth fund investments, and other fund investments or credits.
“Our analysis shows that GCC issuers, including GCC governments, raised $3.5 trillion over the past decade. Bond issuances, which accounted for 51 per cent of the total amount raised in 2024, constituted the preferred method of financing, followed by financing from banks, which contributed 26 per cent. Three other asset classes experienced a significant increase in GCC issuers’ funding mix: Sukuk issuances accounted for 19 per cent of the amount raised in 2024, equity capital market transactions — such as IPOs — for six per cent, and private capital financings for three per cent,” Damak and Roy wrote.
S&P research showed that private companies received most of the private capital financing and that investments concentrated on the largest deals. “Over the past decade, the top 10 transactions accounted for about 80 per cent of the total annual volume of private capital financings. What’s more, large corporates, including government-related entities (GREs), were among the recipients of private capital financing,” the analysts noted.
S&P expects large corporates and GREs will continue to optimise their funding mix and seize opportunities, while smaller companies will increasingly turn to private financings, particularly if they are at an early development stage.
Private financiers have expanded their reach over time to provide funding to more mature and established companies, not just those at early development stages. Established companies received 79 per cent of private financings in December 2024, up from 31 per cent in 2015.
“Even though these established companies could have easily raised the required funding from banks or on capital markets, they chose private financings, which could provide a faster or more streamlined execution, more flexible terms, or more competitive pricing. Nevertheless, we do not expect private capital to challenge the role banks play in the GCC region because the overall volume of private financings remains relatively small,” Damak and Roy wrote.
On the demand side, private capital financings can help early-stage firms and make them bankable over time, which fuels the financial ecosystem by creating more growth opportunities. Banks tend to be wary of providing loans to companies at early development stages, unless they benefit from external support or guarantees.
On the supply side, regional private capital providers for GCC corporates, including sovereign wealth funds, will continue to diversify their geographic exposure to avoid over-relying on a single economy or region. “GCC investors will remain on the radar of large companies that aim to raise money outside of the traditional banking system or capital markets, especially when interest rates are high,” the analysts wrote.
Associate Editor Somshankar Bandyopadhyay brings more than three decades of experience to the KT newsroom. Currently, he manages the news production of the business section, ensuring that the top economic and business news of the day reaches its readers.