Middle east deal flow unabated

Manama

Middle East and North Africa (MENA) region witnessed a tremendous increase in Private Equity (PE) activity in the first half of 2015, compared to the same period last year, according to a research report by Dubai based Al Masah Capital. The report also added that the second half of 2015 is expected to be better in deal flows, especially with the potential recovery of oil prices. 

UBS Wealth Management had recently predicted stabilization of oil-prices around US$70 in the coming quarters. Another report from Saudi based Alkhabeer Capital shares the optimism, but adds that structural changes are required to add depth to the GCC market. The region witnessed PE deals worth US$2.6 billion in the first six months of 2015, a big jump from corresponding figures of US$128.7 million in H1, 2014 according to Al Masah Capital.  Commenting on the ongoing developments in the world of private equity, Al Masah Capital founder and CEO Shailesh Dash said in the report, “Our experience in market research suggests a pickup in PE activity during second half of 2015 with stabilization in oil prices, especially in consumption-led sectors such as healthcare, education, retail and F&B. The UAE, Saudi Arabia, Lebanon and Egypt are expected to be front-runners in PE activity during the second half of 2015.”

UBS predicts that Brent and West Texas intermediate will stand between $67-72 per barrel by the end of 2015.

 Mark Haefele, Global Chief Investment Officer of UBS Wealth Management, said in its report, “The outlook for oil prices during the second half of the year is quite positive, even when we consider the downturn that Brent prices have taken these past few weeks. As non-OPEC supply growths decelerates and demand for oil increases, oil prices are still on track to trade at around US$70 per barrel.”

The deal flow and optimism are in sharp contrast to the global commodity crash in recent months, reflected in the latest Bloomberg Commodity Index drop of 10.6 per cent in July, the lowest level since 2011 and the worst July since 2002.the Bloomberg report noted, “Commodities are falling out of favour with investors as demand in China, the biggest user of everything from metals to energy, is faltering.”

Alkhabeer capital while highlighting the attractive valuations offered by equities in this region, cautioned that there is an urgent need to foster development of the Sukuk market. Despite the rising interest for sukuk instruments, the absence of a vibrant debt market has hindered issuers from tapping funds from markets in the Middle East, it added. 

“Officials in the Middle East need to administer an array of steps in order to promote debt markets. There is a need to promote a ratings culture, initiate steps to encourage transparency and formulate regulations to promote institutional participation,” the Saudi based fund said in its report.