Turmoil in global credit markets may open more investment opportunities for state-controlled Gulf Arab firms by hampering private equity rivals in their ability to compete for assets, Reuters reports.
Concerns about defaults on U.S. subprime, or high risk, mortgages have raised the cost of corporate borrowing, threatening to end years of relatively cheap credit for private equity funds which finance most of their investments with debt.
That will force private equity to make more sober assessments of the risks of borrowing, three United Arab Emirates-based investors said.
“Some people see it as the end of private equity.’ We think it’s great news,” says Sameer al-Ansari, chief executive of Dubai International Capital. “It’s going to force buyers to be get a bit more realistic about how much debt they can raise and therefore valuations should get a bit more realistic.”
With U.S. oil prices hitting a record high on Wednesday, Gulf funds and firms are scouring the globe for assets for government investors who want to reduce their nations’ dependence on crude exports.
“Given the higher cost-to-capital ratio and shorter time horizon for investing of private equity funds … it’s a very good time for strategic buyers,” says Barker-Homek, whose company is 75 percent owned by the government of Abu Dhabi, the world’s sixth-largest oil exporter.